Expectations from the Markets this week – First Ideas Limited

Expectations from the Markets this week

Expectations from the Markets this Week – 080822

Global Economy


US Non-Farm Payroll Data shows that 528,000 new jobs were added in July, Analysts foresee further Rate Hikes

The US labour market returned to pre-pandemic levels as Non-Farm Payroll data showed that 528,000 new jobs were added in July, surpassing all forecasts. US unemployment rate also fell to a five-decade low of 3.5%, while wages sped, supporting claims that the world’s largest economy is not in a recession, despite recording negative growth rates in the last two quarters. Analysts believe that the Federal Reserve would be encouraged to keep up with its aggressive rate hikes in a bid to arrest inflation.


Analysts expect Slower UK growth as Bank of England MPC hikes interest rates by 50bp

The Bank of England (BoE) at its August meeting decided to hike interest rates by 50bp from 1.25% to 1.75%. The raise in the base rate is the single largest increase in rates in over 27 years. Analysts believe the decision was informed by the run-away inflation in the UK which threatens to hit 13% by October, when the energy price cap is expected to be removed. Meanwhile, with such aggressive rate hikes still in the offing, analysts believe that the UK economy may inadvertently shrink by Q4 2022.


Soaring Turkish inflation nears 80%, Analysts expect Inflation to Peak at 85%

Turkey registered a 79.6% inflation rate in July further up from 78.6% in June. The country’s ultra-loose monetary policy has meant that the base rate is held at 14%. Meanwhile, Russia’s invasion of Ukraine has worsened the country’s inflation worries with food and energy prices surging to record levels, necessitating multiple rewrites of the forecast for inflation. Analysts believe that with a tighter financial condition in the global economy, the lira is expected to continue to fall while Turkish inflation may rise to 85% by Q3 2022.


Nigeria Economy


World Bank Calls for the Re-allocation of Subsidy Payments to Health and Education, Analysts weigh alternatives

While announcing an $8.5bn fund to support education and agriculture in Nigeria, the World bank’s Country Director in Nigeria on Thursday called on the Federal Government to remove the Subsidy on Premium Motor Spirit (PMS) and to reallocate resources to more productive ends such as Health and Education. Analysts note that the Subsidy scheme is riddled with lack of transparency and rent seeking, a situation which has now prompted the Nigerian Legislature to investigate the actual volume of Petrol which the country consumes daily.Analysts are also of the view that although the fear of surging inflation has led to the retention of the subsidy scheme, it needs to be properly managed to prevent racketeers. In 2022 alone, the Federal Government budgeted N4trn for fuel subsidy, this exceeds the allocation to critical sectors such as Education (N1.23trn), Health(N0.87trn) and Infrastructure(N1.42trn).


FEC approves $2.59bn for Badagry Deep Seaport project, Analysts eyeball opportunities under AfCFTA

Reacting to the recent approval granted by the Federal Government for the construction of the Badagry Deep Seaport project under a public-private partnership arrangement. Analysts note that the $53.6bn projected earnings from the port when completed would help with fiscal liquidity. Beyond that however, an upgrade of other existing ports would help Africa’s largest economy to become a maritime hub in the whole of Africa especially under the AfCFTA. However, analysts note that to achieve this, the dwell time of ships at Nigerian ports must improve.  Currently cargo dwell time in Nigeria is between 20 and 28 days, the highest on the West African Coast.


FG pays N405bn interest on Ways & Means, Analysts express concerns about extra budgetary nature of payment.

According to the Medium-Term Expenditure Framework and Fiscal Strategy Paper 2023-2025, the Federal Government paid an interest of N405.93bn from January 2022 to April 2022 on the loans it obtained from the Central Bank of Nigeria in the form of Ways and Means Advances. It Should be noted that there was no budgetary allocation for the payment in the 2022 budget. Analysts also question the over-reliance of the Federal Government on Ways and Means advances in violation of the CBN Act, a development that has been identified as a contributory cause of the country’s inflation concerns.


US-EXIM Bank lend Nigeria $1.5bn for Solar projects, Analysts mull cleaner and cheaper energy

10 different locations across Nigeria would benefit from new solar power infrastructure which would be procured by a $1.5 bn loan facility from the US-EXIM Bank. The facility which is a government-to-government loan is at a concessional rate, repayable over a 20-year tenure. As the project will deliver a lower-cost electricity, Analysts believe that the abundant sunlight in the country would make the project not only financially viable but also environmentally sustainable in comparison with fossil fuel.


