Weekly review and expectations from the markets this week.

Expectations from the Markets This Week – 111021
Global Economy
• According to data from the US Labor Department released on Friday, non-farm payrolls increased by 194,000 in September, an outcome that falls short of the Dow Jones estimate of 500,000. The report however shows that the unemployment rate dropped to 4.8%, better than the expected 5.1% and the lowest since February 2020. Leisure and hospitality along with professional and business services and retail accounted for the job creation.
• Earlier in the week, data from the US Labor Department revealed that new unemployment claims fell for the first time in four weeks by 38,000 in the week ended October 2 to settle at 326,000, down from a revised 364,000 the prior week. That puts jobless claims close to their pandemic low of 312,000 in the week ended September 4.
• Reserve Bank of India (RBI) governor Shaktikanta Das on Friday announced the October bi-monthly monetary policy of the central bank, keeping the repo rate unchanged at 4% for the eighth straight meeting. The six-member monetary policy committee of the bank voted 5-1 to maintain an accommodative stance to push and sustain nascent growth recovery in Asia’s third-largest economy. Moderating inflation helps the Reserve Bank to keep interest rates low to spur economic activity, which has been hit by the pandemic.
Nigeria Economy
• President Muhammadu Buhari presented the 2022 proposed budget to a joint session of the National Assembly on Thursday. The 16.39tr budget is based on a projected crude oil price of $57/barrel, crude oil production of 1.88mbpd (including condensate of 300,000-400,000bpd), an exchange rate of N410.15/$, a projected GDP growth rate of 4.2%, and a 13% Inflation rate. The 2021 appropriation bill presented by the President projects revenue available at 10.13tr, which implies that the Federal government’s fiscal operations in the year 2022 are expected to result in a N6.62tr deficit.
• Following Wednesday’s FEC meeting, the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed disclosed the government’s plan to secure both local and foreign loans in order to finance the N6.258 trillion deficit in the proposed 2022 budget, The Minister maintained that government would continue to borrow to fund infrastructure projects as it does not generate enough resources from its revenues.
• In its Africa’s Pulse report titled ‘Climate change adaption and economic transformation in Sub-Saharan Africa,’ the World Bank on Wednesday stated that Nigeria’s economy is projected to grow by 2.4% in 2021. According to the Multilateral organization, the projected growth in the Nigerian economy is to be driven by growth in the service sector. Meanwhile, the World Bank report projects that Sub-saharan Africa is expected to see a 3.3% growth in 2021 even though Africa’s recovery would be multi-speed.
• During its ‘The state of the economy’ address on Tuesday, the Lagos Chamber of Commerce and Industry stated that the CBN’s strategies to save the Naira are failing. Speaking at the event, the President of LCCI, Mrs. Toki Mabogunje noted that tightening measures adopted by the CBN have failed to stabilize the exchange rate in Nigeria; they only redirect FX transactions to the rent-seekers which has unintended consequences including a wide premium between the official and parallel market exchange rate.
• Minister of Education, Malam Adamu Adamu, said this in his keynote address delivered at the 2021 World Teachers Day celebration in Abuja, on Tuesday, that the Federal Government is set to reintroduce bursary in universities and colleges of education across the country, with N150,000 and N100,000 earmarked for undergraduate (undertaking education-related courses) and NCE students, respectively, per session. Adamu stated that beneficiaries must be attendees at a public institution and must sign a bond to serve their state for five years upon graduation.
• According to data from the Central Bank of Nigeria (CBN) Nigeria’s foreign reserve recorded a $2.76 billion increase in September 2021, to settle at $36.78 billion as of the end of September. This increase represents the highest recorded since May 2020, when the reserve gained $3.07 billion in a single month.

