Expectations from the Markets This Week – 060622
Global Economy
• U.S. employment data for May came in better than expected on Friday, although the unemployment rate held steady at 3.6%, suggesting a tight labor market. The Federal Reserve would consider the new data as it makes to cool demand. Meanwhile, Non-farm payrolls increased by 390,000 jobs last month, the Labor Department said on Friday. The Nonfarm payroll had increased by 436,000 jobs in April.
• Joe Biden had in an op-ed published in The Wall Street Journal on Monday entitled: ‘My Plan for Fighting Inflation’ warned that the current pace of job creation could drop significantly, but said it was not something to panic over. Biden reassured that the economy is in a strong position.
• Consumer confidence in the US hit a three-month low in May, as household purchasing power suffered from persistent inflation. The Conference Board said on Tuesday that its consumer confidence index dipped to 106.4 in May from 108.6 in April. The business research group’s present situation index, fell in May to 149.6 from 152.9 in April while the expectations index, declined in May, to 77.5 from 79 in April.
• Official data suggests that the Turkish economy grew by +7.3% in the first quarter of the year. The finance minister citing leading indicators had projected a growth of +7% before the release of the growth figures. The Turkish economy has been going through a difficult time with the lira losing nearly -23% against the greenback year to date while inflation surged to a 20-year high of 70% in April.
• German inflation hit another all-time high, adding urgency to the European Central Bank’s exit from crisis-era stimulus after numbers from Spain also topped economists’ estimates. Driven by soaring energy and food costs, data released Monday showed consumer prices in the continent’s biggest economy grew by +8.7% year-on-year in May. Analysts surveyed by Bloomberg had predicted an 8.1% inflation.
• On May 31, 2022, China’s State Council released a set of 33 measures in a document titled Policy Measure Package to Stabilize the Economy covering a wide range of mechanisms aimed at supporting businesses impacted by the COVID-19 pandemic. The policy package came just before the reopening of Shanghai on June 1 and the gradual resumption of normal life in Beijing since May 29. The Chinese government has been ramping up stimulus and support measures in recent months to mitigate the impact of the Omicron variant of COVID-19.
Nigeria Economy
• The Nigeria Customs Service (NCS) and Trade Modernization Project Limited, on Monday, signed a concession agreement worth US$3.2bn to digitalize revenue collection and improve border security. The Federal Government expects to generate over US$176bn from the deal over 20 years. The NCS partners African Finance Corporation and Huawei Technologies Company Nigeria Limited.
• The Nigerian-British Chamber of Commerce, NBCC, has recommended several means of solving problems with the Nigerian export process. The body called on the government to consider reducing bureaucratic bottlenecks at export agencies, and digitalization of export services. At a media briefing in Lagos the council also called on the government to address the problems of multiple regulatory agencies; foreign exchange restrictions; inaccessibility to funding/financial institutions, and port infrastructural irregularities, among others.
• According to the Central Bank of Nigeria (CBN), credit to the government rose by +17.7% to N16.6 trillion in April 2022 up from N14.1 trn in January 2022. Meanwhile, analysts have expressed concerns about the rise in the country’s public debt stock as it implies larger debt servicing obligations which in turn constrain spending on capital projects. Analysts express concern over the resultant slowdown in economic growth.
• At the presentation of the IMF’s latest Sub-Saharan Africa Regional Economic Outlook report earlier in the week, the body’s Resident Representative for Nigeria, Ari Aisen, warned that with the magnitude of fuel subsidy payments, debt servicing may take all of Nigeria’s revenue by 2026. Further, the organization noted that the current subsidy regime which closes fiscal space is not designed to cater to those most in need of it.
• President Buhari while meeting with the Spanish President, Pedro Sanchez in Madrid on 1st June 2022, signed a bilateral agreement and an MoU relating to the economy, prisoner transfer, sports, and culture. As of Q1 2022, Spain accounted for 9.54% of Nigeria’s exports making it the second-largest destination of Nigerian exports in Europe.
Review and Outlook
As we approach the second half of the year, the Russia-Ukraine tension is expected to remain a major driver of soaring energy prices and inflation across the world. The slight increase in Nigeria’s quota following a recent upward review by OPEC as well as optimism that oil production would improve signal a slight improvement in the country’s fiscal position. However, with the exchange rate fast depreciating and insecurity not abating food and overall inflation are expected to remain high.
On the global scene, the week ahead has in store several central bank meetings taking place in the eurozone, Australia, India, and Thailand while US inflation data will be released. China will also release services PMI and inflation data along with its trade data for May. Revised Q1 GDP figures from the eurozone and Japan are also billed for release next week.
