Weekly Economic and Financial Commentary - Week Ended, Sept 20, 2019


Saturday, September 21, 2019   /  06.42AM  / By ARM Research  / Header Image Credit:  ARM


Global Economy

For the second time this year, US Fed cut its target range for interest rate by 25bps to 1.75 - 2.0% amidst concerns on slowing global growth borne out of trade disputes. However, relative to its previous meeting, interest rate projections are less dovish as members expect rates to remain unchanged till 2020. Over in Asia, softening crude oil prices further heightened deflation-ary concerns in Japan, with the headline CPI for the month of August dropping to a 2-year low of 0.3% YoY - deviating further from the BOJ's 2% target. The crawling inflation increases pressure on the BOJ to roll up policy measures to support increased spending its policy meeting next month.


Meanwhile, earlier in the week, brent oil prices spiked 14.6% on Monday (the sharpest jump in a decade) after drone attacks on two Saudi Arabia oil facilities shut-down half of its oil production - an equivalent of 5% of global daily production. However, prices eased later in the week after the Saudi oil minister confirmed oil output will be back to pre-attack levels by the end of September.



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Domestic Economy

Headline inflation for the month of August showed some moderation, printing at 11.02% YoY (July: 11.08% YoY). Specifically, food inflation sank by 22bps to 13.17% YoY due to declines in farm produce (-1bps to 13.72% YoY), imported food (-57bps to 15.82% YoY) and processed food (-251bps to 7.4% YoY). Meanwhile, we witnessed 6bps uptick in core inflation to 9.44% YoY following increases in HWEGF (+18bps to 7.26% YoY), Transport (+14bps to 8.85% YoY), Health (+8bps to 9.13% YoY) and furnishing (+5bps to 9.17% YoY).


Elsewhere, the MPC completed its 5th meeting for the year today, leaving all key parameters unchanged. The committee's deliberation centered on the need to balance between weak economic growth and potential surge in liquidity with a fallout effect on FX stability. Also, the apex bank during the weak implemented new deposit charges on cash transactions across Lagos, Ogun, Kano, Abia, Anambra, Rivers state and FCT, in a bid to further support its cashless policy.



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Relative to the prior week, the Nigerian bourse closed negative, with the NSE ASI declining 0.29% WoW to close at 27,698.69 index points and market capitalization losing N39.1billion. The bearish sentiments were driven by losses in Telecoms (-4.89%), Cement (-0.22%) and Real Estate(-0.23%) sectors, capping gains in Banking (+4.39%), Brewery (+2.09%), Personal Care (+2.40%), Food (+2.39%), Oil & Gas (+0.88%) and Food (+2.39%) sectors.


Dissecting the sectoral performance revealed losses across stocks such as AIRTELAF (-19.00%), DANGCEM ( -0.26%), UNILEVER (-1.02%), CCNN (-1.78%), FO (-3.32%) and AIICO (-4.41%).



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Fixed Income

Average fixed income yields closed the week 7bps higher WoW to 13.92% as bearish sentiments at the short segment outweighed bullish sentiments at the long segment. Average NTB yields rose 23bps WoW to 13.62% with the selloff stemming from the mid-tenor (+15bps) and long-tenor bills (+19bps).


Meanwhile, average bond yields dropped 10bps WoW to 14.21%, led by interests in the Jan-2022 bond which shed 38bps WoW. At this week's NTB auction, FG rolled over N179.75billion worth of bills with average stop rates printing 1bp lower to 12.05% and subscription levels at 2.09x (previous: 2.05x).


At the OMO auction, the CBN sold N351.08 billion worth of bills (subscription: 1.6x), as against N300 billion offered. It is worth stating that bulk of the sales occurred in the 1-year tenor (N350 billion), while the average stop rate was unchanged at 12.29%.



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Take-Away for The Week


Fig 1: State CPI


The week, we feature the headline inflation for each of the states in August, which shows Kogi (15%) recorded the highest inflation, while Kwara (8.3%) posted the lowest.

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Source: NBS, ARM Research



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Research 234 (1) 2701653  research@armsecurities.com.ng



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