Summary and Outlook
The highlight of the week was the presentation of the 2022 budget: ‘budget of economic growth and sustainability. The proposed N16.39tr budget is in nominal terms 17.9% larger than the 2021 budget and 0.8% more when adjusted for inflation. However, analysts have once more expressed concerns about the size of the budget which in per capita terms provides just $185 for each Nigerian. Similarly, economists have noted that Defence spending has continued to constrain expenditure towards more growth stimulating and job-creating sectors. With a 6.62tr budget deficit, the 2022 budget is meant to be financed partly by N3.61tr new borrowing which would further raise the country’s debt service cost- another headache for analysts. The government has therefore been advised to consider non-interest-bearing debts which are convertible to equity.

Commodities Market
Weekly Review and Outlook
Energy
Domestic
• According to a Punch survey, the price of the deregulated Automotive Gas Oil (diesel) has increased from N303 to N320 per litre at different filling stations in Lagos.
• The Minister of Women Affairs, Pauline Tallen, on Wednesday, noted that the FGN has concluded plans to commence the procurement and distribution of 774,000 cooking gas cylinders with burners to women in rural areas to empower and ensure healthy living of women and girls by reducing their exposure to pollution.
• The World Bank on Wednesday noted that the wealth of Nigeria and other countries with abundant nonrenewable energy and oil discoveries are at risk due to a shift away from oil, gas, and coal on the global scene.
• The Minister of State for Petroleum, Timipre Sylva, on Thursday, said the implementation of the Petroleum Industry Act will boost the country’s oil production capacity by about 317% to 4 million b/d from the current level of 1.2 million b/d, boost oil reserves from 37bn barrels to 40bn barrels, and draw on the country’s estimated 600TCF of natural gas reserves to provide clean and efficient energy. According to the minister, Nigeria “rejects” a single pathway to energy transition but accepts a “just” energy transition which takes into cognisance the specific circumstances of each nation in developing the energy transition pathway.
• The chairman of Seplat Energy Plc, Dr. ABC Orjiako, on Thursday, stated that Seplat Energy has set 2024 as the target to end gas flaring across all its operations and the company will deliver 0ver 500kg of gas in LGP.
• The Standards Organisation of Nigeria (SON) has stated that LPG cylinders are being smuggled into Nigeria, contrary to the requirements set by the agency and the agency considers it life-threatening.
• OPEC’s 2021 Annual Statistical Bulletin released on Wednesday showed a drop of 543 million barrels in Nigeria’s crude oil reserves from 37,453 million barrels in 2016 to 36,910 million barrels in 2020.
• According to the GlobalData report, Nigeria and other nations involved in gas flaring lose up to $82bn annually due to the global gas flaring.
Foreign
• Oil fell on Monday ahead of an OPEC+ supply policy meeting that may decide whether a recent rally in prices can be sustained as the world fitfully recovers from the Covid-19 pandemic.
• OPEC+ on Monday decided to maintain an agreement to increase oil production only gradually, ignoring calls from the United States and India to boost output as the world economy recovers, though patchily, from the coronavirus pandemic.
• The Senegalese Oil and Gas sector announced that owing to the adverse impact of the global pandemic on the production schedules, its first large-scale oil and gas production is now set for 2023.
• China’s banking regulator on Tuesday asked lenders including policy banks to ensure that the financing needs of the coal and power sectors are met so that consumer heating during winter is not affected. On Wednesday, China began importing Australian coal despite the political row between the two countries in recent times.
• Germany’s energy regulator on Tuesday asked the Swiss-based Nord Stream 2 AG to provide assurances that the controversial pipeline-Nord Stream 2 will meet regulatory requirements when it enters service. The German regulator noted that the start of operation for the pipeline in the near term cannot be ruled out. Meanwhile, the Nord Stream 2 AG has started feeding gas into the pipeline to test run the project as part of the pre-commissioning preparations.
• According to a report by an industry group representing independent fuel vendors, gasoline and diesel shortages have started easing in London and southeast England and the situation in the rest of Britain has also improved.
• India is currently running out of coal, threatening a power crisis in the country that relies on the dirtiest fuel for most of its electricity generation.
• Chinese officials on Thursday ordered over 70 mines in Inner Mongolia to operate at higher capacities to produce additional nearly 100 million tonnes as the country battles its worst power crunch and coal shortages in years.
• Moody’s Investors on Thursday increased their oil price forecast for the medium term to $50-$70 a barrel range, returning to its outlook before the pandemic, on the back of expected restraint in production growth and continuous rebound in demand.
• Oil prices rose on Friday, up more than 4% on the week as a global energy crunch has boosted prices to their highest since 2014 and prompted China to demand increased coal production.
• Brent had a weekly growth of 4.86% (see Table 1).
Metals
Gold declined by -0.07% while Silver also grew by 2.92% W-o-W (see Table 1).

