LATEST UPDATES
Card-image-cap

Market | Market Updates

What to Expect from the Markets this Week - 270323

Mar 25, 2023   •   by   •   Source: Proshare   •   eye-icon 549 views

Nigeria Economy Dashboard @ 240323



Nigeria Economy

 

CBN Instructs Bank to Open Saturday, to Increase Circulation of Bank notes

As part of efforts to increase the amount of currency in circulation, the Central Bank of Nigeria (CBN) on Friday directed commercial banks to open for operations between 9 am and 4 pm on Saturday and Sunday.  Nigeria Labour Congress (NLC) had last week issued the CBN a 10-day ultimatum to address the cash crunch in the country.   Following the expiration of the deadline, the NLC initiated the process of mobilizing members of the union to picket all the branches of the CBN across the country. In a swift response, a two-man CBN delegation met with the NLC at the Labour House in Abuja on Thursday. At the meeting, the CBN told the NLC President that about N2bn was pushed out on Thursday in a bid to address the cash crunch. Analysts say that while the CBN must reintroduce much more currency into circulation to meet the transactional needs of Nigerians, the NLC’s decision to dialogue with the CBN rather than picketing its offices nationwide has helped to avert the situation where foreign investor confidence is further eroded and the country’s Issuer Default Rating (IDR) further downgraded.

 

Further Rate Hikes Likely to Affect Real GDP Growth in 2023 as Economists Mull Unemployment Effects

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) responded to the surge in inflation which surged to 21.91% in February, a seventeen-and-a-half-year high with yet another rate hike. The twelve-member committee decided on Thursday to raise the base lending rate by 50 basis points thus bringing it to 18%. Analysts say that while inflation at 21.91% is a genuine worry, the direct implication of a higher interest rate is slower growth. The IMF gave a 3.3% forecast for the Nigerian economy in 2023, Analysts say such projections would be downwardly reviewed especially if the hawkish tone of the CBN Governor is anything to go by. Private and corporate borrowing would cost more with the upward adjustment in interest rate. Consequently, businesses could downsize and reduce the scale of their operations and the rate at which they recruit. Overall, Analysts advise the CBN to address the more fundamental challenges responsible for the rising inflation which include exchange rate scarcity, inefficient transportation system, and Insecurity.

 

FGN Set to Expand Asset Register to N100trn, to Reduce Debt Service Cost

According to the CEO of the Ministry of Finance Incorporated (MOFI), the Federal Government plans to increase the value of assets in its register from N18trn to N100trn. The MOFI stated that it would be starting 40 companies and over the next 10 years, it would include other companies and major infrastructure owned by the government like airports, seaports, and mining rights. While the idea behind the expansion of the National Assets Register is to have the assets generate cash flow for the government via outright sale or concession arrangements, Analysts say that the exercise presents the Federal Government with the opportunity to adjust its approach to a budget deficit and debt management.  The 2023 budget projects that budget deficits would rise from N4.34trn in 2022 to N11.34trn most of which would be funded by new borrowing, which along with the planned securitization of the ways and means borrowing is expected to burgeon the country’s debt profile from N44trn to N77trn. Experts say that FG can leverage such state-owned assets as corporate assets, real estate, and infrastructure to issue convertible bonds at lower coupon rates.

 

FAAC Slides to N722bn Due to Weaker PPT

The Federation Account Allocation Committee (FAAC) has approved the disbursement of N722.677bn to the three tiers of government, as federation allocation for the month of February 2023. The amount disbursed in February represents a 3.7% decline compared to the N750bn disbursed for January. Analysts attribute the decline to the fall in Gross Statutory Revenue (GSR) which declined sharply from N487bn to N366bn. Earnings from Value Added Tax (VAT) also declined from N250bn to N240bn. Analysts say the recent extension of the N50 Electronic Money Transfer (EMT) Levy to domiciliary accounts is expected to buoy the EMT component of the FAAC disbursement in March. Analysts also attribute the continuous decline in FAAC disbursement to the lower-than-expected earnings from Petroleum Profit Tax (PPT) and royalties, a development which itself is due to a decline in crude oil prices. Analysts say such vagaries would persist until the revenue base of the government is sufficiently diversified away from oil.

