- Inflation accelerated at its fastest pace since 1982 in November, the Labor Department said Friday, putting pressure on the economic recovery and raising the stakes for the Federal Reserve. The consumer price index, which measures the cost of a wide-ranging basket of goods and services, rose 0.8% for the month, good for a 6.8% pace on a year over year basis and the fastest rate since June 1982. Excluding food and energy prices, so-called core CPI was up 0.5% for the month and 4.9% from a year ago, which itself was the sharpest pickup since mid-1991. The Dow Jones estimate was 6.7%.
- According to the Bureau of Labor Statistics (BLS), US Job growth in the United States slowed in November adding just 210,000 new jobs added during the month, while falling well below economist’s expectations of 550,000. The unemployment rate unexpectedly reduced by 0.4 percentage points to 4.2%. Economists chose to read positive signals out of the falling unemployment rate believing that the underwhelming new jobs reported may have understated the improvements in the labour market. Given the optimism, it is likely that the Federal Reserve won’t be deterred from raising interest rates next year.
- The U.S. Commerce Department reported on Tuesday that US Trade Deficit in October reduced by 17.6% due to a rise in exports. The U.S. exported $223.6 bn worth of goods in October, $16.8 bn or +8.1% more than the figures for September, while imports rose slightly by +0.9% to $290.7bn. The trade deficit stood at $67.1 bn, down 17.6%. Meanwhile, Trade deficit with China fell by $3.2 bn to $28.3 bn following the rise in U.S’s exports to China by $2.8 bn to $13.8 bn. Imports from China fell slightly by $400m.
- The People’s Bank of China (PBOC) has decided to cut the reserve requirement ratio (RRR) for financial institutions by 0.5 percentage points, effective December 15. However, the new rate would not be applicable for those financial institutions that already implement a 5% RRR. The weighted average RRR for financial institutions in China will stand at 8.4 %.
- JP Morgan predicted on Wednesday that 2022 will mark the end of the coronavirus pandemic and see a full global economic recovery. The bank’s outlook report for next year said new vaccines and therapeutics would result in a cyclical recovery, a return of global mobility, and a release of pent-up demand from consumers.
- According to the Labour Department on Friday, US inflation for the month of November came in at 6.8% – the highest since 1982, calling for action from the Federal Reserve. CPI rose 0.8% on a month-on-month basis exceeding the 0.7% forecast. Price increases came from familiar sources namely: Energy prices which rose by 33.3% compared to November 2020, while Gasoline spiralled by 58.1%. Over the year food prices rose 6.1%, while used car and truck prices, rose by 31.4%.
- The Finance Bill 2021 which was sent to the National Assembly by President Muhammadu Buhari on Tuesday makes provision for a 5% capital gains tax on the disposal of shares in a Nigerian company worth more than N500m or more. The bill also mandates banks to henceforth require the Tax Identification Number (TIN) from bank customers. It also stipulates tax payable by foreign firms which derive their profits from Nigeria.
- Data from the National Bureau of Statistics on Monday shows that total foreign trade in Nigeria rose by +10.39% Q-o-Q while 9 months foreign trade grew by +50.5% Y-o-Y. Trade deficit rose Q-o-Q by 61.4% to settle at N3.03 tr in the third quarter of the year and for the nine-month period foreign trade deficit stands at N8.84tn. The NBS noted that imports comprised majorly of motor spirit valued at N 1,052.5 bn (12.91%), Durum wheat valued at N 315.17bn (3.87%), Gas oil with N225.63 bn (2.77%), Used Vehicles N 185.41 bn (2.27%).
- The United Bank for Africa Plc has taken over the majority stake in the Abuja Electricity Distribution Company. The Deposit Money Bank had to take over the power firm due to the inability of the AEDC’s major investor (Kann Consortium) to effectively service the loans obtained from UBA when it acquired the Disco in 2013. UBA had acted as the mandated lead arranger, underwriting N20bn for Kann Consortium’s acquisition of the AEDC.
- According to the CBN’s monthly economic report for August, Foreign capital inflow moderated in August 2021 due to COVID-19 resurgence. The report noted that, foreign capital inflow moderated in August 2021 due to a COVID-19 resurgence. According to the report, capital imported into the domestic economy decreased by -29% to $0.44bn, compared with the $0.62bn recorded in July, of this amount foreign portfolio investment inflow accounted for $0.24bn (53.8 % of the total) while other investments, was $0.16bn (36.9 % of the total) and Foreign direct investment, was $0.04bn (9.3 %). By country of origin, the United Kingdom remained the major source of capital inflow, followed by the United States of America.
- The Minister of State for Budget and National Planning, Clem Agba, disclosed earlier in the week that plans are underway by the Federal Government to develop a web app- the Eye Mark – that will assist citizens to monitor and report on government’s projects and programmes within their communities. The Minister added that citizens’ participation in governance and tracking service would bring about transparency and accountability in the delivery of government’s capital projects countrywide.
- Speaking at an event during the week, Fiscal Policy Partner and Africa Tax Leader of PwC, Mr Taiwo Oyedele, advised the federal and state governments to direct their personal income tax collection efforts to the upper class, saying the informal sector earned too low to afford tax payments. Oyedele said this during his keynote address at the Business Outlook Session of the Media Independent Practitioners Association held in Lagos.
Summary and Outlook
Nigeria’s foreign Trade statistics released on Monday by the NBS once again highlight the need for the country to diversify its export profile. The fact that over the nine-month period between January and September, about ninety percent of the country’s export earnings were from crude-oil proceeds is worrisome, but what is even more disturbing is the fact that PMS – essentially refined oil- accounted for the largest portion of the country’s import bill. By exporting crude oil (and a few other primary products) and importing manufactured (but largely consumer) goods Nigeria’s deficits are likely to persist for a while.
The US FOMC does have a tall order to fill, with the recently released November inflation figures coming in at 6.8%- a 39 year high. The Fed could further speed up tapering to allow for an earlier than planned hike in rates. Meanwhile, Nigeria’s Inflation comes in focus, as the NBS is expected to release November Inflation figures next week.
Weekly Review and Outlook
- The Vice President of Nigeria, Prof Yemi Osinbajo has said that the world should not have to choose between energy poverty and climate change as this can be addressed with natural gas and Liquified Petroleum Gas as transition fuels alongside other renewable energy. According to him, Nigeria has initiated a 20 million Cylinder Injection Scheme; an LPG Energy Fund in the order of $50 million in partnership with AFREXIMBANK; and has also mandated the conversion of 58,000 Telecommunications cell sites from diesel to gas.
- Gas producers in Nigeria have said that the reduction of gas prices from $2.50/MMBtu to $1.50/MMBtu by the Federal Government to keep the electricity tariff low is taking a toll on their margins and causing shortages of gas in the local market.
- The UTM Offshore and the African Export-Import Bank (AFREXIMBANK) have signed a Memorandum of Understanding to raise $5bn ($2bn for Phase I and $3bn for Phases II) for the development of Nigeria’s first floating liquefied natural gas project.
- The Minister of State for Petroleum, Chief Timipre Sylva, on Thursday, said the Federal Government of Nigeria is working to grow the country’s gas reserve from 206 TCF to 600 TCF.
- Oil prices rose by more than $1 a barrel on Monday after top exporter Saudi Arabia raised prices for its crude sold to Asia and the United States, and as indirect U.S.-Iran talks on reviving a nuclear deal appeared to hit an impasse.
- In a sign of delay in the return of Iranian oil to the market, which has supported oil prices lately, the recent indirect US – Iran nuclear talks hit roadblocks. Germany on Monday urged Iran to present realistic proposals in talks over its nuclear programme.
- JP Morgan Global Equity Research expects oil prices to overshoot $125 a barrel next year and $150 in 2023 due to capacity-led shortfalls in the Organisation of Petroleum Exporting Countries (OPEC) production.
- Oil and gas industry CEOs have said the ongoing transition from oil and gas to renewables will create a messy situation for many years to come and lead to sharp energy price volatility as government proposals to halt investments in fossil fuels give no consideration to demand and inflation risk.
- OPEC Secretary-General, Mohammad Barkindo, on Wednesday at an energy conference said the attempts to cut investment in oil and gas are misguided as lack of investment in fossil fuels could lead to energy shortages, market imbalances, and higher oil prices.
- Saudi Arabia-based International Energy Forum and IHS Markit have said the upstream oil and gas investment must rise to the pre-pandemic levels of about $525 billion per year through this decade to ensure balance in demand-supply.
- Iran, a country already hit by a few explosions on its oil and gas facility this year, had another explosion at the Parsian refinery in the country’s southwest on Thursday where an excavator reportedly hit a 10-inch gas condensate pipeline. Analysts believe the US sanctions prevented the country from having access to maintenance facilities.
- Russia’s Deputy Prime Minister, Alexander Novak, on Friday said the OPEC+ alliance will continue to restore oil supply to the market to meet growing demand.
- Oil prices drifted in a narrow range on Friday, on track to their biggest weekly gain since late August, as the easing concerns over the Omicron coronavirus variant on global growth and fuel demand drove market sentiment.
- Brent had a weekly growth of 5.25% (see Table 1).
Gold appreciated by 0.44% while Silver also dipped by -0.02% W-o-W (see Table 1).
- Cocoa prices remained neutral this week.
- Corn prices appreciated by 1.38%W-o-W while Sugar gained by 6.83% (see Table 1).
