What To Expect From The Markets This Week – 230522
- United States retail sales rose 0.9% in April. According to analysts, the figure underscores the economy’s ability to keep spending even as inflation persists at a 40-year high. According to the Department of Commerce, the increase was driven by car sales, electronic sales, and restaurants. Petrol prices fell slightly last month, impacting slightly on inflation.
- UK inflation surged to 9% in April, the highest in 40 years. Rising energy, food, and utility bills have been responsible for the deepened cost-of-living crisis that the country currently faces. Although up from 7% in March, the inflation reading was below economists’ forecasts for a rise of 9.1%, but still showed inflation running at its hottest since 1982. despite a higher price cap coming into effect
- In China, retail sales fell by 11.1% y-o-y in April, more than the 6.1% decline predicted in a Reuters poll. Meanwhile, Industrial production dropped by 2.9% in April y-o-y, in contrast with expectations for a slight increase of 0.4%. Meanwhile, the unemployment rate in China’s 31 largest cities climbed to a new high of 6.7% in April.
- Japan’s economy shrank by 1% for the first time in two quarters in the initial three months of the year as COVID-19 curbs hit the service sector, and the Ukraine war and surging commodity prices created fresh worries for consumers and businesses., stoking fears of stagflation. The world’s third-largest economy outperformed the -1.8% contraction estimated by economists. The latest data however implies a quarterly decline of 0.2% q-o-q.
- According to the Central Bank of Nigeria (CBN), the total value of Nigeria’s foreign trade in Q1 2022 was $28.77bn, with imports at $14.77bn and exports at $14.01bn, thereby resulting in a trade deficit of $764.69m. According to the newly released report, Nigeria’s total trade in January 2022 was $9.63bn, $9.59bn in February, and $9.56bn in March.
- The World Bank projects that Nigeria’s Diaspora remittance inflow would hit $29bn in 2022 up from $19.2bn in 2021. According to the organization, this is because migrants would need to support their families back home, many of whom are faced with higher food prices. According to the World Bank remittances to Sub-Saharan Africa in 2022 would increase by 7.1% from $49bn in 2021.
- The Federal Executive Council on Wednesday approved N169.7bn private sector investments for the construction of four roads, totaling 234-kilometers, under the government’s Tax Credit Scheme. The Minister of Works and Housing, Babatunde Fashola, while briefing the press stated that the arrangement allows private sector players to finance public infrastructure upfront and then offset it over time using tax credits.
- The Nigeria Customs Service has said it will review depreciation on vehicle duty as it begins the rollout of its Vehicles Identification Number platform for the electronic valuation of vehicles on Friday. According to the Service, depreciation value and several other variables affecting the value of vehicles, whether accidental or salvaged, would be considered as the commission sets out to redeploy its VIN platform.
- The Nigerian Electricity Regulatory Commission, NERC responded to controversies about a supposed hike in electricity tariffs by stating that the announced reviews do not automatically translate into an increase in electricity tariffs. According to the NERC, where the impact of improved efficiency for individual licensees exceeds the impact of changes in macroeconomic parameters, end-users might witness a reduction, as exhibited in some tariff classes under the Multi-Year Tariff Order, MYTO 2022.
Review and Outlook
The CBN MPC has an abundance of data to consider ahead of its meeting next week. The latest NBS data shows that inflation further rose to 16.82% largely chalked up to the rising energy cost that has followed the Russian -Ukraine conflict. Despite a sustained rise in PMI, there are reasons to believe that the MPC would hold rates given that Q1 growth is expected to be tepid. The foreign trade data recently released by the CBN also suggests a widening in the trade deficit and possibly the current account.
On the global scene, retail sales figure in the US shows resilience despite record-high inflation while China’s retail sales came in disappointing. Ahead of next week, Fed FOMC minutes are due while monetary policy meetings unfold in South Korea and Indonesia. Other important data billed for release include German and Taiwan GDP data, while April US personal income and consumption figures are also due.
Oil and Gas
- The NBS Price Watch for April 2022 reported that the average retail price of Petrol paid by consumers increased to N172.61 in April 2022 from N166.38 in April 2021 and N185.30 in March 2022. The increase Month-on-Month (M-o-M) suggests that petrol prices in most states are on the increase above the regulated price as operators continue to raise their pump prices in response to the rising demand and the high diesel price.
- Nigeria’s Minister of State for Petroleum Resources, Timipre Sylva, has lauded Seplat Energy Plc for its Tree 4 Life Initiative and the recent acquisition of the share capital of Mobil Producing Nigeria Unlimited (MPNU) from ExxonMobil Corporation. Analysts believe such investments will support the country’s net-zero emissions target.
