Expectations from the Markets This Week – 130622
• US Bureau of Labor Statistics on Friday confirmed that inflation rose to 8.6% in May, the highest increase since December 1981. Core inflation excluding food and energy rose 6%. Both were higher than expected. Surging food, gas and energy prices all contributed to the gain, with fuel oil up 106.7% over the past year. Shelter costs, which comprise about one-third of the CPI, rose at the fastest 12-month pace in 31 years.
• The Organization for Economic Development on Wednesday downgraded its forecast for global growth in 2022, following Tuesday’s move by the World Bank to also slash its estimate for the world economy. The OECD now says the global economy will grow at a +3% rate this year, down 1.5 percentage points from its December projection. The World Bank is slightly bleaker, with a 2.9% forecast, down from the +4.1% it estimated in January. Both organizations blamed the downgrades on the ongoing war in Ukraine and China’s aggressive policy on the coronavirus pandemic.
• Turkey’s unemployment rate increased to 11.3% in April, the Turkish Statistical Institute said. The unemployment rate rose from 11.2% in March, the institute said on Friday. Turkey’s official unemployment rate has remained relatively stable over the past year despite the COVID-19 pandemic, a jump in inflation, and the war in Ukraine. The government has sought to stimulate the economy by cutting interest rates and providing cheap loans to manufacturers, and exporters despite a surge in prices.
• Ahead of next week’s Annual Meetings of the African Import-Export Bank (Afreximbank), has assured that the region’s economy would be upbeat in 2022, despite pressures. The regional body said in a report that the region would witness growth, with 16 countries (30%) expected to grow at more than 5%. The report said, “Africa’s growth forecast for 2022 points to continued fortitude even in the face of heightening inflationary pressures and geopolitical risks.
• Chinese foreign trade growth rebounded in May by 9.6% year-on-year after suffering a setback in April due to Coronavirus restrictions shuttering the nation’s largest cities. China’s imports and exports totaled US$2.4trn during the first five months of 2022, a year-on-year growth of 8.3%, Customs said Wednesday. Foreign trade reached US$2.51 trn, a 10.3% hike on the previous year. During the first five months of 2022, Chinese trade grew by 8.3% compared to the same period in 2021, with exports advancing at a faster rate than imports: 11.4% and 4.7%, respectively.
• The presidential candidate of the People’s Democratic Party, PDP, Atiku Abubakar, has released his economic agenda guiding principle, with a vow to break government monopoly in all infrastructural sectors. He also promised to allow the market greater leverage in determining prices, signaling a departure from the country’s exchange rate management policy. Meanwhile, the Presidential candidate of the ruling All-Progressive Congress, APC, Asiwaju Bola Tinubu has also listed among his economic agenda, plans to increase Gross Domestic Product (GDP) growth to +12% over 4 years, as well as to achieve 15,000 megawatts of power, removal of fuel subsidy and to draft a new national infrastructure plan.
• The number of registered electricity users across the country has remained t at 10 million for the past two years, NERC data indicates. This would suggest that registration has stalled. Although the proportion of registered power users (4.7 million) that have been metered rose sharply to 47% in 2021, from 40%in 2020 official data sourced from the Association of Nigerian Electricity Distributors indicated that the improvement was due to an increase in metering unmatched by a commensurate increase in registration.
• Nigeria Inter-Bank Settlement System (NIBSS) data reveals that the amount Nigerians spent on electronic bills such as power and other utilities grew by +387.19% from N189.50bn in the first four months of 2019 to N923.24bn in the corresponding period of 2022, The survey which covers payment channels such as internet banking, mobile banking, USSD, and agent networks shows that improvements in mobile usage and mobile payment proved helpful while an increase in demographic expansion is expected to sustain the trend.
• Workers in the electricity sector under the aegis of the National Union of Electricity Employees, NUEE, have issued a 21-day ultimatum to HoS of the Federation, to withdraw a certain March 14, 2022, memo. According to NUEE, in line with the Electric Power Sector Reform Act, 2005 and consultations with various stakeholders, a Transfer Instrument (Provisional Transfer of the Asset, Liabilities, Employees’ rights, and Obligations of PHCN Plc to Electricity Management Services Plc) should ensure that there shall be a transfer of employees from PHCN to new companies while maintaining their positions and remuneration packages among others.
• Based on the investment highlights published by The Nigerian Investment Promotion Council (NIPC) recently published, shows that the investment status of start-ups fell by 78.2% to US$57.55m in April 2022. Despite the slump Fintechs such as Umba (a Nigerian digital banking platform) raised the highest capital during the period to the tune of US$15m, ZirooPay, (a mobile platform for small businesses) raised $11.4m, while both Afriex (a fintech firm) and Leatherback, (another financial services provider) raised US$10m.
