Business Hilights
Tracking Nigeria's Headline Business News Online

Activities, sights and sounds of Nigerian economy last week ending June 2, 2018

Starting on a good note, business conditions remained healthy, with manufacturers and service providers reporting continued improvement in their overall operations according to the Central Bank of Nigeria’s (CBN) Purchasing Managers’ Index (PMI) report for the month of May.

Otherwise, compared to the preceding period, the reported growth in activity level came in little-changed, as reflected by both the headline composite manufacturing and non-manufacturing PMIs printing at 56.5 and 57.3 respectively, soft touches below the 56.9 and 57.5 recorded the previous month.

Though industry experts argue that there are no sufficient reasons to expect contracting PMIs over the rest of 2018, as the impact of the positive drivers supporting the encouraging figures deepens further, the indication is that the productive sector may remain on the rising lane for long.

The National Pension Commission (PenCom), during the week, revealed that pensioners’ contribution has hit the NGN8 trillion mark. The Commission said that the contributions grew from NGN7.78 trillion in March to NGN8 trillion in April, representing a 2.9% m/m increase. Year-to-date, contributions have grown by 6.4%.

According to Cordros Capital experts, further increase in pension assets is expected to serve as a boost to the domestic equities market, following the upcoming implementation of the multi-fund structure, from 1st July, which encourages increased participation by PFAs in equities and other variable income instruments.

On activities at the Capital market, the week in review saw no respite for domestic equities, as the ASI dropped for the fourth consecutive week, by a significant 6.38% to 36,816.29 points, as investor sentiments remained negative.

Losses were posted in every session of the holiday-shortened week, with today’s decline (largely attributable to DANCEM’s 7.08% loss) being the largest since July 2017 and marking the 11th consecutive session of negative returns.

Ytd return turned negative mid-week, currently at -3.73%, with a w/w loss of 3.73%. Meanwhile, there was a significant spike in volume and value of trades for the week by 96.91% and 429.16% to 2.70 billion units and NGN84.78 billion, respectively. That was on the back of an off-market trade, wherein 1.14 million units of STANBIC crossed at NGN53.75 in eight deals to Stanbic Africa Holdings Limited — a wholly owned subsidiary of Standard Bank Group Limited and parent company of Stanbic IBTC Holdings Plc.

While acknowledging potential bargain hunting in the short term, in what follows relatively lower stock prices, it is important that investors are rightly guided to trade cautiously and focus primarily on fundamentally sound stocks.

Experts say the overnight lending rate declined 1,525 bps w/w to 4.42%, against last week’s close of 19.67%, as inflows from OMO (NGN429.91 billion), treasury bills (NGN99.21 billion), and bond (NGN305.63 billion) maturities, as well as the monthly FAAC disbursement (NGN319.29 billion), supported liquidity throughout the week. Outflows include FX sales (USD210 million), OMO auctions (NGN736.13 billion), and an NTB primary auction (NGN49.61 billion).

There are strong indications that this week will experience strong inflows from maturing OMO bills (NGN215.98 billion) which are expected to boost support to system liquidity. However, liquidity mop-up and forex intervention by the CBN will likely exert upward pressure on the overnight lending rate.

Last week, Business Hilights Intelligence Unit (BHIU) saw that proceedings in the NTB market were predominantly bullish, on the back of buoyant liquidity during the week.

As a result, average yield moderated by 23 bps w/w to 12.79%. Investor sentiment was positive across the short (-39 bps), mid (-28 bps), and long (-1 bp) ends of the curve, amid high demand for the 13D (-125 bps), 111D (-93 bps) and 195D (-51 bps) bills respectively. Meanwhile, at this week’s primary market auction, NGN4.96 billion, NGN24.80 billion, and NGN19.84 billion of the 91-day, 182-day, and 364-day bills were allotted.

The auction was 2.08x oversubscribed, with yield remaining unchanged on the 91-day (10.00%), closing lower on the 182-day (10.30%; previously 10.50%), and higher on the 364-day (11.00%; previously 10.70%) bills.

However, yields are expected to be pressured, due to anticipated squeeze in liquidity position, this week.

Within the week under review, sentiments in the bond market turned bullish, with demand driven by healthy liquidity. Consequently, average yield fell by 19 bps to 13.15%. Yields moderated at the short (-39 bps), mid (-14 bps), and long (-3 bps) ends of the curve, following demand for the JUN-2019 (-69 bps), JAN-2026 (-19 bps), and MAR-2036 (-12 bps) bonds.

There are however, chances of yields inching up slightly in the short term.

In the Foreign Exchange (Forex), the naira strengthened against the USD in the parallel market by 0.82% to NGN363, away from last week’s record-low of NGN366. The USD/NGN also appreciated by 0.20% to NGN360.85 in the I&E FX window. Total turnover in the IEW increased by 76.61% to USD1.38 billion, with bulk of trades (86.18%) still consummated within the NGN360-NGN369/USD band.

Meanwhile, the apex bank intervened in the forex market, injecting USD210 million during the week. In the FX forwards market, the NGN/USD appreciated in the 1-month (+0.19%) and 3-month (+0.09%) contracts, while it weakened in the 6-month (-0.44%) and 1-year (-0.97%) contracts, closing at respective rates of NGN364.26, NGN368.05, NGN386.48, and NGN408.85. Notably, the foreign reserves dropped, for the third consecutive week, by 0.15% to USD47.62 billion, although it remained well-above 2017 year-end’s USD38.73 billion by 22.96%.

Industry observers’ theme on the FX market remains stability, as stable oil prices and production will continue to support increased oil revenues and aid the apex bank’s conventional interventions in the FX market as businesses begin today.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More