Oil and Gas Industry 


Analysts Take Note of Nigeria Midstream Oil Industry and Systemic Theft

The large-scale oil theft and illegal oil refineries in Nigeria have kept the country’s average daily oil output at an abysmally low level, currently at 1.158mb/d as of June 2022. Crude oil vandals have developed a network of pipelines that tap into the country’s pipeline network to transit the oil to their reservoirs. The Trans-Niger Pipeline (TNP), with a capacity for 180,000 b/d of oil, has halted crude flow since mid-June due to theft along the 150 tapping points on the pipeline. Analysts expect a formal shut-in of oil transit through the TNP as the operator, Shell, constantly declares force majeure on crude export from the connected terminal, Bonny Terminal, and shut-in of oil from fields evacuating through the pipeline. With persistent challenges in the midstream segment of the industry, Nigeria’s crude output risks maintaining its downward trend in the second half of the year.


Analysts Blink as Federal Government Denies Fuel Subsidy Removal

In what seems like a relief for Nigerians on the recent increase in petrol pump price, the Minister of State for Petroleum, Timipre Sylva, denied government involvement in the price hike – from N165 per litre to between N169 to N250 per litre depending on the state – noting that the government is still subsidizing petrol prices. It should be pointed out that the regulator’s silence on the price hike implied government compliance. The fact that filling stations owned by the NNPC have also raised their pump prices to about N175 per litre justifies the government’s compliance with the increase in fuel prices and suggests that the price increase is here to stay, if not more.


Meanwhile, because the Minister attributed the increase to marketers and just intended to engage the regulator suggests that there is a deliberate attempt by the downstream regulator to play neutral on the petrol price hike.


Widening Oil Production Gap Worries Analysts as Nigeria’s OPEC Quota Rises

OPEC+ Ministers adjust upward the production level for OPEC and non-OPEC Participating Countries by a mere 100,000b/d for September 2022, a testament to the limited capacity of OPEC to boost output. Albeit the little increase will be insufficient to meet global oil demand. Nigeria’s production level was revised upward by 4,000b/d from 1.826mb/d in August to 1.830mb/d in September 2022. Yet, production has remained low at 1.158mb/d in June 2022. We expect the production gap to widen further due to low rig count, low investment, and other existential issues in the industry.


Legacy Challenges Stall AKK Project as Analysts Urge Fresh Approach 

Analysts and operators have identified lack of funding and insecurity as the major reasons the US$2.8bn Ajaokuta-Kaduna-Kano (AKK) pipeline project was not delivered as scheduled last month-June 2022. The 614km pipeline was meant to connect eastern, western, and northern Nigeria into a network of pipelines and further target markets in the Trans-Sahara and Europe. However, with a bleak outlook for the AKK project, Analysts expect the Federal Government to leverage the US$5bn funding commitment of the African Export-Import Bank (Afreximbank) to the NNPC earlier in the year to fund alternative projects such as the Trans-Sahara Gas Pipelines (TSGP) to scale investment in the oil and gas industry in Nigeria and to harness the renewed interest of the European Union for Nigeria gas export to the Union.


Oil Prices Reflect Global Uncertainty

While more oil majors released huge quarterly earnings this week, oil prices have continued to mirror the uncertainty across global markets. Brent crude prices hovered around $90-103 per barrel in the week on structural weakness in demand outlook due to fear of an economic slowdown in the US and Europe, debt distress concerns in emerging market economies, global inflationary concerns, and China zero COVID-19 policy. These concerns were reinforced by a significant build in US crude inventory by 2.2m barrels against analysts’ expectations of 600,000 barrels drop.


Commodity Market

Brent had a weekly decline of -13.10% (see Table 1).



Gold inched up by +1.63% while Silver also declined by -2.05% W-o-W (see Table 1).



Cocoa prices inched up by +0.34% W-o-W.

Corn prices declined by -2.08% W-o-W while Sugar prices inched up by +1.53% (see Table 1).


Table 1: Commodity Prices

Commodity 05-Aug-22 29-Jul-22 31-Dec-21 Weekly Chg YTD Chg
Brent 95.62 110.03 78.54 -13.10% 21.75%
Gold 1790.3 1761.5 1827.1 1.63% -2.01%
Silver 19.805 20.22 23.27 -2.05% -14.89%
Cocoa 2342 2334 2546 0.34% -8.01%
Corn 610.75 623.75 595.5 -2.08% 2.56%
Sugar 17.87 17.6 18.83 1.53% -5.10%
Source: CNBC,

*Data for the 29th of July 2022 is as of 05: 28 pm (Nigerian Time)


Ukraine Exports: Good; But Lingering Food Issues Could Push Back Efforts

Ukraine restarted exports through the black sea on Monday, August 01, 2022, since the invasion from Russia began after a ship carrying about 26,000 tonnes of corn headed for Lebanon. This move is said to be the first step to preventing the looming global food crisis as many feel the war in Ukraine put the world on edge. While this thought might seem true as food prices hit record levels after the war started, Analysts have disagreed with the notion, citing that there were already existential issues before the war began. Right after lockdowns were lifted globally in response to the control of the Covid-19 pandemic, demand for commodities increased and supply chain disruptions came to the fore. Food prices started increasing, and logistics could not meet up with global demand. The world bank stated that food prices are expected to stay elevated up till 2024, a view shared by analysts who point out that food price volatility could still exist since supply chain disruptions have not been properly addressed and Russia could still spook the market after strongarming Europe into considering removing some of the sanctions towards the country, coupled with food protectionism witnessed among countries looking to protect their domestic market.


