Being an Analyst Note issued by Proshare Research on December 9th 2022

Persistent Fuel Queues: DSS Mandate against Market Operation

On Thursday, the Department of State Services (DSS) gave a marching order to stakeholders in the downstream petroleum industry to resolve the fuel scarcity within 48 hours. Citing its constitutional mandate to detect and prevent economic sabotage against the country, the DSS threatened to take action against those sabotaging the product supply. Proshare analysts argued that whereas the DSS has the mandate to investigate and report economic sabotage, it has no constitutional mandate to interfere in the market operation of economic agents nor issue public order to that effect. 

Meanwhile, stakeholders' meeting in petrol distribution has yielded promises by marketers to operate a 24-hour operation to clear the queues. The regulator insisted that it has 1.9bn litres of petrol in stock to last over 30 days with more delivery underway. Although analysts expect the joint efforts to provide a temporary respite for the month, structural reform is required to stabilize the industry in the long run.  

Analysts Call for The Safeguard of The New €63m Mega Transformers

Minister of Power Abubakar Aliyu, on Thursday, confirmed the arrival of ten morbid power transformers and ten mobile substations have started arriving in Nigeria under the first phase of the Presidential Power Initiative (PPI). The initiative, which saw the Federal Government sign a pact with the German government and a German company, Siemens, has as its ultimate objective the increase of the end-to-end grid operational capacity of the power system in Nigeria to 25 gigawatts (GW) by 2025.  While expressing optimism about the development, Analysts note that the country's electricity needs could be as large as four times what the project would provide. Analysts also expressed concerns about the timeliness of the project. Recall that the €63m mega power transformers, which were supposed to be produced in Ukraine and meant for delivery in September, have only been delivered due to the geopolitical tension in Europe. Analysts fear that the same lag may affect the delivery of the entire project. Analysts also raise concerns about the need to safeguard the new electricity facilities. The rise in insecurity across the country has meant such projects must have the proper security and surveillance infrastructure. 

Oil Economists Note that Prices are being Pressed by Uncertainty

Oil prices dipped significantly for the week on concerns about oversupply due to the uncertainty about how the Western cap on Russian oil prices would play out and economic slowdowns from interest rate hikes by central banks. Howbeit, the dips were moderated by OPEC+ holding its output targets steady, EU implementation of sanctions on Russian seaborne crude oil, relaxation of China's Covid curbs, and the disruption along a major Canada-US crude pipeline. In the coming days, analysts expect oil prices to remain pressured by uncertainty about the cap on Russian oil and slowing global demand growth. In the local petrol market, analysts expect petrol prices to stay slightly volatile and differ across stations in a few days despite the joint efforts of major stakeholders. 

UK Bond Yields Slow Down Under Rishi Sunak Administration 

Investor's confidence in the UK market seems to have improved under Sunak Rishi's administration, seeing that gilt yields have trimmed down from previous elevated figures. The market had record high yields during the Lizz Truss administration as the mini-budget saga triggered aggressive outflows and an emergency bond-buying programme on long-date maturities. During the period, the UK 10-year yields rose to a resistance of 4.47% as of November 10 and remained within that range till her resignation, when the yield fell to 3.74%. Since the resumption of Sunak, the bond market has been less bearish, with the yields dropping steadily to a support of 2.93% on November 24, 2022. The average yield under Sunak is 3.34%, which is lower than the 3.74% under Truss. The recent bond sales were oversubscribed, indicating strong buyer interest. Analysts believe the current administration's fiscal and monetary policies are the primary drivers of renewed investors' confidence (see chart 1 below).

Chart 1: 

The Equity Market Bullish Momentum Halts

The fourth consecutive positive run recorded in Nigeria's Equity market ended in the previous trade session as the bears dominated the market. NGX All-Share Index declined by 65.35 index points representing a -0.13% decline to close at 48,365.14 index points as against the 0.12% gain recorded in the preceding trading session. The NGX Market Cap recorded N61.35bn loss. Analysts attributed the loss to sell-offs in Capital Hotel, which recorded a -9.80% decline in share price to sell at N2.76 against N3.06, MTN, which also recorded -2.27% decline to close at N215.00 as againstN220.00 and Honey Flour recorded a -9.09% to close at N2.20 as against N2.42 at previous trade session. Analysts expect the selloffs to continue in the coming week as rate hikes and high inflation weigh heavily on investors (see chart 2 below).

Chart 2:

NCC Confirms Airtel as Sole Bidder for New 5G Licence

The NCC has called off the planned 3.5GHz spectrum auction scheduled for December 19, 2022, following the emergence of Airtel Nigeria as the sole effective bidder for the process. A report from NCC stated that only two companies, Airtel Nigeria and Standard Network & Connections Limited, expressed interest in the auction of the spectrum band. However, only Airtel paid the intention to Bid Deposit (BID) as stipulated in the Information Memorandum (IM) of US$27.36m, which is 10% of the reserved price of the spectrum fixed at US$273.6m. Whereas standard Network sent an email appeal for the deadline to be extended by 12 working days, it was rejected because it violated the requisite IM. 

Analysts believe the rolling out of the spectrum would further support the drive for inclusive growth and connectivity of a sizeable number of Nigerians. The adoption of the 5G network will significantly improve Nigeria's socioeconomic system by supporting high data processing capacity and low latency.

Tether to launch a Stablecoin attached to Chinese Yuan

Tether Operations Limited (Tether), the world's largest stablecoin provider, is set to add the offshore yuan-pegged stablecoin "CNHT" to Tron, the blockchain network founded by Justin Sun. Analysts believe the alliance is a good move since it is coming when the crypto market is experiencing extreme confusion and fear. Still, they are unsure whether Tether has sufficient assets to maintain the exchange. Although the Chinese have not responded positively to this move, adopting the system by the Chinese government would offer viable lessons for the Nigerian government to consider.

The cryptocurrency market followed a bullish trend in the last 24hrs, with Bitcoin and Ethereum trading at a friendly level. Both had 2.6% and 4.5% increases in the last 24hrs bringing the total global cryptocurrency market to $896bn with a 2.2% change to what it had yesterday (see chart 3 below). 

Chart 3: