Expectations from the Markets this Week – 141122
US Inflation declines to 7.7% in October, FOMC still to sustain its hawkish tone.
U.S. inflation came in 7.7% in October, and 0.4% on a monthly basis to beat early analysts’ forecasts. Analysts had penciled-in an 8% price growth in overall prices Y-o-Y and 0.6% inflation m-o-m. Core CPI advances 0.3% on a seasonally adjusted basis, bringing the annual rate to 6.3%, two-tenths of a percent below expectations. While some analysts speculate that the Weakening inflationary pressures may prompt a dovish pivot the fact that inflation is much higher than the target of 2% suggests that the FOMC would sustain its aggressive rate hike.
Flood-induced Supply Disruptions Raise the Spectre of Higher Inflation in October
The National Bureau of Statistics (NBS) is expected to release the CPI data for October next week. Analysts believe inflation worsened in October due to severe flooding, which affected 30 of the country’s 36 states. Headline Inflation may rise to 21% as food prices may have spiked year-on-year (Y-o-Y) by 25% in October. The Food component of the overall basket is weighted over 500 points explaining why food prices would push overall inflation higher. Meanwhile, surveys conducted in Lagos suggest that the price of a 50kg bag of locally parboiled rice rose by 53.6% in two months because of the floods that affected many parts of the country.
CBN Stops Anchor Borrowers Programme amidst Flash Floods
Speaking to journalists on Thursday, the All-Farmers Association of Nigeria (AFAN) claimed that the Central Bank of Nigeria (CBN) had stopped funding the Anchor Borrower’s Programme (ABP). The ABP which was introduced in 2015, was meant to increase the domestic production of rice, wheat, and maize. According to the CBN, as of June 2022, under the Anchor Borrowers’ Programme (ABP), the Bank had released the sum of N1.01trn to over 4.21m smallholder farmers cultivating 21 commodities across the country. Analysts speculate that the decision by the apex bank may have been motivated by the repeated cases of default by beneficiaries, the persistent problem of insecurity and now the flash floods which have displaced many people, including farming communities in as many as 30 states across the country. Before the development, Analysts had expressed worries over the structure of the intervention, which seemed to distort monetary policy guidance given that lending under the scheme was at a concessionary rate. In contrast, monetary policy tightening was being undertaken to rein in inflation. Also, rather than have the CBN interfere in retail lending under the ABP, Analysts say a better alternative would have been to encourage commercial banks to provide such loans at commercial rates while the government provides guarantees.
NBCC Calls for Policy Consistency, Asks F.G. to Dump New Sin tax
The Ministry of Finance, Budget, and National Planning is believed to be planning the introduction of new excise duties. The duties which are expected to be of the nature of sin taxes have generated reactions from the Nigerian-British Chamber of Commerce (NBCC). Backing the viewpoint of the NBCC, Analysts have criticized the introduction of a new excise duty, raising concerns about the implications of policy consistency. Especially in light of the newly enacted Fiscal Policy Measures and Tariffs Amendments (FPM 2022) plan, which covers the excise expansion from 2022–2024 as approved by the president in March 2022.
Businesses operating in Nigeria already have difficulty coping with logistical challenges, from the inadequate power supply to an inefficient transportation system and a corrupt public service. Such businesses must not be put through further challenges by introducing new unscheduled taxes, as this would disrupt investors’ plans and serve as a significant disincentive for them.
Experts Call for Audit Electricity Audit, as FG Commits US$457m to Off-grid Electrification
Under the Nigeria Electrification Project managed by the Rural Electrification Agency (REA), the Federal Government recently disbursed a sum of $64.8m. This is a portion of the $550m loan facility made available to Nigeria by the World Bank and the African Development Bank to provide off-grid electricity to 705,000 households. According to government officials, the REA has committed $392m for the development of off-grid electrification projects in the 36 states of the federation and the Federal Capital Territory bringing the total commitment made by the government to prosecute the projects to $456.8m.
Analysts believe that while the initiative was welcome, it would do little to address the country’s electricity challenge. Some analysts have estimated Nigeria’s electricity power needs at around 100,000 MW, given that it has a population size of over 200 million. This is while the grid provides only 4,500MW. Analysts say that industry operators need to analyze the requirement for electricity into demand from households and businesses in order for prioritization and differential pricing. At the same time, the transmission company (TCN), the weakest link in the chain, needs to be privatized for greater efficiency. Nigeria’s urban electricity penetration is currently around 55%, while rural penetration is 36%.
Better Framework Needed for Monitoring Plans and Programmes in National Development Plans
Ahead of the National Economic Summit billed to take place on November 14 and 15, the Minister of State for Finance, Budget and National Planning, Clem Agba, has said that the country plans to increase the country’s average growth rate to 7% by 2050 and also to reduce the poverty rate to 0.3%. Speaking at the pre-event press conference on Wednesday, the minister stated that the programmes and plans contained in the country’s long-term plan (Nigeria Agenda 2050) would be the central theme at the upcoming summit. According to the plan, Nigeria is expected to become a middle-income developing country by 2050. Still, Analysts are bothered about the poor Framework for tracking and monitoring National Development Plans and the large capacity gaps in Government Ministries, Departments and Agencies (MDAs) to which policy implementation is assigned. Analysts believe stakeholders must also emphasize job creation as an essential medium to reducing poverty since over 40% of the country’s population live below the poverty line due to high unemployment or underemployment.
Oil and Gas
Flow Resumption at Forcados Terminal Raises Nigeria’s Oil production
Nigeria’s crude oil production increased for the first time in four months, from 937,766 b/d in September to 1.014mb/d in October 2022. The latest oil production report of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) shows that the country’s daily average of liquid, including crude oil and condensate, for October stood at 1.230mb/d (from 1.137 in Sept.). Analysts attributed the increase mainly to Shell’s resumption of crude oil export from the Forcados terminal, raising total output from the terminal by 1827.6% from 134,000b/d in Sept to 2.591mb/d in October. Analysts also linked the increase to the purported decline in crude oil theft occasioned by the surveillance projects by the NNPC Ltd, National security forces, and private contractors
Nigeria, Others to become Self-sufficient in Petroleum Products
The leadership of Gasoline Integrated International, an upstream oil company led by its Chairman, Dr Lukman Bolaji, has entered into talks with the Ogun State Government over the location and construction of a 400,000-barrel-per-day (b/d) refinery project in the state. The project, expected to start with 100,000 b/d in Phase 1 valued at US$3bn, will be close to the company’s oil block at Tongeji Island in Ipokia LGA of the state. Analysts expect the project to offer three-prong benefits to the State and its neighbors: (1) investment inflow with its associated job creation; (11) secure petroleum products supply; and (111) the prospect of becoming an oil-producing state. Furthermore, analysts noted that the coming on-stream of new refineries like the Dangote refinery, BUA refinery, and this Tongeji Island refinery, among others, will deliver energy self-sufficiency for Nigeria and its African neighbors and strengthen the domestic currency.
Nigeria Struggles with Dollar-Induced Petrol Scarcity
Petrol scarcity that started a few weeks ago has persisted in major cities in the country, albeit with occasional easing. The leadership of the Major Oil Marketers Association of Nigeria (MOMAN) attributed the shortages to the inability of depot owners to pay for services related to transshipment from mother vessels to smaller vessels, leaving many mother vessels, laded with petrol, stranded on the high seas. Operators identified services such as hiring small vessels, which have increased from US$20,000 per day to US$45,000 per day due to high diesel prices, high NIMASA and NPA charges in dollars, and the high cost of other logistics as major culprits. Analysts believed the likely resolution to the challenges is a direct offloading from the mother vessels and the de-dollarization of all related/service charges in Nigeria. A call by some operators to access the dollar at the official rate may not be feasible at the moment, given the current dollar shortages in the country.
Market Operators Propose Long and Short-Term Fixes for Petrol Sector
Oil marketers under the aegis of the Major Oil Marketers Association of Nigeria (MOMAN), Independent Petroleum Marketers Association of Nigeria (IPMAN), and Petroleum Retail Outlet Owners Association of Nigeria (PETROAN) expect petrol scarcity to linger till the festive season and may sell above N200 per litre. Analysts have drawn a parallel between the oil market distortion and the country’s downstream oil industry challenges. They believe the long-term fix for the challenges should combine operational domestic refineries and complete deregulation of the downstream industry. Howbeit, a quick fix for the industry challenge is to leverage the large-scale terminal of Pinnacle Oil and Gas Limited to offload imported petrol from mother vessels on the high seas.
Proactivity at COP27 and the Nigerian Energy Transition Plan
The world has again gathered in Egypt for the 2022 United Nations Climate Change Conference (commonly called Conference of the Parties, COP27) with the primary goal of making climate finance flow a reality. Analysts believed that beyond the series of negotiations and phasing down of fossil fuels promises of COP26, mobilizing and disbursing climate finance for developing countries should be a priority at COP27.