Review and Outlook
In the build-up to the 2023 general elections billed to hold February next year, the frontline candidates are beginning to unveil their economic plans and programs. Whereas in other climes political parties are known for well-defined economic ideologies the same can’t be said about Nigerian Political parties. Regardless, the plans of the candidates themselves would suffice as a guide on how they plan to manage the economy.
Both Atiku Abubakar and Bola Tinubu have expressed their preference for the market, private enterprise, and minimizing government intervention. Under either of them, subsidies would be scaled back and the drive for FDI would intensify particularly through the creation of an enabling environment. Both have however not made categorical statements about their plans on generating more revenue and the need to cut wastages.
Meanwhile, on the global scene, US inflation once again hit a record high of +8.6% in May signaling worsening conditions for American workers and investors. Next week, Central bank meetings will be in focus with the US Fed, the Bank of England, and the Bank of Japan all due to review their monetary policy stances again. Also, US retail sales, industrial production, and PPI data will be monitored halfway into Q2 2022.
Oil and Gas
• The NBS Foreign Trade report showed that the value of Nigeria’s oil products imports stood at N1.91trn in Q1 2022 indicating an increase of 12.08% from the N 1.70trn recorded in Q4, 2021 and an increase of 12.20% compared to the N 1.70trn recorded in Q1 2021. PMS import for the period was valued at N1.87 while the NNPC figure put the subsidy payment for the same period at N675.93bn. Analysts observed that the subsidy regime has done little to prevent the rising cost of transportation and logistics.
• With crude oil prices settling around US$100 per barrel in the international oil market, Nigeria has been unable to make any notable gain from crude oil. Available data from the Nigerian National Petroleum Company (NNPC) showed that the company has been suboptimal in crude oil production, gas supply, refining, and FAAC remittance in recent times.
• Foreign investment into Nigeria’s oil and gas sector fell by -98.93% Y-on-Y from US$57.25m in Q1 2021 to US$0.61m in Q1 2022, the lowest in six years. The decline reflects the plethora of challenges in Nigeria’s oil and gas sectors. This includes delay in implementing the Petroleum Industry Act (PIA), foreign exchange volatility, insecurity, and other perennial issues in the oil and gas industry.
• The Nigerian National Petroleum Company (NNPC) Limited has said that it is deducting an estimated value of N874.5bn in the May 2022 oil proceeds due for sharing at the June 2022 FAAC meeting. With N947.51bn spent on fuel subsidy between January and April 2022, the May figure will grow the subsidy amount to N1.822trn in the first five months of the year. Analysts expect the soaring international crude oil prices, the exaggerated domestic consumption volumes, and the depreciating exchange rates to push the estimated subsidy value for the year beyond N4trn.
• The Executive Secretary of the Nigerian Content Development and Monitoring Board, Simbi Wabote, has said the board will sanction oil and gas companies that fail to comply with the Human Capacity Development provisions contained in the Nigerian Oil and Gas Industry Content Development Act.
• Shell is set to receive final offers for its 30% stake in Shell Petroleum Development Company of Nigeria Limited (SPDC) from ND Western and Heirs oil and Gas, following SeplatEnergies and Sahara Group’s withdrawal from the bid. The deal was initially valued at US$2.3bn based on oil prices at US$50 per barrel. With the recent rally in oil prices at around US$120 per barrel, the stake is set to cost more for the bidders.
• Oil futures jumped on Monday, with Brent rising above $120 a barrel after Saudi Arabia hiked prices for its crude sales in July, signaling tight supply even after OPEC+ agreed to accelerate output increases over the next two months.
• Saudi Arabia, OPEC’s top exporter, raised its official selling price for July loading to Asian buyers by $2.1 a barrel from June to $6.5 a barrel over the Oman/Dubai quotes on concerns about tight supply and expectations of strong demand in summer.
• The US Biden Administration has given a nod to European oil majors – Eni and Repsol – to ship Venezuelan oil to Europe, a move that signals the resumption of the oil-for-debt swaps and eases Venezuela’s oil sanctions.
• UAE Energy Minister, Suhail Al Mazrouei, on Wednesday, said the oil prices are nowhere near their peak as impending demand from China threatens the global oil market already strained by tight supplies. He added that OPEC was currently 2.6 million barrels per day short of its target, acknowledging the little respite of OPEC’s output decision on soaring energy costs.
• Russian President, Vladimir Putin, has rebuffed the claim by some analysts that the Western sanctions on Russia and the EU embargo on Russian crude oil and tanker insurance would lead to an inevitable shut down of Russian oil as inventories build up. He noted that the country will not block off any oil wells, arguing that the West cannot stop importing Russian oil.
• Oil prices slipped on Friday but remained within touching distance of three-month highs as fears over new COVID-19 lockdown measures in Shanghai outweighed solid demand for fuels in the United States, the world’s top consumer.
• Brent had a weekly growth of +1.60% (see Table 1).
