Being an Analyst Note issued by Proshare Research on March 17th, 2023
Monetary Policy Committee to Raise Rates
The Central Bank of Nigeria’s (CBN’s) Monetary Policy Committee is set to meet next Monday and Tuesday after which it would announce its policy decision. Analysts believe the Q4 GDP numbers, as well as the recent inflation numbers, would likely encourage it to retain its unanimously hawkish position. Another 100-basis points rate hike would push the minimum lending rate to 18.5%, citing the sharp decline in PMI numbers, Analysts say that the MPC must exercise caution not to tip the economy into a recession.
Despite the moderation in inflation in the core sub-index, our long-term inflation outlook is moderated by a no-change outlook for the country’s foreign reserves and the exchange rate, as well as the expected rise in petroleum prices after the removal of the fuel subsidy. The favorable decline in month-on-month inflation observed in February is yet to constitute a trend. Moreover, the re-monetization of the old N500 and N1000 would reflate effective demand and price growth in 30 -60 days. While we expect a slight reduction in commodity prices to moderate, as we approach the dry season harvest of cassava, maize, rice, and yam, Monetary authorities must explore alternatives to interest rate hikes to increasing capital importation. Our analysis suggests that the single most important determinant of capital flows is the exchange rate differential between the several exchange rate windows (see chart 1 below).
Raising NNPCL Refining Capacity would Foster Energy Security in Africa
Nigeria currently has a refining capacity of 445,000b/d under rehabilitation, as well as a 20% stake in Dangote Refinery, all worth approximately US$6bn. The Group ED of NNPCL Downstream, speaking at the African Refiners and Distributors Association (ARDA) conference in Cape Town, disclosed that the national company needs approximately US$32.6bn in investment to overhaul refineries, pipelines, and vital downstream infrastructure. In addition to the existing refining infrastructure, the NNPCL wants to co-locate an African Refinery and a condensate refinery around the Port Harcourt Refinery to shore up the company’s refining capacity to 1.27m barrels per day of crude oil processing. Analysts believe that NNPCL's investment in refineries is crucial to meeting both the country's petroleum product needs and bridging Africa’s refining deficits. Yet, it is critical to contextualize it within the framework of the global sustainable energy movement, because expanding refineries and boosting oil output may not be a long-term sustainable solution to energy security, as global demand for fossil fuels is predicted to fall over time.
Oil Prices Rise on Higher Chinese Demand Outlook
At the end of the week, oil prices rose by approximately 1% after a meeting between Saudi Arabia and Russia calmed markets amid a high China demand outlook. Both contracts fell to their lowest levels in more than a year this week and are on track for their worst weekly drops since December, totaling almost 10%. The failures of Silicon Valley Bank (SVB), Silver Gate, and Signature Bank, as well as the scramble to resurrect Credit Suisse, roiled securities markets and fueled fears of a new financial crisis, weighed on oil prices this week. Investors, however, remain hopeful as a stronger OPEC outlook on China's demand helped offset bearish global investor sentiment. Analysts expect oil prices to record a slight rebound in the coming week as oil fundamentals remain strong while regulatory actions ease the financial crisis concerns. In the local market, analysts expect the petroleum product market to remain stable due to the movement restriction associated with the gubernatorial election.
AFEX Issues Commercial Papers (CPs) to Raise N30bn.
AFEX Investment Limited has issued a series 2 Asset-backed CP of N30bn under its N100bn ABCP Programme. The issuance is guaranteed by AFEX Commodities Exchange Limited, and the proceeds are intended to provide pre-qualified Agro processors with working capital to support the purchase of commodities reduced for the production process. The offer has two tenors, 179-day and 270-day with a discount rate of 13.55% and 13.50% and yield of 14.50% and 15.00% respectively. The ABCP notes will be listed on the AFEX Commodities Exchange Limited platform and have a minimum subscription of N5m. The issue has a rating of A1 from DataPro Limited with a stable outlook. Analysts expect the high yields to attract investors as secured short-term instruments offer a lower yield of 9.9% for 365 days.
Bulls take a Back Seat as Bears Dominate Weekend Equity Markets
The bears have taken control of the domestic equity market in the wake of the latest inflation results, causing several investors to re-evaluate their positions and adjust their portfolios. With inflation rates rising higher than expected, concerns over the impact on the economy and future interest rates have led to a shift in investor sentiment. Analysts note that the equity market against the last trade day has recorded a loss of N478.80bn W-o-W. In response to the latest inflation results, many investors have been taking profits and reducing their exposure to riskier assets. This has led to bearish market sentiment, with many stocks experiencing declines. As the bears continue to dominate the market, investors will be closely watching for any signs of a reversal in the trend, which could potentially signal a shift in investor sentiment. Following the recent crisis in the financial industry involving SVB and Credit Suisse, analysts have noticed a 4.33% drop in the share price of the banking sector week-on-week. The financial sector is currently facing scrutiny over its investments and liquidity, which has contributed to the decline in the sector's value (see chart 2 below).
Microsoft Adds OpenAI Technology to Word and Excel
Software giant, Microsoft is extending the power of AI to every user of its product as it is set to integrate the latest version of OpenAI’s chatbot, ChatGPT-4 into its Microsoft 365 suite of business software. The enterprise disclosed that the new AI feature dubbed copilot will be available in some of the company’s most popular productivity apps (Word, Excel, PowerPoint, Outlook, Teams, Viva, Power Platform, and more). However, Microsoft added that sometimes Copilot will be right, other times usefully wrong. Analysts believe that the new technology has its advantages and disadvantages. Pitching the technology will help create great content, great documents, and PowerPoint as well as do sophisticated analysis, but the improvements will create room for more layoffs.
Bitcoin Turns Bullish Again Despite US Banks Collapse
The world’s largest cryptocurrency Bitcoin (BTC) is back in action again after a major setback over the last two days. Bitcoin (BTC) saw a significant surge today shooting 6.4% today and moving past US$25,000 levels. Bitcoin has been leading with confidence outperforming every other altcoin. BTC is trading at an average price of US$26,616.18 with 24hrs volume of US$54bn. As the banking crisis unfolded across America and Europe, investors preferred Bitcoin over the rest of the cryptocurrencies. Analysts are of the view that if Bitcoin (BTC) was able to maintain this current run to April, it will naturally just break the Macro Downtrend which would confirm a new bullish market.