 

Raising VAT Could Lead to ‘Deadweight’ Losses

The Minister of Finance, Zaynab Ahmed recently advised the incoming government to increase the Value Added Tax (VAT) rate to widen the government’s fiscal space. According to her, Nigeria’s Tax rate of 7.5% is significantly lower than the African average of 18%. In reaction to the recommendation of the Minister, Analysts say that the government needs to consider the deadweight and inflationary impact of VAT on household purchasing power and consumption. Analysts noted that with economic growth slowing the government has a better chance of raising more revenue via the privatization of its redundant national assets as against taxes.  The government also needs to justify the current tax revenue through greater efficiency of tax spending. According to official data, the Federal Government has in the last seven years generated N10.1tn from the collection of Value Added Tax with the larger numbers being recorded after the raise in the consumption tax rate from 5% to 7.5% in 2020. According to the National Bureau of Statistics (NBS) proceeds from VAT rose from N759.4bn in 2015, to N2.1tn in 2021 before reaching N2.5tn in 2022.

 

Global Economy

 

US Fed and BoE MPC Borrow A Leaf From ECB 

Despite concerns about financial system instability arising from the collapse of SVB and two other mid-sized banks, the US Federal Open Market Committee (FOMC) on Tuesday announced its decision to raise the Federal Funds Rate by 25bp bringing it to 4.5% - 4.75%. Analysts had anticipated the Fed’s decision to prioritize further reigning inflation which moderated to 6% in February. In a similar decision, the Bank of England on Thursday raised interest rates for the 11th time in a row, taking Bank Rate to 4.25%. The decision came just a day after inflation relapsed to 10.4% in February, beating the 10.1% expectation of analysts. Economists predict that interest rates in the UK will rise again to 4.5% by this summer. The ECB had raised rates. The ECB had last week increased interest rates by 0.5%, and stated that the recent turmoil in European bank shares did not warrant adjustments in its monetary policy plans


Raft of PMI Data Reflect Weaker Business Activity in the US and Eurozone 

The US private sector saw a strong expansion in March, with the S&P Global Composite PMI rising to 53.3 from 50.1 in February. The Manufacturing PMI recovered slightly,but remained in contraction. Meanwhile, the Services PMI surpassed market expectations with a wide margin. This indicates an encouraging resurgence of economic growth in the US, with output accelerating to the fastest since May 2022. In the UK, the manufacturing output index fell to a two-month low at 49 in March, while the PMI for the sector was also at a two-month low of 48, according to S&P Global. However, manufacturers reported improving supply conditions due to easing input inflation figures and lowering commodity prices. Despite this, the flash PMI surveys suggest that the UK economy has returned to growth in Q1, with rising output for the second consecutive month.

 

Analysts say that the improvement in order book growth indicates that a recession has been avoided, and an upturn in companies' expectations for the year ahead suggests that business sentiment has not been significantly affected by the banking sector's woes. Eurozone PMI Manufacturing fell to a 4-month low of 47.1 in March, but PMI Services rose sharply to 55.6, resulting in a PMI Composite increase to 54.1, its highest in 10 months. The data indicates a resurgence in the eurozone economy, with business activity growing at the fastest rate in 10 months, driven by fading recession fears, easing inflation pressures, and improvements in supplier delivery times, suggesting 0.3% GDP growth in Q1, accelerating to 0.5% in March.

 

Oil and Gas 


Nigeria’s Oil Production Bounces up on the Back of Rising Rig Counts 

Nigeria's oil rig count remained flat in February 2023. However, it did rise from an average of 7 units in 2021 to 13 units in January 2023, its highest level since January 2020, according to the Organization of Petroleum Exporting Countries (OPEC) Monthly Oil Market Report (MOMR) for March 2023. Since September 2022, rising rig counts have resulted in higher month-on-month oil output. 

 

According to secondary OPEC sources, Nigeria's oil output increased from 1.087m barrels per day (mb/d) in September 2022 to 1.308mb/d in January 2023 and further increased to 1.380mb/d in February 2023, the highest by any OPEC member for the second consecutive month. Analysts expect additional oil discovery in frontier basins, the offering of new offshore blocks, and the resumption of drilling in other offshore rigs. Nevertheless, pipeline infrastructure vandalism and oil theft may continue to pose challenges. We believe another problem for the industry, especially the NNPCL is monetizing oil output in the midst of rising petrol subsidies.