In Nigeria, the Federal Government has disclosed that its Energy Transition Plan requires US$1.9trn (N834trn) to attain its 2060 net zero targets by combating climate change and meeting its energy transition plan. Analysts expect the Nigerian government to leverage the ongoing COP27 to take an active posture in presenting investment opportunities in Nigeria’s energy transition plan and garnering funding support for the Plan. While the country has not achieved much in combating climate change, analysts see COP27 as a learning point for Nigeria to assess global practices in mitigation, adaptation, and implementation of climate goals.
UK and its Climate Finance Support: New leaf or Greenwashing?
The United Kingdom has pledged a £95m investment fund to support climate-resilient agriculture (CRA) in Nigeria. Analysts believe the commitment is part of the UK’s climate adaptation budget, expected to hit £1.5bn by 2025. Elsewhere, the Foreign Secretary of the UK, James Cleverly, has also disclosed that the UK government is supporting the African Development Bank’s Climate Action Window with £200m. The support targets African countries that need to adapt to climate change by channeling finance to mitigate climate change impact. While the initiative is positive for Africa, which has been at the receiving end of climate disasters, analysts questioned the commitment of the UK government to climate change and its capacity to finance these commitments given its fiscal constraints. Either the new UK government has turned a new leaf, or its commitment is mere greenwashing. The new Prime Minister, Rishi Sunak, had earlier downplayed the role of climate change minister and offered tax breaks to fossil fuel producers. This put his government in a position that undermines the urgency of climate change and the need to act fast. Howbeit, his reverse decision to attend COP27 may signal a shift in posture toward climate change.
Oil Prices Down but Uptick Factors Remain as Nigerians face Higher Pump Price
Oil prices traded lower for most of the week as recession concerns, larger than expected increase in US crude stockpiles, and China’s commitment to its strict Covid policy to contain the rising cases of infection dashed hope of oil demand recovery. There was, however, a slight reversal towards the end of the week as oil prices edged higher on easing Covid policy in China and the weaker dollar as the inflation rate moderated in the US. Analysts saw the possibility of an uptick in fundamentals on the horizon as Western Allies mull a cap on Russian oil and gas while the OPEC output cut put a floor on oil prices. With the NNPC Ltd arguing that market conditions, importation and retail cost has raised sustainable petrol pump price to N410 per litre, analysts expect high crude oil prices to continue to disrupt the stability of petrol supply in Nigeria at the subsidized N170 per litre.
Fixed Income Market
As FX supply improves at the parallel market, Naira gained this week, rising in value to N690 per US dollar on Friday as opposed to the record low of N900/US$1 recorded last week.
For the Investor and Exporter FX Fixings, Naira settled at N446.1 on Friday, indicating a week-on-week loss of +0.31%. NAFEX fixing closed on Thursday with the naira at N444.1/$1, a week-on-week fall of +0.08 (see table 1 below).
Table1: Naira/Dollar at the I&E FX Window and NAFEX Market
|Average Benchmark Yields|
Interbank Rates remained at single-digit levels all week as liquidity remained robust. On Friday, the Open Repo Rate (OPR) rate and Overnight rate (O/N) settled at 12.00% and 12.83%, rising by +50.94% and +35.90% respectively (see table 2 below).
Table 2: Money Market
|Money Market Rate|
Funding rates should edge higher in the coming week as liquidity tightens
Treasury Bills Market
For most trading sessions, the NTB market stayed quiet as investors’ attention was skewed to the FGN savings bond. However, on Thursday, the bullish sentiment resurfaced which extended to Friday. The average benchmark yield for NTB and OMO bills settled at 11.02 and 10.16, a week-on-week decline of -2.82% and -0.29% respectively (See table 3 below).
Table 3: Treasury Bills Market
|Average Benchmark Yields|
|T. Bills (%)||11.34||11.02||-2.82%|
|OMO Bills (%)||10.19||10.16||-0.29%|
The expected inflation figures should dictate the direction of the market next week
NTB Primary Auction
Investors Surprise Analysts by NTB Primary Auction Oversubscription
Contrary to the low subscription at the previous NTB Auctions, yesterday’s NTB Primary Auction had an oversubscription of N310.12bn against the N193.04bn offered. The rates on the 91-day and 182-day notes remained unchanged at 6.50% and 8.05%, respectively, while the 364-day dropped by 51bps to 13.99%. The bid-to-cover ratio across the three papers was 0.72x, 0.19x, and 3.59x, respectively (see table 4 below).
Table 4: Nigerian Treasury Bills Auction Result
|Nigerian Treasury Bills Auction|
|Tenor||Amount offered (N’bn)||Total subscription (N’bn)||Amount sold
|Previous rate (%)
Source: Commercio paper
FGN Bond Market
The bond market traded mixed this week with buying interests skewed to the short tenor while the selloffs continued at the mid-to-long tenor. On Friday, the average benchmark yield declined to 14.78 by 29bps, week-on-week (See table 5 below).