Stakeholders in Nigeria Call for the Addressing of Gaps in the Agricultural Sector

Food insecurity, largely fuelled by the conflict in Ukraine, has prompted stakeholders to come together in search of solutions to a potentially looming food crisis globally. Stakeholders in Nigeria came together to discuss issues bedevilling the agricultural sector in the country. One of such was the Code Cash Crop 3.0 where stakeholders spoke about gaps in the agricultural sector and proffered advice to farmers and those in the agricultural value chain. With the absence of value addition to products currently exported, the country doesn’t benefit enough from the commodities exported.  Another stakeholder forum called for farmers to embrace the use of genetically modified crops in planting to improve yield, resistance to pests and diseases, and resistance to drought. One of those spoken-about crops is the pod-borer-resistant cowpea which was touted to be able to cut down the deficit in supply and demand of beans. Nigeria currently stands as the highest producer of the crop and highest consuming nation which causes a supply deficit that is covered by imports. The adoption of the pod-borer-resistant cowpea, the Tela maize, and other genetically modified food crops could well shovel Nigeria into achieving Food security.


Despite Argentine Farmer’s Hoarding of Corn, United States Still holds Advantage

As food prices continue the reversal catalysed by higher harvests experienced in major exporting countries, information on 27 ships waiting in three ports with cargo and signed contracts have further reduced fears of reduced export from the breadbasket of the world. After the Ukrainian ship loaded with 26,000 tonnes of corn left for turkey, spelling good news, information that shocked the market came out from Argentina, as farmers decided to hold onto their grains while they observe the nation’s economy. Argentina is one of the largest exporters of corn globally and it stands as the 2nd largest exporter of the commodity ahead of Ukraine. While this news affected the market, pushing corn prices up, we see this not as a trend but as a spook to the market since the United States holds a fair market share in the global market accounting for about 35.9% of total corn exports in 2021 amounting to about 70.04MMT (million metric tons) which stands higher than the combined exports of both Argentina and Ukraine, the 2nd and 3rd largest exporter of the commodity in the global market. So, a sustained high corn price shouldn’t be expected in general.


Fixed Income Market

 Taj limited bank granted National License by CBN

CBN granted a national License to Taj Limited, coming on the heels of several awards bagged by the bank in their operations for the past two years along with three International Standard Organisation (ISO) certifications. The management previously announced in June the plan to launch Nigeria’s first private sector Sukuk offering under an N100bn programme in a Mudarabah structure. We expect the national license to expand the bank’s network across the country while promoting financial inclusion.


Currency Market

At the beginning of the week, Naira recovered from the grand loss of N710 recorded last week reaching N635/$1 on Thursday at the parallel market and appreciating for most trading sessions at the official windows.


On Friday, the naira appreciated at the Investor and Exporter FX fixings (I&E) by 21bps (W-o-W) to settle at N428.12. Also, at the Nigerian Autonomous Foreign Exchange Fixing (NAFEX), it appreciated by 15bps (W-o-W) to N426.17 on Thursday (see chart 2 below).


Table 2: Naira/Dollar at the I&E FX Window and NAFEX Market

Average Benchmark Yields
  29-July-22 05-Aug-22 % Change
I&E FX 429.00 428.12 -0.21%
  28-July-22 05-Aug-22  
NAFEX ($/N) 426.83 426.17  -0.15%

Source: FMDQ


Money Market

After the FAAC allocation last Friday, the interbank rate fell significantly on Monday but returned to its high values on Tuesday in the absence of any other major inflows.


As of Friday, the Open Repo rate (OPR) stayed unchanged at 15.00 while the overnight rate (0/N) fell by -1.69% (W-o-W) to 14.50(see chart 3 below).


Table 3: Money Market

Money Market Rate
  29-July-22 05-Aug-22 % Change
OPR (%) 15.00 15.00        0.00%
O/N (%) 14.75 14.50    -1.69%

Source: FMDQ


The interbank rates should maintain current levels baring any significant inflows


Treasury Bills Market

The bearish sentiment continued all through the week as liquidity worsens and investors pivot to the higher yields at the FGN savings bond primary auction.