- The Independent Petroleum Marketers Association of Nigeria (IPMAN) and The Economic and Financial Crimes Commission (EFCC) have disclosed their intent to collaborate to curb the rising oil theft and pipeline vandalism in the Niger Delta. While IPMAN believes the support and intervention of the EFCC are viable, analysts argue the intervention may yield negligible outcomes given the complexity of oil theft.
- TotalEnergies has confirmed selling off its 10% Joint Venture stake with Shell Petroleum Development Company (SPDC) and the Nigerian National Petroleum Company (NNPC) Limited. Analysts believe the selloff process will face delay and limit the country’s capacity to ramp up oil production to meet its quota just like the selloff by Shell was delayed by litigations.
- Oil prices fell on Monday, paring early gains as investors took profit following a surge in the previous session, albeit in the shadow of supply fear as the European Union prepares an import ban on Russian crude and with a limited increase in OPEC output.
- Britain’s energy regulator, Ofgem, has proposed that the adjustment of the price cap on energy prices paid by consumers should be every three months instead of every six months to better reflect the current price movements in the wholesale market.
- Data from the US Department of Energy reveals that the US Strategic Petroleum Reserve (SPR) dropped by 5 million barrels to 538 million barrels in the week leading to May 13. This reflects the high crude demand in the US.
- Russian President, Vladimir Putin, has warned that if Europe were to ban crude oil and natural gas from Russia, it would essentially be committing economic suicide. This suggests a threat to the EU and would likely reinforce the position of the member states opposing the ban.
- Oil prices fell on Friday as investors worried that weakening global economic growth and tighter central bank monetary policy could curb a recovery in fuel demand.
- Brent had a weekly growth of +0.30%.
Gold inched up by +1.52% while Silver dipped by +2.92% W-o-W.
- Cocoa prices dropped by -2.10% W-o-W.
- Corn prices dipped by -0.48% W-o-W while Sugar prices inched up by +4.08%.
- In the coming week, oil prices are expected to drop over concerns that slower global growth reduces demand.
- Gold price is expected to drop in the coming week after FED rate hike continues to drive selling pressure.
- Cocoa prices are expected to drop as supply from Africa increases.
- Sugar prices are expected to rise in the coming week as major exporter, Brazil, experience a slowdown in sugar cane harvest.
- Corn prices are expected to drop as world stocks increase.
Fixed Income Market
This week, the Naira depreciated for most trading sessions at both the I & E FX window and NAFEX
At the close of Thursday trading session, the naira closed at N417.50/USD at the Nigerian Autonomous Foreign Exchange Fixing (NAFEX), indicating a week-on-week (W-on-W) depreciation by -0.09%.
The Investor and Exporter FX market closed at N419.02/USD on Friday, remaining unchanged week-on-week
Following the slight liquidity inflow by the bond auction on Monday, the interbank rate edged higher all through the week due to weak liquidity. The market closed on Friday with the open repo rate (OPR) rising to 12.25 and overnight rates (O/N) edging higher to 12.50, indicating a W-o-W rise of +41.29 and +36.31% respectively
We expect the rate to be a single digit the coming week with liquidity expectation
Treasury Bills Market
The Nigerian Treasury bill market was quiet for most of the trading session this week, with the average benchmark unchanged at 3.52 on 17th May till 19th May.
At the close of trading on Friday, we saw some minimal selling interest with the average benchmark closing at 3.63 and the yields rising by +3.13% (w-o-w) while the Omo bills was bullish, with the average benchmark settling at 3.78 and the yield declining by -2.33% (w-o-w).
We expect yields to decline the coming week with liquidity expectation
FGN Bond Market
At the close of trading session today, the bond market was mixed with some buying interest in both the short and medium curve while the long end curve saw some selling interest.
The overall average benchmark yield closed at 11.53, the benchmark average yield dipped by -0.32%
At the bond auction on Monday, May 16th, DMO sold a total of N345.26 billion worth of notes as against N225 billion offered. The rate of 2025 remained unchanged at 10% while the rate for 2032 declined to 12.45% and for 2042 the rate rose to 13% compared to the previous auction.
- The Nigerian bourse ended the week on a negative note as market sentiment turned red. The NGXASI closed the week with -0.22% as against +4.25% gain recorded last week. The Nigerian Exchange loss N63.89bn in naira terms.
- Year-to-date, the NGSAXI remained positive to close the week with+24.03% gain as the market capitalization settled at N28.56trn at the end of the week.
- Sectoral performance across sectors tracked was bearish. At the close of trading on Thursday, NGX-Insurance recorded the highest gain for the week with +3.63% while NGX-MERIVAL recorded the highest loss for the week with -3.62%