Table 5: FGN Bonds Market
|Average Benchmark Yields|
The selloff sentiment should persist next week
Naira Recovers from Free Fall at Parallel Market
The naira has recovered from the free fall it saw the previous week, appreciating for two straight trading sessions this week. On Monday, the naira eased to N870/US$ from the record low of N900/US$ on Friday and appreciated further on Tuesday to N800/US$. Some analysts attributed the gains to low demand for the dollar, while others suspect an improvement in FX supply to the market. However, at the official rate, the naira depreciated Tuesday to N446.10 at the Investor and Exporter FX fixings. Analysts suspect the gain might be driven by the alleged dollar checkmate report circulating, which has brought about the demand for naira contrary to analysts’ projection that demand for the dollar will rise as the CBN’s deadline for note swap approaches.
Increase in FGN Savings Bond’s Rates to Inspire Investors
The Debt Management Office (DMO) announced the Federal Government’s Savings bond with each interest rate at least 100 basis points higher than the previous rates. The 2-year bond with a maturity date of November 16, 2024, has a 12.492% interest rate as against the 11.382% offered in October, while the 3-year bond due on November 16, 2025, has a 13.492% interest rate compared to 12.382% at the previous auction. The offer commenced on November 7 to close on November 11, 2022, with a minimum subscription of N5,000 and a maximum of N50,000,000. The coupon payment dates are February 16, May 16, August 16, and November 16. The monthly savings bond auction has recently recorded low subscriptions as inflation expectations discourage investors. However, analysts expect the coupon rate adjustment to attract investors to the ongoing issuance.
Naira Unofficially Falls among the Worst-performing Currencies in 2022
According to Bloomberg, the Naira is now among the world’s worst-performing currencies using the unofficial rate. At the official rate, the Naira has been down by just 4% against the strong Us dollar with frequent interventions by the Federal Government. However, the Naira has fallen 37% in the parallel market, as the spread between the main exchanges is roughly around 90%. With this performance, it’s ranked the 3rd worst-performing currency, behind the Ghana cedi as the first and the Sri Lankan Rupee as the second. The currency redesign plan contributed to the rush to buy dollars in Nigeria and has recently resulted in a free fall of the currency at unofficial rates. The dollar is seen as a better store of value to hedge over rising inflation which has caused the fall in emerging economies’ currencies this year.
NGX – Listed Equities
- The Nigerian bourse ended the week on a negative note as market sentiment turned negative. The NGXASI closed the week with a loss of -0.68% as against a 81% gain recorded last week. The Nigerian Exchange recorded N163.64bn loss in naira terms.
- Year-to-date, the NGXASI maintained its positive position to close the week with a gain of +2.93% as market capitalization settled at N23.95trn.
- Sectoral performance across sectors was broadly negative WoW. At the close of trading on Friday, four (4) sectors closed positive WoW while eleven (11) sectors closed negative WoW and two (2) sectors closed flat WoW. NGX AFRHDYI topped the gainer’s chart with a gain of +1.10% WoWwhile the NGX INSURANCE Index topped the loser’s chart with a loss of -2.25% WoW (see chart 1 below).
Chart 1: Movement of NGXASI Index Points 1ST NOV. 2022 – 11TH NOV. 2022
NASD OTC Exchange – Unlisted Equities
The NASD OTC Security Index (NSI) and Market Capitalization closed the trading week on a negative note. The NSI and Market capitalization closed the week at 714.80 points and 939.25 with an decrease of -0.77% respectively (see table 6 below).
Table 6: NASD W-o-W Change
|MKT Capitalization (Bn)||948.30||939.25||-0.95%|
|Value Traded (000)||1,047,580.00||311,522.00||-70.26%|
Dangote And Elumelu Index
Dangote Index closed the week positive at 125.00 index points from 125.75 index points recorded the previous week, representing a decrease of -0.60% W-o-W. DANGCEM closed the week negative with -0.63% W-o-W while DANGSUGER and NASCON remained flat respectively WoW (see table 7 below).
Table 7: Dangote Index W-o-W Change
Furthermore, the Elumelu Index closed negative at 107.74 index points from 104.53 index points recorded the previous week, representing an increase of +3.07% W-o-W. TRANSCORP, AFRIPRUD, UBA and UBCAP closed the week positive with +1.89%, +3.88%, +2.86% and +6.61% respectively while TRANSCOHOT closed the week flat W-o-W (see table 8 below).
Table 8: Elumelu Index W-o-W Change