Expectations from the Markets this Week – 280222 – First Ideas Limited

Expectations from the Markets this Week – 280222

Global Economy

  • The European Union, Australia, Taiwan and Japan imposed sanctions against Russia on Friday. The new tranches of punitive measures follow those imposed by the United States, Canada and Britain a day earlier, targeting Moscow’s economy in an effort to punish Russia for invading Ukraine. The sanctions are targeted at key state-owned companies and 70% of the Russian banking market a move which could increase Russia’s borrowing costs, raise inflation and gradually erode Russia’s industrial base.
  • Russia’s economy ministry on Friday said it was working on measures to minimise the effect of Western sanctions imposed after Russia’s invasion of Ukraine. An official stated that Russia would be stepping up trade and economic ties with Asian countries. Moscow realises that the sanctions pressure it has faced since 2014 will now intensify, and appear to have been prepared for potential new sanctions over time
  • Meanwhile, IMF managing Director Kristalina Georgieva on Thursday warned the conflict in Ukraine will have repercussions for the global economic recovery. Georgieva stated that the development adds significant risk for Europe and the world. The Washington-based lender is in the process of deploying $2.2bn in assistance to Ukraine under a loan program set to end in June, but Georgieva has said the fund could provide additional aid if needed.
  • According to The inequality crisis in East Africa report recently released by Oxfam and Development Finance International (DFI), East Africa remains among the most unequal places on the continent, with the richest 10 percent of the population earning more than half the population of 415 million citizens. According to the report, the level of inequality has made the region’s goal of eradicating poverty by 2030 impossible. Covid-19 pandemic may have also worsened the situation, as the UN estimates that the pandemic will result in 11 million more people living in poverty in the DRC, six million in Tanzania and 2.4 million in Uganda.
  • Following recent cuts in home mortgage rates in many cities across China, more people are visiting real estate agencies and transactions are expected to rise. According to industry insiders, some cities in China have lowered mortgage rates and down payment requirements. The latest move came on Monday in Guangzhou, South China’s Guangdong Province, saw branches of six major state-owned banks lower their mortgage rates, the second time in 2022. The interest rate for first-time homebuyers in the city fell 20 basis points (bps) to 5.4 percent. 

Nigeria Economy

  • During a workshop, on Monday, Minister of Science, Technology and Innovation, Dr. Ogbonnaya Onu said that Nigeria’s revised national energy policy and master plan will ensure that the country, like the rest of the world, would explore atomic materials to improve energy supply. According to him, the National Energy Policy provides policies for long-term coordinated energy development for the country’s energy security in an environmentally sustainable manner with active participation of the private sector as a priority.
  • The Minister of Finance, Budget and National Planning, Zainab Ahmed on Tuesday received the National Savings Scheme Report with a pledge to collaborate with stakeholders in implementing the recommendations. The working group which was constituted by the Minister in May 2020 was expected to review and recommend changes to the current National Savings Strategy Paper. The report suggests that a national savings scheme for Nigeria is feasible, if made mandatory for individuals aged between 18 – 50 within the formal sector. The Minister also promised to collaborate with the Securities and Exchange Commission and other stakeholders to ensure that the potential benefits of the Scheme to the country is fully realised.
  • The National Assembly will next week vote on the amendments proposed to the 1999 Constitution by its Joint Special Ad Hoc Committee on the Review of the 1999 Constitution. The committee had recommended devolution of powers from the Federal Government to the state and local governments by moving several items from the Exclusive Legislative List to the Concurrent List. Foremost on the list of items which the National Assembly plans to remove from the exclusive legislative list are railways, airports, power and prisons.
  • According to the Federal Ministry of Women Affairs, Alhaji Idris Muhammed, the Federal Government has entered into collaboration with the Economic Community for West African States to empower 50 million women with finance. According to him, the project, 50 million African Women Speak platform, has the African Development Bank, the Common Market for Eastern and Southern Africa and East African Community as collaborators.

