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What To Expect From The Markets This Week - 300522

May 28, 2022   •   by Proshare Research   •   Source: Proshare   •   eye-icon 825 views

Saturday, May 28, 2022 / 06:20 AM / Proshare Content / Header Image Credit: EcoGraphics

Nigeria: Economic Dashboard @ 270522


Editor's Note

Source: Proshare Research - May 28, 2022 


Nigeria Economy

  • According to the National Bureau of Statistics, Nigeria’s Gross Domestic Product grew by +3.11% in the first quarter of 2022 making six consecutive quarters of growth since the recession witnessed in 2020. The growth was supported by a +7.45% growth in services and a +3.16% growth in Agriculture. Meanwhile, the Industrial sector contracted by -6.81% in the period under review. 

 

  • The Central Bank of Nigeria’s Monetary Policy Committee on Tuesday announced its decision to raise the benchmark interest rate to 13%, 150 basis points above the previous rate. It is the first raise in rates since May 2016. The Governor of the Central Bank, Godwin Emefiele, said the action was to tame the rising inflation rate in the country. The rate on development finance loans will however remain at 5% till 2023 to support growth. 

 

  • The Central Bank of Nigeria (CBN) injected $3.36bn into the foreign exchange market in two months in a bid to defend the naira. Figures obtained from the CBN’s January monthly report showed that $1.71bn and $1.65bn were injected in December 2021 and January 2022 respectively. The CBN stopped forex intervention through the Bureau de Change segment of the market in 2021 and said it would stop further interventions through the banks by the end of 2022.

 

  • The Nigeria Sovereign Investment Authority, NSIA, grew its net assets by +19% to N919.73 billion in 2021, from N772.75 billion in 2020. Meanwhile, the NSIA recorded positive earnings for the 9th consecutive year, despite headwind risks across markets last year. According to the Managing Director/Chief Executive Officer, Uche Orji, the performance of the authority’s developed market investments was offset by challenges in emerging market asset allocation, particularly in China equities, which saw significant underperformance by technology company stocks. 

 

  • The Rural Electrification Agency with funding support from the Global Environment Facility and the United Nations Development Programme has kicked off a five-year rural electrification project. Tagged, ‘Derisking Sustainable Off-grid Lighting Solution in Nigeria’, direct beneficiaries of the $2.9 million project are estimated at 96,380 persons out of which 47,540 are expected to be women. 

 


Global Economy 

  • According to economists at the State Bank of India (SBI) have estimated, India’s GDP growth in the fourth quarter (Q4) of 2021-22 is expected to come in between +2.5% to +2.9%, almost half the +4.8% growth projected earlier by the National Statistical Office (NSO). Meanwhile, the NSO’s previous estimate had pegged full-year GDP growth at +8.9% in 2021-22. According to the NSO, the quarterly deceleration in growth due to risks stemming from global developments thwarted the momentum and the runaway commodity prices which widened the trade and current account deficits.

 

  • The Congressional Budget Office in the US released an economic outlook on Wednesday stating that high inflation will persist into next year, likely causing the federal government to pay higher interest rates on its debt. The agency expects the consumer price index to rise 6.1% this year and 3.1% in 2023. This forecast suggests that inflation will slow from current annual levels of 8.3%, yet it would still be dramatically above a long-term baseline of 2.3%.

 

  • The revised reading of the U.S. GDP growth of the US economy showed that it shrank in the first three months of the year by 1.5% even though retail sales improved consumers and businesses kept spending. The negative growth figure which signals represents a slight downgrade of the previous estimate (-1.4%) for the January-March quarter was caused, in part, by a wider trade gap: The trade gap slashed first-quarter GDP by 3.2 percentage points.

 

  • According to the Statistics office in Taiwan, the south-east Asian economy is expected to rise 3.91%- a slower pace this year than the initial forecast (4.42%), downgrading its outlook due to global inflation and COVID-19 dampening consumer demand at home and abroad. The revision came as the statistics office raised its export growth forecast for this year, with continued strong global demand for the island's technology products buoyed by 5G, electric vehicles, and high-end computing.

 

 

Review and Outlook

The decision of the MPC to raise rates has generated mixed reactions amongst analysts and market observers. While Manufacturers are concerned about higher borrowing costs amidst rising energy costs, and an FX scarcity that has seen the Naira depreciate in the parallel market, other experts believe that the rate in the hike was long overdue given the increase in money in circulation, the fears of capital flow reversal and the large amount of liquidity expected to hit the economy in the lead up to the general elections in February next year. 

 

Ahead of next week, global PMI releases for May would be released. Also, next week, the US labor market report would be released while the Bank of Canada meets to review its monetary policy stance. A bunch of inflation updates will be anticipated from the eurozone, Germany, and various Asian economies. GDP figures from Australia and India will also be in focus.