Agriculture
• Cocoa prices appreciated by 3.73% this week.
• Corn prices dipped by -2.01% W-o-W while Sugar appreciated by 1.10% (see Table 1).
Table 1: Weekly Change in Commodity Prices
Commodity 08-Oct-21 30-Sep-21 31-Dec-20 Weekly Chg YTD Chg
Brent 82.36 78.54 51.8 4.86% 59.00%
Gold 1759.6 1760.9 1898.67 -0.07% -7.32%
Silver 22.75 22.105 26.4011 2.92% -13.83%
Cocoa 2754 2655 2597 3.73% 6.05%
Corn 535 546 484 -2.01% 10.54%
Sugar 20.28 20.06 15.28 1.10% 32.72%
Source: CNBC
*Data for 8th October 2021 is as of 5:48pm (Nigerian Time)

Outlook
• In the coming week, oil prices are expected to be bullish buoyed by global energy crunch.
• Gold prices are expected to rise marginally in the coming week, after U.S. jobs data came in well below expectations, casting doubts about an immediate start to tapering by the Federal Reserve.
• Cocoa prices to rise in the coming week amid smaller production from Ghana coupled with prospect for demand.
• Sugar prices are expected to appreciate next week as demand picks up.
• Corn prices are expected to be bullish next week drawing support from export optimism as more U.S. Gulf terminals reopen following damage from Hurricane Ida last month.

Fixed Income and Money Market

Currency Market
For most of the trading session this week the Naira depreciated at the I & E FX window, which continued at the end of the week. On a week-on-week (W-on-W) basis, the Naira fell by +0.22% to N414.30/US$ at the close of trading on Friday.

The Naira closed the week at $/N414.30 at the I&E FX window, at the NAFEX (spot market) it closed at $/N412.71 as of 7th September 2021.

Average Benchmark Yields
30-Sept-2021 08-Oct-2021 % Change
I & E FX Window 413.38 414.30 +0.22%
NAFEX ($/N) 413.53 412.71 -0.20%
Source: FMDQ
Money Market
Trading was mixed for most of the session this week, we had single-digit rates and double-digit rates supported by inflow and outflow of liquidity in the markets
However, at the close of the session on Friday, money market rates closed in double digits, at 14.00% and 14.5% for open buy-back (OBB) and overnight rates (O/N) respectively. On a W-o-W basis, OBB fell by -6.67% while O/N also dropped by -7.94%.

Money Market Rate
30-Sept-2021 08-Oct-2021 % Change
OBB (%) 15.00 14.00 -6.67%
O/N (%) 15.75 14.50 -7.94%
Source: FMDQ
Funding rates are expected to trade in double digits trend in the coming week in the absence of any inflow.

Treasury Bills Market
The bills market started the week on a quiet note, however, for a major part of trading, we saw mixed sentiment across the market.

At the close of the market on Friday, average benchmark yields for T-bills closed at 5.27%, OMO bills at 6.47%, and CBN’s special bills closed at 6.04%. Posting a W-o-W fall of -0.36% for the T-bills, while OMO bills and CBN’s special bills rose W-o-W by +2.41%, and +0.08% respectively.