Review and Outlook

Following a week of tensions between Russia and Ukraine, the week to come would see the US and other western economies continue to respond to the Russian invasion of Ukraine with stiffer sanctions. Western economies would consider more personalized sanctions while the option of ejecting Russian banks from the Belgian domiciled swift platform which hosts eleven thousand banks across 200 countries may also be re-considered as a deterrent to a further assault on Ukraine. Also, next week, the global economy will be looking forward Central bank meetings in Canada, Australia and Malaysia while key GDP data will be released across Switzerland, Australia, India and South Korea.

Meanwhile on the domestic scene, reports about the amendments proposed by the Joint Special Ad Hoc Committee to the 1999 constitution, is inspiring. The proposed amendments which would be deliberated upon by the house next week, could see the transfer of electricity, railway from the exclusive list to the concurrent list in which case, state government can invest in those critical sectors. Such a development has the potential of improving power supply while also offering a major transformation of the entire logistics sector in the country.

Energy Report

Domestic

  • The Federal Government through the Minister of State for Petroleum Resources, Timipre Sylva, has appealed to Nigerians to exercise patience over the hardship caused by the scarcity of petrol and stated that the scarcity was due to inspection failure and not lack of supply of the product.
  • The Minister in a separate engagement disclosed the government initiatives, projects, and policies to enhance the performance of the oil and gas sector. The initiatives include the Ajaokuta-Abuja-Kano gas pipeline to support five billion CF/d of domestic gas utilization as well as five-Gigawatt power generation and the expansion in LNG production capacity to about 30 million tons per annum at Bonny with the ongoing NLNG Train.
  • In an interview with Bloomberg on Wednesday, the Minister stated that Nigeria and its OPEC partners are not comfortable with high oil prices but Nigeria would rather be comfortable with oil prices at between $70-$80 per barrel.
  • In a letter sent by the NNPC Limited to all marketers, the company said it has directed that the sum of N500,000 be charged for Ship-to-Ship Coordination for each transshipment operation for petrol involving the NNPC Marine Logistics. Marketers have since decried that the new charge together with the NPA and NIMASA charges paid in the dollar has increased the ex-depot price of petrol.
  • The United Kingdom has announced its plan to inject Â£10m worth of concessional aid into Nigeria to support energy access projects with a focus on low-carbon energy, supporting off-grid, and low-carbon energy projects.

Foreign

  • Oil prices calmed down after fluctuating initially on Monday, as investors eyed contrasting scenarios of tighter Russian energy supplies due to the Ukraine crisis and more crude coming to the market on a possible nuclear deal between Iran and world powers.
  • Some executives of US Shale firms have disclosed that oil prices at $90 per barrel did not tempt them to drill aggressively and they will not be tempted by $150 or $200 per barrel to change their conservative plans to drilling.
  • Some analysts have argued that the governments’ efforts to drive an economic rebound are likely to add strain to the tight oil supplies and send prices soaring to fresh peaks unless Vienna talks end sanctions on Tehran and lead to an increase in Iranian exports.
  • The United States on Wednesday imposed sanctions on the company in charge of building Russia’s Nord Stream 2 gas pipeline, expanding penalties on Moscow after it recognized two breakaway regions in eastern Ukraine.
  • A London-based high court began hearing a lawsuit on Wednesday between Nigeria and U.S. JP Morgan Chase Bank, where Nigeria is claiming more than $1.7 billion for the bank’s role in a disputed 2011 oilfield deal.
  • Oil prices surged, with Brent breaching $100 a barrel for the first time since 2014 on Thursday as Russia attacked Ukraine, exacerbating concerns that a war in Europe could disrupt global energy supplies.
  • Japan and Australia on Thursday expressed their intent to tap their oil reserves, together with other International Energy Agency (IEA) member countries, if global supplies were hit by hostilities in Ukraine.
  • Oil prices jumped nearly 3% on Friday as Russia’s invasion of Ukraine stoked global supply concerns as markets brace for the potential impact of trade sanctions on major crude exporter Russia.
  • Brent had a weekly growth of +4.49% (see Table 1).

Metals

Gold inched downwards by -0.44% while Silver inched upwards by +0.15% W-o-W (see Table 1).