Table 1: Weekly Change in Commodity Prices
|Commodity||10-Dec-21||03-Dec-21||31-Dec-20||Weekly Chg||YTD Chg|
*Data for 10th December 2021 is as of 5:40pm (Nigerian Time)
- In the coming week, oil prices are expected to stabilize with the market looking towards the impact of the Covid-19 Variant, Omicron.
- Gold prices are expected to depreciate in the coming week, as news on the covid-19 variation is not causing panic in the market.
- Cocoa prices are expected to appreciate in the coming week as major producers such as Ivory Coast, experiencing bad roads which affects supply.
- Sugar prices are expected to appreciate next week as global supply chain pressure continues.
- Corn prices are expected to steady as increase corn supply could put pressure on the prices.
Fixed Income and Money Market
At the I & E FX window this week, the Naira closed negative against the US dollars for most of the trading session.
The Naira closed at N415.1/US$ on Friday, indicating a week-on-week (W-on-W) depreciation of the legal tender. At the Nigerian Autonomous Foreign Exchange Fixing (NAFEX) window it depreciated by 0.18%.
|Average Benchmark Yields|
|I & E FX Window||414.73||415.1||0.09%|
System liquidity was elevated for most of the week, supported by multiple inflows, however, money market rates traded in double digits.
At the close of the trading on Friday, open repo (OPR) and overnight rates (O/N) settled at 17.5% and 17.5% respectively indicating a W-o-W uptick of +12.90% and +11.11%.
|Money Market Rate|
We expect rates to hover around current levels barring any significant outflows from the Apex bank.
Treasury Bills Market
The treasury bills market started the week on a quiet note with minimal volumes traded across board, but activity picked up later at the middle of the week as investors took advantage of the higher yields.
At the close of trading on Friday, the market was bullish with selling interest seen across all maturities. Average benchmark yields for T. Bills fell by -0.44%, yields on OMO bills remained flat and CBN’s special bills grew by +10.75%.
|Average Benchmark Yields|
|T. Bills (%)||4.51||4.49||-0.44%|
|OMO Bills (%)||5.48||5.48||0.00%|
We expect activity next week to be weak depending on the market liquidity situation.
FGN Bond Market
The local bond market traded sideways this week with higher volumes traded at the mid-end of the curve.
At the close of trading on Friday, the bulls dominated the market with sell pressure across board. Overall average benchmark yields closed at 8.04% indicating a W-on-W decline of +0.5%.
|Average Benchmark Yields|
|Short Tenor (%)||4.32||4.37||1.16%|
|Mid Tenor (%)||8.64||8.59||-0.58%|
|Long Tenor (%)||12.3||12.84||4.39%|
FGN Eurobond Market
The Eurobond market was relatively bullish this week, however we expect the market to turn bearish next week, on the back of inflation worries in the U.S.
Nigerian Capital Market
- This week, activity on the bourse was choppy as sell pressures colluded with bargain hunting through the week with selloffs in large cap stocks like DANGCEM. NGXASI dipped by -0.68% as investors lost N148.68bn this week as the year-to-date return moderated to +4.00%, while the market capitalization settled at N21.85trillion.
- The volume and value of shares traded on the exchange this week advanced by +105.70% and +55.13% respectively.
- Sectoral performance across sectors tracked was mixed this week as the NGX Banking recording the highest gain WoW with +5.55%. NGX Oil & Gas, NGX Insurance, NGX Consumer Goods closed positive with +1.27%, +1.24%, +0.11% respectively while NGX-IND closed negative with -5.42%.
- Market breadth for the week closed positive with 35 gainers led by MEYER and HMARKINS as against 27 losers led by UNITYBNK and DANGCEM.
The NASD OTC Security Index (NSI) and Market Capitalization closed the trading week with a negative movement in Market capitalization and NSI. The NSI closed the week negative with 732.15 points representing a downtick of -1.78% while the Market capitalization closed the week negative with a downtick of -1.78% to N604.88bn.
Dangote and Elumelu Index
Dangote Index closed the week negative with 131.94 basis points from 145.88 basis points recorded the previous week, representing a decline of -9.55%.
NASCON remained flat while DANGSUGAR and DANGCEM closed negative with -10.00% and -0.31% W-o-W respectively.
Table 2: Dangote Index W-o-W Change
Furthermore, the Elumelu Index closed positive with 109.40 basis points from 108.12 basis points recorded the previous week, a W-o-W growth of +1.19%.
AFRIPRUD declined by -0.83%, UBA closed positive with +1.90% while, TRANSCOHOT, UBCAP and TRANSCORP remained flat W-o-W.
Table 3: Toni Index W-o-W Change
In the coming week, we expect the market sentiment to be mixed; other macroeconomic developments are also likely to impact investors’ decisions.
In addition, we expect investors to monitor the movement of yields in the fixed income market.