 

Petrol Prices Climb a Carrousel Despite Price Regulation and Subsidy

A combination of high petrol and diesel prices coupled with inflated POS charges kept energy prices high in February. According to the Price Watch of the National Bureau of Statistics (NBS), the average retail price of Premium Motor Spirit, popularly known as petrol, rose by 54.76% Year-on-Year (Y-o-Y) from N170.42 per litre in February 2022 to N263.76 per litre in February 2023, a deviation from the recently approved price of N185 per litre. Comparing the average price with January 2023 price, the average retail price climbed 2.58%. Market reports suggest that petrol prices were much higher across major cities, especially from independent marketers, in February when prices ranged between N220 and N250 per litre and worsened as POS costs nudged by a cash scarcity hurt consumer pockets. While petrol prices have risen despite price regulation, we believe petrol price may more than double in the next few months as the government removes the extant subsidy on petrol. 

 

The average retail price of Automotive Gas Oil (Diesel) increased by 168.26% Y-o-Y from N311.98 per litre recorded in February 2022 to a higher cost of N836.91 per litre in February 2023. On a month-on-month basis, the diesel engine fuel increased by 0.98% from N828.82 per litre in January to an average of N836.91 in February 2023. We reckon that the higher diesel price could be attributed to exchange rate shortages, port-related dollar charges, and the high cost of vessel leasing. 

 

New Regulations to Spur Fresh Investment in the Mid and Downstream Oil Industry

Subject to consultation with stakeholders, section 33 of the Petroleum Industry Act (PIA, 2021) provided for the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) to make regulations on critical industry operations, including licensing, processing, refining, transmission, distribution, supply, sale, and storage of petroleum products. In pursuance of this, the NMDPRA has unveiled six gazetted regulations to spur investment, a competitive market, and economic growth in the midstream and downstream sectors of the petroleum industry. The gazetted regulations are the Midstream and Downstream Petroleum Operations Regulations; Assignment or Transfer of License and Permit Regulations; Petroleum Measurement Regulations; Gas Pricing and Domestic Demand Regulations; Petroleum (Transportation and Shipment) Regulations; and Natural Gas Pipeline Tariff Regulations. While there may be points of overlap in the many regulations the Authority is expected to draft, we believe the new regulations address specific industry issues that should provide regulatory, legal, and fiscal clarities to the mid and downstream oil operations in the country.


Expatriates Would Boost the Efficiency and Effectiveness of the NNPCL 

In a statement by the Chief Corporate Communications Officer of NNPCL, Garba Deen Muhammad, the national oil company has appointed Jean-Marc Cordier, a renowned international oil trader, as Head of NNPC Trading Ltd. The NNPCL trading arm is responsible for marketing crude products, engaging in direct oil trading activities, and making profits from oil operations for the group. According to the communications officer, the onboarding of Cordier, which is part of the repositioning of the company, would improve growth, performance, and service delivery. 

 

Analysts have argued that the efficient and effective operation of the NNPCL as a profit-oriented company hangs on its willingness to leverage both local and foreign expatriates. Hence, we believe the hiring of Cordier, who has over 30 years’ experience in physical and derivatives oil trading, risk management as well as in reorganization and creation of a trading business, would support sales optimisation and the promised listing of the NNPCL. Howbeit, we recognize the need for the NNPCL to comply with the Expatriate Quota of the Nigerian Content Development Monitoring Act, 2010, which provided for a maximum of 5% of management position as Expatriate Quota subject to a succession plan. 

 

Domestic Oil Refining May Resume in Q2 2023 Despite Stakeholder Doubts 

Echoing analysts’ worries, the Independent Petrol Marketers Association of Nigeria (IPMAN) has expressed concern over the Minister of State for Petroleum, Timipre Sylva's pledge on the completion date of the Port Harcourt Refinery. The minister recently stated that the refinery will be ready by the end of the second quarter of 2022, but the oil marketers' association believes that this is one of the ministry's fruitless promises. Although we have expressed reservations about the Port Harcourt Refinery starting operations in the second quarter of the year and the lack of an official start date for the Dangote refinery, we believe both refineries have been marred by the same operational challenges, including slow capital inflows and engineering issues, among others. Yet, we remain optimistic that the current administration will push to commission both refineries before leaving office, a situation that would ease the severity of the subsidy removal. 