Average Benchmark Yields
30-Sept-2021 08-Oct-2021 % Change
T. Bills (%) 5.29 5.27 -0.36%
OMO Bills (%) 6.32 6.47 +6.32%
SPEB 6.03 6.04 +6.03%
Source: FMDQ
We expect activity next week to be dictated by the market liquidity situation.

FGN Bond Market
The FGN bond market started the week on a bullish note, however, the bullish sentiment was not sustained throughout the week.

The overall average benchmark yields closed at 8.13% at the close of trading at the end of the week.

Average Benchmark Yields
30-Sept-2021 08-Oct-2021 % Change
Short Tenor (%) 5.58 5.20 -6.82%
Mid Tenor (%) 8.48 8.78 +3.53%
Long Tenor (%) 12.02 12.17 +1.28%
Source: FMDQ

FGN Eurobond Market
The Eurobond market has had a bearish bias for most of the trading session this week, influenced majorly by the higher US Treasury yields as investors moved to that market to take advantage of the higher yields.

At the close of the trading on Friday, average benchmark yields fell by -0.09% from the previous session to 6.40%

Nigerian Capital Market
• Activity on the local bourse this week was positive as the benchmark index closed positive with +0.10% with some bargain hunting activities and sell off in the insurance sector. The Nigerian Stock Exchange gained N340.287bn, year-to-date return moderated to +1.48%, while the market capitalization settled at N21.30 trillion.
• The volume of shares traded declined by -0.34% while value of stocks traded on the exchange this week advanced by +35.71% respectively.
• Sectoral performance across sectors tracked was positive this week as the NGX Banking was the highest gainer for the week with +4.53%. NGX Insurance recorded the highest weekly loss with -1.51%. NGX Oil and Gas NGX, NGX-IND, and NGX Consumer Goods closed positive with +0.24%, +0.11% and -0.51% respectively.
• Market breadth for the week closed positive with 42 gainers led by UPL and FBNH as against 26 losers led by CORNERST and MORISON
Chart 1: Movement of NSEASI Index Points 30 Sep. 2021-08 Oct. 2021

Source: NSE

NASD OTC
The NASD OTC Security Index (NSI) and Market Capitalization closed the trading week with a positive movement in Market capitalization and NSI. The NSI and Market capitalization positive the week at 734.48 points and N638.39 with a growth of +0.19% and +0.19% respectively.

Dangote and Elumelu Index
Dangote Index closed the week flat W-o-W with no movement in the stock prices.
Table 1: Dangote Index W-o-W Change
Company 30-Sept-21 08-Oct-21 WoW Chg
DANGCEM 280.00 280.00 0.00%
DANGSUGAR 17.40 17.40 0.00%
NASCON 15.20 15.20 0.00%
Source: NGX,
Furthermore, the Toni Index closed positive with 107.32 basis points from 103.33 basis points recorded the previous week, a W-o-W growth of +3.86%.
UBA, UBCAP, TRANSCORP and AFRIPRUD closed the week positive with +5.30%, +1.12%, +3.19% and +0.81% respectively while TRANSCOHOT closed the week flat W-o-W.
Table 2: Elumelu Index W-o-W Change
Company 30-Sept-21 08-Oct-21 WoW Change
AFRIPRUD 6.15 6.20 0.81%
TRANSCOHOT 5.43 5.43 0.00%
TRANSCORP 0.94 0.97 3.19%
UBA 7.55 7.95 5.30%
UBCAP 8.95 9.05% 1,12%
Source: NGX

Outlook
We expect a mixed performance on the bourse in the coming week due to profit taking activities as well as bargain hunting by savvy investors. However, corporate actions from listed companies and other macroeconomic developments are likely to impact investors’ decisions.
In addition, we expect investors to monitor the movement of yields in the fixed income market.

About the Author

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First Ideas Limited is an investment and financial advisory company established in 1994 to provide advisory services to high net worth individuals, trust funds, financial institutions and medium sized companies in growth sectors.

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