On Friday, the Nigerian treasury bill closed bullish as the average benchmark yield declined by -10.26% (W-o-W) to 6.91.


The Average benchmark yield for OMO bills rose by +12.96% (W-o-W) to settle at 11.16 (See table 4 below).


Table 4: Treasury Bills Market

Average Benchmark Yields
  29-July-22 05-Aug-22 % Change
T. Bills (%) 7.70 6.91 -10.26%
OMO Bills (%) 9.88 11.16 +12.96%

Source: FMDQ


We expect selloffs to dominate the market next week 


FGN Bond Market

Investors had mixed reactions this week, with few buying interests at the short end and multiple selloffs at the long end of the curve.


At the end of the trading session on Friday, the activity tilted to the bearish stand with the overall average benchmark yield climbing to 12.53% (See table 5 below).


Table 5: FGN Bonds Market

Average Benchmark Yields
  29-July-22 05-Aug-22 % Change
Short Tenor      11.30  11.39  +0.80%
Mid Tenor      11.87 12.34  +3.96%
Long Tenor      12.96 13.42  +3.55%

Source: FMDQ


We expect the bearish sentiment persists in the coming week.


FGN Saving bond Auction 

The Debt Management Office (DMO) announced the issuance of the Federal Government Savings bond consisting of 2-years and 3 years tenor. The interest rates for the 2-years and 3-years are 9.413% and 10.413% per annum, respectively. However, when compared to the previous auction the rate is higher than 8.075%and 9.075% recorded at the July auction because of the hawkish MPR. The auction is presently ongoing and closes on Friday 5th August with a minimum subscription of N5000 and a maximum of N50,000.


Equity Market

  • The Nigerian bourse ended the week on a negative note as market sentiment remained red.  The NGXASI closed the week with +0.70% as against -3.10%loss recorded last week. The Nigerian Exchange gained N195.36bn in naira terms.
  • Year-to-date, the NGSAXI remained positive to close the week with+18.74% gain as the market capitalization settled at N27,3trn at the end of the week.
  • Sectoral performance across sectors was Bullish. At the close of trading on Friday, as 14 sector recorded gain while NGX- Premium recorded the highest loss for the week with -4.96%


Chart1: Movement of NSEASI Index Points 25 JULY 2022- 05 AUGUST. 2022

 Source: NGX


With Positive Q2 Corporate Financials, Analysts’ Mood Remains Mixed

As more companies release their Q2 financial report, Analysts expect positive earnings to be a significant factor for investors in deciding which stock to buy.  The banking sectors recorded positive change in the second quarter, attributable to increased interest income as the MPC hiked the Monetary Policy Rate (MPR). First Bank and Unity Bank recorded N56.6bn and N1.3bn profit after tax, respectively.  Analysts expect buying interest in insurance companies as the country enters its summer travel season, but the uncertainty in the industry recapitalization may be a deterrent. Elsewhere, analysts attribute the July 2022 bearish trend in the NGX to insecurities, policy instability, and unstable naira, giving investors a second thought about the market’s viability.


FMN Plc Issues Takeover Notice to Honeywell Flour Mills, Analysts Note Stock Price Increases

Honeywell Flour Mills Plc announced on Tuesday that Flour Mills of Nigeria Plc has notified the Company of a Mandatory Takeover Offer (“MTO”) that will be made to shareholders of Honeywell by Ecowise Horizon Investment Limited and Greywise Investment Solution Limited. The Qualification date for the Mandatory Takeover (MT0) is 5:00pm on Thursday 5, 2022; being the settlement date for all trades that are executed on Friday July 29, 2022.


Analysts observe an improvement in the share price of Honeywell and Flour Mill by +10% and +2% respectively as at the close of Tuesday trading session, underscoring investors’ optimism on the deal. The Mandatory Takeover Offer for 79,301,976 Ordinary Shares of 50 kobo each in the Company represents 1% of the total shareholding of Honeywell Flour Mills Plc.


Analysts Support SEC Warnings on Illegal Crowd funding Platforms 

The Securities and Exchange Commission (SEC) has issued a warning to investors against unregistered investment crowd funding platforms. In a secular dated August 3, 2022, SEC stated that it has observed with concern the fraudulent activities of some unregistered crowd funding investment platforms and advised the public against such platforms. It had in January 2021, published its crowding funding rules, and requested well intending crowd funding platforms to register with the commission and comply with the rules.


We are worried about the future of crowd funding in Nigeria. Whereas there has been a relative success in countries like the United Kingdom, North America, Europe, and Asia showing impressive growth, African countries appear to be lagging attributable to weak regulations, lack of awareness of fraud, and corruption. More so, the success rate of startups reaching their crowd funding goal is around 22.4%.


About the Author


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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