 

Oil Prices Stay Bullish Despite Global Demand Fears

Oil prices fell further by about 2.5% on Friday as a result of unanticipated growth in US inventory and concerns about a future surplus, following comments by US Energy Secretary Jennifer Granholm that replenishing the country's Strategic Petroleum Reserve (SPR) might take several years. Prices, on the other hand, rose for the week, recovering from their biggest weekly drop in months last week due to the banking sector turmoil and fears of a recession. This week's gains were aided by Russia's announced output cut, soaring Chinese demand, and a weaker greenback. In the coming week, we expect oil prices to be pressured by potential oversupply and rising US inventory. In the local market, we expect continuous stability in the petroleum product market.  

 

 

Fixed Income 

Currency Market

The value of Naira to a dollar appreciated by 11bps at the I&E FX fixing this week, settling at N461.33/US$1 while the NAFEX fixing had a loss of 3bps (w-o-w) to N461.30/US$1 (see table 1 below). 

 

Table 1: Naira/Dollar at the I&E FX Window and NAFEX Market

Average Benchmark Yields

 

17-Mar-23

23-Mar-23

W-o-W% Change

I&E FX

 461.83

 461.33

  0.11%

NAFEX ($/N)

 461.17

 461.30

  0.03% 

Source: FMDQ, Proshare Research

 

Money Market

In response to the 50bps MPR hike, funding rate edged up this week, settling at 18.25% and 18.88% for the Open repo rate (OPR) and Overnight rate on Friday. A weekly rise of 3774bps and 3681bps respectively (see table 2 below).

 

Table 2: Money Market

Money Market Rate

 

17-Mar-23

23-Mar-23

W-o-W % Change

OPR (%)

   13.25

   18.25

  +37.74%

O/N (%)

   13.80

   18.88

  +36.81%

Source: FMDQ, Proshare Research

 

We expect a drop in interbank rates next week with the inflow of FAAC.

Treasury Bills Market 

The Treasury market traded quietly for the most part of the week, with minimal selloffs seen after the 50bps rate hike. The average benchmark yield grew by 589bps week-on-week to 6.26%. 

The OMO bill yield rose to 4.02% this week by 3355bps ( see table 3 below). 

 

Table 3: Treasury Bills Market

Average Benchmark Yields

 

17-Mar-23

23-Mar-23

W-o-W % Chg

T. Bills (%)

    5.94

    6.29

   +5.89%

OMO Bills (%)

     3.01

     4.02

   +33.55% 

Source: FMDQ, Proshare Research

 

Analysts expect the FAAC inflow to trigger buying interests next week. 

FGN Bond Market

Despite the rate hike, the buying interest at the mid-to-long tenor continued this week bringing the average benchmark yield down to 13.89% by 50bps (W-o-W) ( see table 4 below).

 

Table 4FGN Bonds Market

Average Benchmark Yields

 

17-Mar-23

23-Mar-23

% Change

Short Tenor

 11.52

 11.58

 +0.52%

Mid Tenor

 14.42

14.37

  -0.35%

Long Tenor

 15.22

 15.03

  -1.25%

Source: FMDQ, Proshare Research 

 

The bullish trend should persist next week as liquidity improves.

 

FGN Bond Auction Result 

 

Government Borrows N203.36bn More at March Bond Auction as Subscription Remains High

Notwithstanding the negative real return, rising inflation expectations, and monetary tightening, the demand for long-dated government instruments has stayed strong. The bond auction received a subscription of N808.61bn as against N360bn offered, meanwhile DMO sold only N563.36 with the 2037 and 2049 acquiring the extra amount. Compared to the February auction, the marginal rate fell for the APR 2032, APR 2037, and APR 2049 by 101bps, 440bps, and 156bps to 14.90%, 15.20%, and 15.75% respectively while Feb 2028 had a slight increase to 14.00%. (see table 5 below).

 

Table 5Nigerian Bond Auction Result Auction

Nigerian Bond Auction 

 

 Tenor

Amount offered (N’bn)

Total subscription (N’bn) 

Amount sold

 (N’bn) 

Stop Rate 

(%)

2028

    90.00

72.50

70.85

14.00

2032

    90.00

30.86

21.76

14.75

2037

    90.00

355.63

144.24

15.20

2049

    90.00

349.37

326.51

16.75

Source: Debt Management Office (DMO)

 