Agriculture

  • Cocoa prices dropped by -0.91% W-o-W.
  • Corn prices grew by +0.54% W-o-W while Sugar prices grew by +0.06% (see Table 1).

Table 1Weekly Change in Commodity Prices

Commodity25-Feb-2218-Feb-2231-Dec-21Weekly ChgYTD Chg
Brent97.2293.0478.544.49%23.78%
Gold1886.51894.81827.1-0.44%3.25%
Silver23.96523.9323.270.15%2.99%
Cocoa261226362546-0.91%2.59%
Corn657.25653.75595.50.54%10.37%
Sugar17.617.5918.830.06%-6.53%
Source: CNBC

*Data for 25th February 2022 is as of 6:14pm (Nigerian Time)

Outlook

  • In the coming week, oil prices are expected to grow after tensions between Russia and Ukraine escalated with expectations of Iranian oil slowing down after Iran’s call for realistic expectations.
  • Gold price is expected to climb in the coming week as demand for the precious metal increases
  • Cocoa prices are expected to grow in the coming week as amid concerns of dry weather affecting top producers such as Ivory Coast’s supply
  • Sugar prices are expected to appreciate in the coming week with elevated crude oil prices weighing in on it’s price.
  • Corn prices are expected to continue its price surge as higher demand outpaces supply.


Fixed Income and Money Market 

Currency Market

This week, the Naira depreciated for most trading sessions at the I & E FX Window, it fell as low as N416.67/US$ this week.

On Thursday, the Naira closed at the N416.25/USD, which indicates on a week-on-week (W-on-W) appreciation, at the Nigerian Autonomous Foreign Exchange Fixing (NAFEX) window it also appreciated, rising by +0.16%.

Average Benchmark Yields
 17-Feb-2124-Feb-21% Change
I & E FX Window416.67416.25+0.10%
NAFEX ($/N)416.62415.96+0.16%

Source: FMDQ

Money Market

The money market was buoyed with liquidity flows this week, the N258bn PMA repayment on Wednesday lowered system liquidity.

At the close of the trading on Thursday, open repo (OPR) and overnight rates (O/N) settled at 12.67%% and 13.17% respectively indicating a W-o-W significant rise of +1589.33% and +1217.00%.

Money Market Rate
 17-Feb-2124-Feb-21% Change
OPR (%)0.7512.67+1589.33%
O/N (%)1.0013.17+1217.00%

Source: FMDQ

We expect rates to hover around current levels barring any significant outflows from the Apex bank.

Treasury Bills Market

The Nigerian Treasury Bills market continued its bullish trend this week as the market saw buying interest.

At the close of trading on Thursday, the market was bullish with buying interest seen both at the NT Bills and OMO Bills. Average benchmark yields for T. Bills fell by -10.50%, yields on OMO bills also fell by -24.04%.

Average Benchmark Yields
 17-Feb-2124-Feb-21% Change
T. Bills (%)4.193.75-10.50%
OMO Bills (%)5.303.92-26.04%

Source: FMDQ

We expect activity next week to be weak depending on the market liquidity situation. 


The DMO sold N258.00 billion worth of notes against N115.28 billion offered at its NTB auction today. The 91-day, 182-day & 364-day notes were allotted at 2.24%, 3.30%, and 4.35%, respectively. Compared to the previous auction, the 182-day paper was unchanged, while rates on the 91-day & 364-day fell by 24bps and 85bps, respectively.

FGN Bond Market

The local bond market also continued its bullish run this week, with interest seen across all maturities.

At the close of trading on Thursday, the overall average benchmark yields closed at 11.31%, benchmark yield rising by +0.27%.

Average Benchmark Yields
 17-Feb-2124-Feb-21% Change
Short Tenor7.967.91-0.63%
Mid Tenor10.9810.4-5.28%
Long Tenor12.3411.89-3.65%

Source: FMDQ

FGN Eurobond Market

The Eurobond market sustained its bearish bias this week, with selling seen across the board. The average benchmark yields advanced by 77bps to 7.91%.

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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