Gold inched up by +1.26% while Silver also inched up by +0.21% W-o-W (see Table 1).
• Cocoa prices dropped by -1.14% W-o-W.
• Corn prices inched up by +5.50% W-o-W while Sugar prices dipped by -1.35% (see Table 1).
Table 1: Commodity Prices
Commodity 10-Jun-22 03-Jun-22 31-Dec-21 Weekly Chg YTD Chg
Brent 121.5 119.59 78.54 1.60% 54.70%
Gold 1875.8 1852.4 1827.1 1.26% 2.67%
Silver 21.95 21.905 23.27 0.21% -5.67%
Cocoa 2437 2465 2546 -1.14% -4.28%
Corn 772.25 732 595.5 5.50% 29.68%
Sugar 19.04 19.3 18.83 -1.35% 1.12%
Source: CNBC, Proshare Research
*Data for the 10th of June 2022 is as of 06: 09 pm (Nigerian Time)
• In the coming week, oil prices are expected to stabilize as fears of a new Covid-19 Lockdown could put pressure on prices.
• Gold price is expected to rise in the coming week as it responds to rising global inflation.
• Cocoa prices are expected to rise as major producers push for a $400/ ton premium price on the beans.
• Sugar prices are expected to drop in the coming week on reports that the Brazillian cane industry would pick up production after a slow start to the season.
• Corn prices are expected to drop as the Brazillian Safrinha harvest continues pushing farmers to eagerly get the crop out so as not to lose moisture.
Fixed Income Market
Naira fell again this week sustaining its downward trend from the previous week at both the I & E FX windows and NAFEX windows.
At the close of trading sessions on Friday, Naira depreciated at the Investor and exporter FX windows to N421.25 indicating a week-on-week fall of -0.36%.
For the Nigerian Autonomous Foreign exchange fixing (NAFEX), the naira also depreciated by -0.20% (W-o-W) to N419.30 at the closing of the market on Thursday (see chart 2 below).
Table 2: Naira/Dollar at the I&E FX Window and NAFEX Market
03-Jun-22 10-Jun-22 % Change
I&E FX 419.50 421.51 -0.36
NAFEX ($/N) 418.45 419.30 -0.20
The liquidity stayed robust at the beginning of the week but reduced subsequently at the close of the week, making the interbank rate edge higher.
At the close of the trading session on Friday, the open repo rate (OPR) increased to 13.75 rising by +106.15% (W-o-W) while the overnight rate (O/N) also climbed up by +100.00% (W-o-W) to 14.00 (see chart 3 below).
Table 3: Money Market
Money Market Rate
03-Jun-22 10-Jun-22 % Change
OPR (%) 6.67 13.75 +106.15%
O/N (%) 7.00 14.00 +100.00%
We expect the interbank rate to expand in the coming week in the absence of any liquidity catalyst
Treasury Bills Market
The Bills market was relatively bearish this week, with the average yield benchmark for both treasury bills and OMO bills increasing at the close of the trading session on Friday.
The Treasury bill and OMO bills edged higher by +2.68% and +17.88%, settling at 4.22 and 5.01 respectively (See table 4 below).
Table 4: Treasury Bills Market
Average Benchmark Yields
03-Jun-22 10-Jun-22 % Change
T. Bills (%) 4.11 4.22 +2.68%
OMO Bills (%) 4.25 5.01 +17.88%
We expect the yield to hover around current levels with the depressed liquidity
Nigerian Treasury Bill Auction Result
At the treasury bills auction on Wednesday 8th June, DMO offered N167.22 bn worth of notes and sold a total of N182.60bn with the 182-days and 364-days being oversubscribed. The stop rate on 91 days remained at 2.50% while the rate for 182-days and 364-days fell by 5bps to 3.84% and 6.44% respectively when compared to the previous auction. (see table 5 below).
Table 5: Nigerian Treasury Bills AuctionNiTreasury Bills Auction
Nigerian Treasury Bills Auction
Tenor Amount offered (N’bn) Total subscription (N’bn) Amount sold
(N’bn) Stop Rate
91-days 2.32 1.02 0.77 2.50
182-days 0.79 6.98 1.94 3.84
364-days 164.11 353.89 179.89 6.44
Source: Commercio papers
FGN Bond Market
The bond market was relatively quiet this week with attention drawn to the FGN bond savings auctions and treasury bill auctions.
At the close of the trading session on Friday, there were mixed outcomes with multiple selloffs and buying interest across the tenors. However, the overall average yield benchmark remains unchanged week-on-week basis at 11.56 (See table 6 below).
Table 6: FGN Bonds Market
Average Benchmark Yields
03-Jun-22 10-Jun-22 % Change
Short Tenor 9.37 9.47 +1.07%
Mid Tenor 11.22 11.14 -0.71%
Long Tenor 12.74 12.75 +0.08%
We expect the average yield benchmark to decline in the coming week