 

Oil and Gas Industry

Domestic

  • The Nigerian Upstream Regulatory Commission (NUPRC) has said the decision to halt the $1.3bn planned deal between Seplat Energy Plc and the US ExxonMobil was based on overriding national interest and failure to follow due process, a decision that analysts believe mirrors the government delayed farm-out between Chevron and Transnational Energy concluded in 2017. Such delays will continue to drag the country’s crude oil revenue and deter investment inflow.
  • Nigeria Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) has disclosed its plan to unveil 6 regulations covering Gas Pricing, Environmental Management Plan, Environmental Remediation Fund, Decommissioning and Abandonment, Gas Infrastructure Fund, and Natural Gas Pipeline Tariff in the coming days. The plan is expected to bring clarity, improve processes, and promote ease of doing business in the subsector.
  • The Executive Secretary of the Major Oil Marketers of Nigeria, Clement Isong, has called for investments in new trucks, adding that most of the 40, 000 petroleum product trucks on Nigerian roads are about 40 years old making them unfit for the road and causing tanker accidents.
  • The Federal Government through the Nigerian Content Development and Monitoring Board (NCDMB) said it is targeting not less than 90% performance capacity from the national refineries and had partnered with some modular refineries to boost domestic refining, suggesting that other local refineries can leverage a partnership agreement with the NCDMB to ramp up production. 
  • Operators in the Liquefied Petroleum Gas (LPG) industry have decried the falling demand and the rising prices of LPG on the back of exchange rate depreciation and rising international gas prices. Analysts expect the situation to be exacerbated by the low level of domestic production from NLNG, low level of investment in the sector, and the drag in implementing the PIA 2021, further raising LPG prices and prospects of switching to cheaper alternatives.
  • The Nigerian National Petroleum Company (NNPC) said it is looking to invest in climate-smart technologies to meet its energy needs and fight climate change impacts. Analysts believe the existing challenges such as vandalism and oil theft would rather deter investors from the country as concerns about losing returns on investment could outweigh the prospect of harnessing technological innovations.  
  • The Federal Government said it is in talks with major oil and gas producers to develop more Liquefied Natural Gas (LNG) trains in the country to take advantage of the rising global demand for gas. Analysts expect investors to rebuff the talk given the rate of project abandonment, vandalism and theft, low financing, and bureaucratic bottlenecks operational in the sector.

Foreign

  • Oil prices gained on Monday with U.S. fuel demand, tight supply, and a slightly weaker U.S. dollar supporting the market, as Shanghai prepares to reopen after a two-month lockdown fuelled worries about a sharp slowdown in growth.
  • German Economy Minister, Robert Habeck, in a radio interview, has expressed his disappointment that the EU is yet to agree to an embargo on Russian oil, stating that Germany would be willing to boycott Hungary’s participation to speed up the proposed ban. 
  • In another round of the energy payments dispute between the Western nations and Russia, Russia’s Gazprom has halted gas exports to neighboring Finland.
  • The Executive Director of the International Energy Agency (IEA), Fatih Birol, has said the current energy crisis and soaring fuel prices should not be an excuse for the world to further increase its dependence on fossil fuels. This suggests a call from the Paris-based agency for the world to use fossil fuels in the short term but move to renewable energy in the mid to long term. 
  • Poland’s prime minister, Mateusz Morawiecki, has called on Norway -western Europe’s largest oil/gas producer and one of the largest sovereign funds in the world – to share the huge profits it has made from oil and gas exports, since the start of Russia-Ukraine war, with countries affected by the war, especially Ukraine. 
  • In a letter addressed to US Energy Secretary, Jennifer Granholm, a coalition of GOP lawmakers has demanded answers to how the US Department of Energy intends to refill the Strategic Petroleum Reserve after the official release of a record amount from the reserve to bring down the record-high oil prices. 
  • The UK Finance Minister, Rishi Sunak, has imposed a windfall tax on oil and gas majors (at a rate of 25% to be phased out when commodity prices abate) as the government struggles to ease the country's worsening cost-of-living crisis. The windfall tax called “temporary targeted energy profits levy” came with an investment allowance that is meant to incentivize the oil majors to re-invest their profits in the UK economy. 
  • Oil prices hovered around a two-month high on Friday, with Brent crude on track for its biggest weekly jump in 1-1/2 months, supported by the prospect of an EU ban on Russian oil and the coming summer driving season in the United States.
  • Brent had a weekly growth of +6.36


Metals

Gold inched up by +0.67% and Silver climbed by +1.99% W-o-W.


Agriculture

Cocoa prices inched up by +1.97% W-o-W

Corn prices inched up by +0.19% W-o-W while Sugar prices dipped by -1.36


Outlook

  • In the coming week, oil prices are expected to climb over concerns that the EU would place a ban on Russian oil as oil demand increases.
  • Gold price is expected to rise in the coming week as the US dollar is set for a weekly decline.
  • Cocoa prices are expected to rise as demand for cocoa beans increases.
  • Sugar prices are expected to rise in the coming week as a major producer, India, puts export caps at 10 million tons after reports of underproduction from the top exporter, Brazil.
  • Corn prices are expected to drop as world stocks increase.


Fixed Income Market


Currency Market

 

The week started off with the Naira appreciating for most trading sessions at both the I & E FX window and NAFEX.


At the close of the trading session on Friday, the Investor and Exporter FX market closed at N419.50/USD, depreciating by +0.11% week-on-week.

As for the Nigerian Autonomous Foreign Exchange Fixing (NAFEX), the trading closed on Thursday at 418.08, indicating a week-on-week (W-on-W) depreciation of +0.14% 


Money Market 

For most of the trading session this week, the interbank rates were relatively high driven by the squeezed liquidity. 

At the closed of trading on Friday, the open repo rate (OPR) rose to 13.67 and overnight rates (O/N) edged higher to 14.00, indicating a W-o-W rise of +11.59 and +12.00% respectively.


We expect the interbank rate to remain elevated in the coming week subject to no liquidity expectation 



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