Being an Analyst Note issued by Proshare Research on October 18th, 2022 

Inflation rises to 20.77%, Analysts note a slight improvement

The National Bureau of Statistics (NBS) on Monday released the Consumer Price Index (CPI) data for September 2022. According to the NBS, the headline CPI, which tracks the prices of a basket of commodities nationwide, grew Y-o-Y by 20.77%. Inflation, therefore, added 25 basis points compared to the August print which came in at 20.52%. The recent inflation print brings the average inflation for the year 2022 to 17.92%. Analysts noted that month-on-month inflation continues to show signs of disinflation as prices in September rose by only 1.36% compared to the eight-month average of 1.72%. Examining the components, analysts observed that food inflation advanced to 23.34% Y-o-Y from 23.12% in August while core inflation rose to 17.6% Y-o-Y from 17.2% in August.

Analysts believe that the slower advancement of prices is due to the cumulative impact of the hawkish monetary policy actions embarked upon by the Monetary Policy Committee (MPC). As the impact of policy lag disappears the cumulative impact of the policy actions further weighs on money stock and monthly inflation. With the recent trajectory, the MPC could consider a dovish pivot in its next meeting (see chart 1 below).

Chart 1: Nigeria's Headline Inflation (%) (Y-o-Y) & (M-o-M) January - September 2022

NLNG Force Majeure: Two-way Threats of Soaring Price and Revenue Loss

The recent flooding in the country has forced the upstream gas suppliers (also its shareholders) of the Nigerian Liquefied Natural Gas (NLNG) to declare force majeure on gas supply. The announcement has, in turn, prompted the NLNG to declare force majeure on shipments of natural gas from its Bonny Island platform. A force majeure is a declaration of inability to fulfill a contractual obligation due to unavoidable circumstances. An elongation of the force majeure will significantly raise the price of Liquefied Petroleum Gas (LPG, also known as cooking gas). The industries and export partners that depend on natural gas from NLNG would also have to deal with zero gas delivery. Analysts expect prompt responses from the government to salvage the situation, noting that the gas shut-in and the recent drop in crude oil production could significantly undermine the country's foreign exchange earnings.

Rising Cybersecurity Threats, Experts Alert Nigerian Businesses   

Cybersecurity threats are on the rise worldwide as hackers continuously look for loopholes in the security architecture of businesses. Experts warned that cyber-attacks on companies are not matters of ‘if you will be attacked’ but of ‘when’ you will be attacked. A recent report disclosed that 71% of Nigerian companies had been hit with ransomware in 2021 valued at US$21bn, up from 22% of companies in 2020. Analysts observe that cyber-attacks are significant business risks and organizations have to be ready and proactive about security by taking countermeasures to prevent or foil attacks.

Massive Selloffs in Airtel Africa Pulls Down the NGX ASI 

The Equity market opens the week bearish as selloffs in Airtel Africa pull down the market. The NGX All Shares Index (ASI) declined by -2.53% to close at 46,365.95 index points as against the 0.09% gain recorded the previous day. The NGX Market CAP lost N655.29bn in value. The market’s sectorial performance was broadly positive, with eight (8) sectors index closing positive, while five (5) sectors closed negative and five (5) sectors stayed flat. The NGX ASI recorded its lowest Index point since January 2022 and the month-to-month (M-o-M) loss rose to -5.4%, while the Year-to-Date (YTD) gain stood at +8.5%.

Airtel Africa had a YTD return of 109.4% as of October 5, beginning the year at N955 per share and rising steadily to N2,000 at the end of Q3. However, it fell -19% between October 6 and 17 which could be attributed to profit-taking by investors. Airtel Africa presently sells at N1620, putting the current YTD return at +69.6%. Analysts expect mixed investor reactions this week as inflation and interest rate uncertainty affect the market (see chart 2 below).

Chart 2: Airtel Africa Share Price Movement from August 16 - Sep 17, 2022

Traders Note Persistently Low Subscription at FGN Bond Auction as Inflation Bites

Given higher inflation expectations, investors’ interest in the fixed-income market has waned over the last two months. Investor disinterest was reflected at the FGN Bond Market Primary auction yesterday. The N225bn bond offer was undersubscribed by -52% with the low subscription skewed between the 2029 and 2032 maturities. The rates in 2029, 2032, and 2037 maturities were allotted at 14.50%, 15.00%, and 16.00%, indicating a 380bps, 115bps, and 150bps rise compared to the previous auction. Analysts believe the inflation data released yesterday contributed to the low subscription, indicating that the selloff in the secondary market would continue as investors seek higher yields to cushion the inflation burden (see table 1 below). 

Table 1: Nigerian Bond Auction results Auction

Microsoft Set for the Second Wave of Job Cuts

On Monday a Microsoft official confirmed that the company would let go of additional workers as the software maker's revenue was lower than expected. This was because of a weaker sale of windows licenses for PCs. This has been a trend for a while with other tech companies taking similar decisions of cutting jobs and slowing hiring. This is also the second time Microsoft has cut jobs, the previous was three months ago. Analysts expect this trend to continue because of the uncertainties surrounding the global economy.

Three Arrow Capital Under Investigation by The US SEC and CFTC 

Following the collapse of the terra ecosystem in May, which resulted in the insolvency of the hedge fund three Arrow Capital, the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) have decided to investigate whether the manager of 3AC violated rules by misleading investors about the strength of its financial statements, while also failing to register with the authorities. According to the bankrupt, the hedge fund sustained losses as a result of its exposure to the terra ecosystem since it was unable to fulfill its lender's margin calls and was forced to apply for Chapter 11 bankruptcy protection. Furthermore, several bankrupt crypto businesses, such as Celsius Capital, have experienced losses as a result of their investments in 3AC. Analysts pointed out that the CFTC and SEC are not the only agencies looking into 3AC's operations; the Monetary Authority of Singapore has also reprimanded the defunct hedge fund for giving misleading information and exceeding its AUM limit.