Business Hilights

Tracking Nigeria's Headline Business News Online

Osinbajo buhari

Sights and sounds of Nigerian economy last week ending Friday March 23

Ad 2
Ad 3

Though the ‘magical or controversial’ release of abducted girls in Dapchi College in Yobe State in North East by Boko Haram insurgency, dominated activities of the government, during the week, S&P Global Ratings affirmed its ‘B/B’ long- and short-term sovereign credit ratings on Nigeria with a stable outlook.

The agency also affirmed its long and short term Nigeria national scale ratings at ‘ngBBB/ngA-2’. S&P anchored its decision on (1) Nigeria’s moderate external indebtedness and relatively low general government debt stock, and (2) non-oil-sector improvements supporting higher economic growth and fiscal revenues over the next 12 months.

However, the rating reinforces the improving fundamentals of the economy and we are likely to see improved ratings from other agencies if the macro-economic environment continues to progress at or above the current rate. This is expected to have a positive impact on the planned external borrowing of USD2.8 billion to finance the 2018 federal budget.

Besides, the National Bureau of Statistics (NBS) released its Internally Generated Revenue at State level report for FY-2017. States’ IGR was NGN931.23 billion for the period (vs. NGN831.19 billion in 2016), indicating a 12.03% increase year-on-year.

In H2-2017, total revenue generated by the states was NGN432.65 billion (vs. NGN409.09 billion in H1-2017). Thirty-one states recorded growth in IGR while five (5) states recorded declines. Over 2018, we believe states’ IGR will benefit from the expected improvement in macroeconomic conditions.

Within the week under review, the Nigerian equities market extended losses, as the ASI dipped further by 1.11% w/w to 41,472.10 points, causing the Month-to-Date and Year-to-Date returns to moderate to -4.29% and 8.44% respectively. Similar to last week, the market recorded four days of losses (-1.44%), which offset the gain on Thursday (+0.33%).

All sectors indices – Insurance (-3.06%), Industrial Goods (-2.84%), Consumer Goods (-2.19%), and Oil & Gas (-2.06) – posted losses this week, save for the Banking index which gained 3.31%. Meanwhile, FTNCOCOA and UNITYKAP led the 46 stocks that recorded losses, while GLAXOSMITH led the 32 stocks that posted gains.

However, overall outlook for the equities market remains positive, supported by still-positive macroeconomic fundamentals. Also, we look for gains in the short term, as investors are likely to hunt bargains.

On Money Market presentation for last week, the overnight lending rate surged 1,025 bps w/w to 23.17%, against last week’s close of 12.92%. Outflows from (1) OMO (NGN358.98 billion) sales, (2) FX sales (USD210 million), (3) treasury bills auction (NGN53.97 billion), and (4) bond auction (NGN64.06 billion), outweighed inflows from (1) matured OMO bills (NGN151.15 billion), (2) matured treasury bills (NGN107.91 billion), and (3) bond coupon payments (NGN90.00 billion).

With maturing OMO bills valued at NGN189.45 billion, and the monthly FAAC disbursements to state and local governments are likely to support liquidity in the coming week, we expect a contraction in the overnight lending rate.

Looking at activities around Treasury Bills, activities in the treasury bills market were bearish, as average yield rose by 6 bps w/w to close the week at 14.89%. Investor sentiment was negative across the mid (+13 bps) and long (+9 bps) ends of the curve, amid selloffs of the 181D (+88bps) and 314D (+49 bps) bills respectively.

Conversely, yields contracted at the short (-7 bps) segment, driven by demand for the 20D (-67 bps) bill. Meanwhile, at this week’s primary market auction, NGN5.40 billion, NGN8.39 billion, and NGN40.18 billion of the 91-day, 182-day, and 364-day bills were allotted by the CBN. The bills were 1.48x oversubscribed, with a higher stop rate on the 91-day (11.95%; previously 11.75%) and lower stop rate on the 364-day (13.15%; previously 13.19%) bills. The stop rate on the 182-day bill closed at 13.00%, same as in the previous auction.

Above all, yields are expected to drop in the meantime, supported by expected buoyant system liquidity.

In the Bonds market, trading activities were somehow mixed, albeit with a bearish tilt, as average yield rose marginally (+1 bp w/w) to close at 13.53%. Investors sold off at the short (+7 bps) and mid (+2bps) ends of the curve, with the FEB 2020 (+23 bps) and JAN 2026 (+7 bps) bonds recording significant expansions. Yields at the long (-6 bps) end contracted, led by the APR-2037 (-14 bps) bond. At the bond auction on Wednesday, the DMO allotted NGN10.05 billion of the JUL-2021 note (re-opening), NGN8.91 billion of the MAR-2025 note (new issue) and NGN45.10 billion of the FEB-2028 (re-opening) note at respective marginal rates of 13.40% (vs. 13.70% previously), 13.53% and 13.60% (vs. 13.98% at previous auction).

Assessing developments on Nigeria’s Foreign Exchange space, the NGN/USD weakened by 0.16% and 0.28% in the I&E FX window and parallel market, exchanging at N360.00 and NGN362.00, respectively.

This is as total turnover in the I&E FX window dropped sharply by 27.5% to USD1.10 billion, with bulk of trades settled within the NGN360-NGN369 band. Meanwhile, the apex bank injected USD210 million into the FX market during the week, comprising USD100 million, USD55 million, and USD55 million disbursements to the wholesale, SMEs, and invisibles windows, respectively. Foreign reserves continued to increase, rising 1.71% w/w to USD45.36 billion.

However, analysts are upbeat that  outlook for the FX market remains stability, as oil revenues – supported by rising oil prices and production – continue to shore up the foreign reserves.

Another week of business activities begins today, Monday, March 26, 2018 and Business Hilights will continue to keep an eye for similar weekly review next week.

Business Hilights is an online news channel conceptualized and structured to report and track on a daily basis; latest developments in critical business sectors to serve as a one stop news gateway for governments, foreign and indigenous investors.