Oil and Gas
Domestic
• The organization of Petroleum Exporting Countries (OPEC) has raised Nigeria’s crude oil production quota by 27,000 b/d from 1.772 mb/d for June 2022 to 1.799 mb/d for July. Meanwhile, Nigeria’s oil production averaged 1.42 mb/d in May 2022, up by 70,000 b/d from 1.35 mb/d in April, according to a Reuters Survey. This suggests that Nigeria’s crude production continues to fall short of its production quota.
• The Nigerian LNG Limited (NLNG) has said it is considering diversifying into hydrogen production as part of its long-term strategy depending on the availability of finance and infrastructure, a move that would support the country’s transition to cleaner energy.
• The President/CEO of Dangote Group, Aliko Dangote, has called on the government to promote investment and competition in the downstream oil sector by ensuring a single-digit tax regime. Analysts believe an integrated tax administration system with a clear fiscal framework and prompt implementation of the new PIA regime will really support investment opportunities in the industry.
• The Nigerian oil and gas sector has remained fragile seven years into the administration of President Muhammadu Buhari. Whereas there are notable achievements under the administration such as the passing of the Petroleum Industry Act (PIA), Commissioning of NLNG Train 7, expanded use of gas, publication of the NNPC Audited Financial Statements, and marginal oil field bid rounds, the pullbacks under the administration exceed the advances. Analysts believe these festering concerns have whittled down the significance of the government sector initiatives between 2015 and 2022.
• The Federal Executive Council (FEC) has given the Nigerian National Petroleum Corporation (NNPC) the go-ahead to sign a memorandum of understanding with ECOWAS for the construction of the Nigeria-Morocco Gas Pipeline. The pipeline will connect Nigerian’s gas to 11 West African coastal countries through to Morocco and Europe.
Foreign
• Prices of global crude oil benchmarks have remained elevated hovering between US$115-120 per barrel for the week lifted by strong demand against the tight oil supply. The scarcity of the commodity has led to volatile prices for middle distillates. This suggests that as long as crude oil prices extend their rally, associated petroleum products will rally along the same path, and the subsidy regime across countries will fail to tame the rising energy prices and the consequential inflation.
• Oil prices rose on Monday, hitting their highest in more than two months, as traders waited to see whether the European Union would reach an agreement on banning Russian oil imports.
• The European Union leaders on Monday agreed in principle to cut 90% of crude oil imports from Russia by the end of the year, resolving a deadlock with Hungary over the bloc’s toughest sanction yet on Moscow. The agreement retains 10% ties with Russia basically on oil and gas flowing through the connecting pipelines.
• Africa is currently faced with shortages of refined fuels on the back of redundant oil refineries across the continent coupled with the soaring crude oil prices. Available data revealed that refineries in Africa produced 30% of their combined 1.4 mb/d refining capacity in 2021, underscoring the rising rate of refinery outages and development opportunities for private refiners.
• OPEC+ on Thursday decided to boost output by 648,000 b/d in July and a similar amount in August against the initial plan to add 432,000 b/d monthly over the three months to September. Analysts see the move as an attempt on the part of OPEC to pump more oil to resolve the global energy shortages.
• Oil prices edged higher on Friday as markets shrugged off the decision of OPEC+ to increase production and questioned whether the incremental output would make up for lost Russian supply and meet China’s growing demand amid easing COVID restrictions.
• Brent had a weekly growth of +0.55% (see Table 1).
Metals
Gold inched up by +0.08% while Silver dropped by -0.84% W-o-W (see Table 1).
Agriculture
• Cocoa prices dropped by -0.08% W-o-W.
• Corn prices dropped by -5.91% W-o-W while Sugar prices dipped by -1.78% (see Table 1).
Table 1: Commodity Prices
Commodity 03-Jun-22 27-May-22 31-Dec-21 Weekly Chg YTD Chg
Brent 119.59 118.93 78.54 0.55% 52.27%
Gold 1852.4 1850.9 1827.1 0.08% 1.38%
Silver 21.905 22.09 23.27 -0.84% -5.87%
Cocoa 2465 2467 2546 -0.08% -3.18%
Corn 732 778 595.5 -5.91% 22.92%
Sugar 19.3 19.65 18.83 -1.78% 2.50%
Source: CNBC
*Data for the 03rd of June 2022 is as of 05: 23 pm (Nigerian Time)
Outlook
• In the coming week, oil prices are expected to climb amidst growing demand from China as Covid-19 restrictions eases.
• Gold price is expected to drop in the coming week as the US dollar is set for a weekly growth as a result of upbeat employment numbers.
• Cocoa prices are expected to rise as major producers move to form a partnership in price determination of cocoa in the global market.
• Sugar prices are expected to rise in the coming week as a major producer, India, refuses to remove cap on export to ensure prices in the domestic market favour the consumers.
• Corn prices are expected to drop as Russia agrees to allow export shipments from the black sea provided western sanctions against the country is dropped.
Fixed Income Market
Currency Market
Naira traded both ways at the I & E FX market this week. At the close of the trading session on Friday, the naira depreciated by -0.06% week-on-week to N419.75 at the investor and exporter FX market.
