Sights and sounds of Nigerian economy last week ending April 7, 2018
Whereas the hopeful week began with the Central Bank of Nigeria’s (CBN) release of its Purchasing Managers’ Index (PMI) report for the month of March, showing sustained improvement in manufacturing and non-manufacturing activities during the month, it came to an end with deeper controversies on the release of $1bn by the presidency to fight Boko Haram.
Besides, the position of the Monetary Policy Committee (MPC) meeting to retain all rates and other indices unchanged to some extent shocked many market opinion leaders last week even as the CBN linked its stance on three key factors.
These include the shock effects of the over N2.7tn debt owed contractors by the government which had been the cause of protruding non performing loans (NPLs) portfolio of banks; anticipated heavy spending in an election year which the economy is already within; and security issues in parts of the country and their impacts on investment decisions of both local and prospective investors.
On PMI, both manufacturing and non-manufacturing PMIs expanded to 56.7 and 57.2 respectively, indicating faster pace of growth compared to the preceding month. The latest data suggest positive output growth in Q1-18, hence the likelihood of improved corporate performance in the three months to March.
Earlier in the week under review, the CBN’s Monetary Policy Committee (MPC) held its first meeting and contrary to experts permutation, the MPC again held the line across all its policy variables, retaining the MPR at 14.0%, CRR at 22.5%, liquidity ratio at 30.0%, and the asymmetric corridor around the MPR at +200 and -500 basis points.
Beyond the decision to maintain status quo, the tone of the Committee further supports easing on the horizon. We look for a stronger case for a rate cut in July, when headline inflation rate would have dropped at least 200 bps below the MPR.
The equities market reverted to a loss this week, as the ASI shed 1.60% to 40,841.14 points, with all major sector indices closing in the red – Oil & Gas (-2.77%), Industrial Goods (-2.09%), Banking (-1.33%), Consumer Goods (-1.08%), and Insurance (-0.07%).
Despite the negative performance, total volume (+84.13% to 501 million units) and value (+57.35% to NGN5.85 billion) of trades on the Exchange expanded, amidst notable crosses in value stocks such as; NB (12 million units at average NGN129.50), NESTLE (1.25 million units at average NGN1,380), ZENITHBANK (62.1 million units at average NGN28.07), and GUARANTY (55.4 million units at average NGN44.13).
For insight, GUARANTY and ZENITHBANK, with 2017FY dividends of NGN2.40 and NGN2.45 and respective current yields of 5.44% and 8.97%, will close their registers this week.
on Money Market, the overnight lending rate eased further to 4.00%, representing a 408bps w/w contraction, against last week’s close of 8.08%.
The system was awash with liquidity, as inflows from (1) matured OMO bills (NGN338.5 billion), (2) matured treasury bills (NGN190.40 billion), and (3) the monthly FAAC allocation (NGN304.65 billion) offset outflows from OMO (NGN748.69 billion) and primary market (NGN95.20 billion) sales.
The overnight money market rate is likely to expand this week or next, as outflows are likely to outweigh the inflow of maturing OMO bills worth NGN476.21 billion.
On Treasury Bills, Business Hilights can authoritatively say that activities in the NTB market were bullish, in response to surplus liquidity.
Besides, the expectations of an interest rate cut by a few market players also stoked bullish sentiments. As a result, average yield shed 41 bps to close at 14.34%. Yields at the short (-43 bps), mid (-47 bps), and long (-33 bps) ends of the curve all recorded contractions, benefiting from investors’ interest in the 90DTM (-98 bps), 104D (-92 bps) and 195D (-82 bps) bills, respectively. Meanwhile, at this week’s primary market auction, NGN9.52 billion, NGN17.60 billion, and NGN68.08 billion of the 91-day, 182-day, and 364-day bills were allotted. The bills were 2.15x oversubscribed, with yields closing lower across the 91-day (11.75%; previously 11.95%), 182-day (12.70%; previously 13.00%), and 364-day (13.04%; previously 13.15%) bills.
Yields are expected to be pressured due to anticipated squeeze in liquidity position this week.
Trading in the bond market was bullish, amid the higher liquidity levels, as average yield contracted in all but one session of the week. Week-on-week, average yield dropped 7 bps, to 13.62%. Demand was strong at the short (-17 bps) and mid (-3 bps) ends of the curve, with the FEB-2020 (-2 8bps) and MAR-2027 (-10 bps) bonds recording significant contractions. Yields at the long segment were flat.
Analysts expect possible reduction in activity this week due to anticipated squeeze in liquidity position, saying there may be lower yields in the short to medium term, reflecting (1) falling inflation rate, (2) strengthening expectation of monetary easing, and (3) the FGN’s new debt management strategy.
On forex, the naira remained stable last week, despite the absence of the CBN’s conventional intervention. The USD/NGN traded flat at NGN362 throughout the week in the parallel market, while it strengthened marginally by 0.01% to NGN360.01 in the I&E FX window.
Oil revenues continued to shore up the foreign reserves (+0.75% to USD46.55 billion), amidst continued stability in oil prices (currently USD68.14/barrel) and production.
There are high hopes that the naira will continue trading within current bands, as the healthy accretion to the reserves further supports the apex bank’s interventions in the forex market.