Fitch Upgrades Ghana’s Credit Rating to CCC from RD

Ghana’s inability to pay elevated bond interest in 2022 prompted a downgrade of its credit rating to Restricted Default by Fitch. The country sorts for a USD$3bn bailout from the IMF and part of the requirement is to restructure its debt. The country has restructured its domestic debt which will lower its interest payments by 10% of the government’s expected revenues and has resumed the payment of outstanding local bonds. The improvement has made Fitch upgrade the rating of Ghana’s long-term local-currency issuer default to Substantial Credit Risk ‘CCC’ from ‘Restricted Default ‘. Nonetheless, the country recently defaulted on the Eurobond interest payment as it is yet to conclude the restructuring of the $13bn to international bondholders and other bilateral debts with members of the Paris Club of creditors nations and China. Analysts believe the restructuring of the bilateral debts will eventually improve the overall rating of the country and guarantee the financing assurances required from creditors to secure access to the USD$3bn International Monetary Fund loan.

 

Possible Global Slowdown in Rate Hikes to Favour Fixed Income Market 

The fate of the fixed-income market is currently hinged on the severity of the financial institution fallout and rate hikes. With Central banks torn between taming inflation or watching out for banks, we might eventually see a green light for fixed-income instruments. In 2022, the aggressive monetary tightening took yields to record highs as the negative real return made bondholders sell off to mitigate losses. Although some analysts project a halt to rate hikes to prevent a financial contagion, some still believe the battle against inflation will persist but at a lesser pace. This signals that the rate hike cycle might be ending soon and with global inflation moderating, analysts expect the market to start witnessing some buying interests that will reverse yields from the bearish path. 

 

Equity Market

 

NGX – Listed Equities

  • The Nigerian bourse ended the week on a negative note.  The NGXASI closed the week with a loss of 0.08% as against a 1.54% loss recorded last week as investors lost N12.451b in the week. 

 

  • Year-to-date, the NGXASI closed positive with a gain of 7.11% as market capitalization settled at N29.90trn for the week.
  • Sectoral performance was broadly positive W-o-W. At the close of trading on Friday, eight (8) sectors closed positive while six (6) sector closed negative while two (2) sectors closed flat W-o-W. NGX Banking topped the gainer’s chart with a gain of 0.93% W-o-W while NGX Consumer Goods index topped the losers’ chart with a loss of 0.74% W-o-W (see chart 1 below).

 

Chart 1: Movement of NGXASI Index Points 1st MAR. 2023 – 24th MAR. 2023

Chart, line chart

Description automatically generated

Source: NGX, Proshare Research

 

NASD OTC Exchange - Unlisted Equities

The NASD OTC Security Index (NSI) and Market Capitalization closed the trading week on a positive note.  The NSI and Market capitalization closed the week at 730.37 points with a loss of -0.15% and 1,010.29 with a gain of 5.12%  W-o-W  (see table 6 below).

 

Table 6: NASD W-o-W Change


 Source: NGX, Proshare Research


 

Gote And Toni Index

Gote Index closed the week positive at 150.52 index points from 150.59 index points recorded previous week representing a decrease of 0.05%DANSUGAR closed the week negative at 1.08% W-o-W and DANGCEM and NASCON closed the week flat (see table 7 below).

 

Table 7: Gote Index W-o-W Change

 

Furthermore, the Toni Index closed positive at 118.76 index points from 118.09 index points recorded previous, representing an increase of -0.57% W-o-W  TRANSCOHOT and TRANSCORP closed the week positive at 8.32% and 3.88% W-o-W respectively while AFRIPRUD, UBA, and UBCAP closed negative at 4.17%, 0.62%, and 1.64% respectively W-o-W  (see table 8 below).

 

Table 8: Toni Index W-o-W Change

 

 

 

 

Contact Us:

To list your events, e-mail [email protected]o, WhatsApp 0902-407-5284 and DM @proshare.

 

For further information, enquiry or clarifications, kindly email [email protected]o and [email protected]o Tel: 0700PROSHARE (070077674273). Call us NOW!

 

Follow @proshare @ecopoliticsNG @TheAnalystNG@PersonalFinanceNG and @WebTVng for coverage and updates.

 

Check out our Events Calendar for event details and follow us on WebTV, and social media for updates as the week unfolds. Yours to Serve!

 

Related items.

Get the App

apple-store  play-store

Connect with us


Proshare is a professional practice focused on delivering research and information services to bridge the gap between investors and markets; by delivery on credible, reliable, and timely engagements through the following areas — Impact Research, Market Intelligence, Strategic Advisory, Stakeholder Relations & Digital Media.