As for the Nigerian Autonomous Foreign Exchange Fixing (NAFEX), the trading closed on Thursday at 418.45, indicating a week-on-week (W-on-W) depreciation of -0.09% (see chart 2 below).
Table 2: Naira/Dollar at the I&E FX Window and NAFEX Market
Average Benchmark Yields
27-May-22 03-Jun-22 % Change
I&E FX 419.50 419.75 -0.06%
26-May-22 03-Jun-22
NAFEX ($/N) 418.08 418.45 -0.09%
Source: FMDQ
Money Market
Interbank rates eased this week, with robust liquidity coming from FAAC inflow on Wednesday.
At the close of the trading session on Friday, the open repo rate (OPR) and overnight rates (O/N) settled at 6.67 and 7.00 respectively, indicating a W-o-W decline of -51.21% and -50.00% (see chart 3 below).
Table 3: Money Market
Money Market Rate
27-May-22 03-Jun-22 % Change
OPR (%) 13.67 6.67 -51.21%
O/N (%) 14.00 7.00 -50.00%
Source: FMDQ
We expect the interbank rate to hover around current levels, with liquidity staying elevated.
Treasury Bills Market
The Nigerian Treasury bills market had minimal activity for most of the trading session this week.
The Treasury bill closed bearish at the end of the trading session on Friday, with few selloffs and the average benchmark settling at 4.11. The yields moved up by +6.20% (W-o-W). The OMO bill was relatively quiet, with the overall average yield benchmark remaining unchanged at 4.11 week-on-week basis. (See table 4 below).
Table 4: Treasury Bills Market
Average Benchmark Yields
27-May-22 03-Jun-22 % Change
T. Bills (%) 3.87 4.11 +6.20%
OMO Bills (%) 4.25 4.25 +0.00
Source: FMDQ
We expect the yield to trend lower if liquidity robustness persists
FGN Bond Market
The overall trading session in the Bond market ended bullish, with multiple buying interests seen across the tenors.
The average benchmark yield closed at 11.56 this week, indicating a 0.18% (W-o-W) rise (See table 5 below).
Table 5: FGN Bonds Market
Average Benchmark Yields
27-May-22 03-Jun-22 % Change
Short Tenor 9.56 9.37 -1.99%
Mid Tenor 11.31 11.22 -0.80%
Long Tenor 12.77 12.74 -0.23%
Source: FMDQ
Nigerian Capital Market
The Nigerian bourse ended the week on a negative note as market sentiment turned red. The NGXASI closed the week with -2.18% as against +2.09% gain recorded last week. The Nigerian Exchange loss N634.55bn in naira terms.
Year-to-date, the NGSAXI remained positive to close the week with+23.86% gain as the market capitalization settled at N28.52trn at the end of the week.
Sectoral performance across sectors tracked was bearish. At the close of trading on Friday, NGX-Insurance recorded the highest gain for the week with +0.83% while NGX-IND recorded the highest loss for the week with -3.73%
Chart1: Movement of NSEASI Index Points 27 May 2022- 3 JUN. 2022
Source: NSE
NASD OTC
The NASD OTC Security Index (NSI) and Market Capitalization closed the trading week on a negative. The NSI and Market capitalization closed the week at 752.59 points and N990.72 with a decline of-5.31% respectively.
Dangote And Elumelu Index
Dangote Index closed the week negative with 144.30 basis points from 154.59 basis points recorded the previous week, representing a decline of -6.66% WoW,
DANGCEM, DANGSUGAR recorded a decline of -6.73% and -5.88% respectively while NASCON closed flat WoW
Table 6: Dangote Index W-o-W Change
Company 27-May-22 03-Jun-22 WoW Chg
DANGCEM 297.00 277.00 -6.73%
DANGSUGAR 17.00 16.00 -5.88%
NASCON 12.85 12.85 0.00%
Source: NGX,
Furthermore, the Elumelu Index closed negative with 116.38 Basis points from 117.12 basis points recorded the previous week, representing a decline of -0.63% WoW
UBCAP, AFRIPRUD and TRANSCOHOT closed the week positive with+2.34% +2.59% and +6.84% respectively. TRANSCORP, UBA closed the week negative with -2.31%, -2.52%.
Table 7: Elumelu Index W-o-W Change
Company 27-May-22 03-Jun-22 WoW Chg
AFRIPRUD
5.80 5.95 2.59%
TRANSCOHOT
5.85 6.25 6.84%
TRANSCORP
1.30 1.27 -2.31%
UBA
7.95 7.75 -2.52%
UBCAP 12.80 13.10 2.34%
Source: NGX
Outlook
The Market closed red throughout the week. Analysts attribute the recent sell-off on the NGX to short-term investors switching to high yield assets in response to the hike in MPR to generate high more profit.
