NIGERIA | Weekly Wrap-Up | 01-Jun-2018 | Elixir Research

01 Jun NIGERIA | Weekly Wrap-Up | 01-Jun-2018 | Elixir Research

Global trade tension rise as Nigeria PMI expands at a slower pace in May


  • Reactions was strong and swift after the U.S. Commerce Secretary on behalf of the Trump administration, announced tariffs on metal imports from the Canada, European Union (EU), and Mexico on Friday, territories which are America’s closest allies. These allies in- turn, plan to hit the U.S. with heavy tariffs as a tit-for-tat global trade war and protectionism escalates. While the EU plans to retaliate with immediate effect, Canada has announced it would impose up to $12.6 billion tariffs on U.S. steel, aluminum and other products from July 1. Mexico, likewise, has vowed to impose duties on all American exports from steel to cheese. Global economic growth is likely to take a hit from the possible slowdown in trade as the war escalates.


  • The Purchasing Managers Index (PMI) for May showed that the manufacturing and non- manufacturing PMI expanded to 56.5 and 57.3 index points respectively, though at a slower pace relative to the level in April. As a sub-component of the manufacturing PMI, production level, supplier delivery time and employment level grew at a faster pace in May, while new orders and inventories grew at a slower rate. For the non-manufacturing PMI sub-indexes, while employment grew at a faster pace, business activity, new orders and inventories recorded slower growth rates. With President Buhari, expected to sign the 2018 budget soon, we anticipate fiscal stimulus to further support economic growth. That said, we note that uncertainties could dampen business activities as electioneering intensifies.


Despite mixed FI trading week, bulls resurface at week close


  • Amidst OMO and T-Bill repayment of ₦529 billion on Wednesday, the CBN conducted a T-Bill primary market auction, offering and selling ₦50 billion across the 91DTM, 182DTM and 364DTM bills at respective stop rates of 10.00%, 10.30% and 11.00% (previous: 10.00%, 10.50% and 10.70%).


  •  OnThursday,theCBNconductedanOMOauction,selling₦561billion(offer:₦800billion) across the 112DTM and 231DTM bills at stop rates of 11.05% and 12.15% respectively (effective yields: 11.44% and 13.16%).


  • Bankingsystemliquiditymore-thandoubledto₦525billionfrom₦225billionaweekago, while the balance on the standing lending window (SLF) moderated to ₦64 billion from ₦71 billion. Amidst increased liquidity, interbank overnight and OBB rate contracted by 15.25 and 13.84 percentage points (w/w) to 4.42% and 3.33% respectively.


  • After a relatively mixed and quiet trading week at both the T-Bill and bond end of the fixed income (FI) market, there was a lift in demand at the last session of week, supported by the net-positive system liquidity. Consequently, the average T-Bill yield fell by 23 basis points w/w to 12.79% just as the bond end of the market saw yield compressing by 34 basis point w/w to 12.87% on average.


  • With the healthy system liquidity (₦525 billion), we look forward to a more stable market in the week ahead, though liquidity tightening by the CBN may cap demand.


Naira gains on the IEW and parallel market


  • The CBN sold $210 million to the different segment of the market this week while also compelling banks to meet all legitimate PTA, BTA and invisible demand over-the-counter. As a result, the local currency appreciated by 0.20% against the Dollar to ₦360.85/$ on the investor & exporter window (I & E window) and 0.82% on the parallel market to ₦363/$. On the CBN official window, the Naira was down by 0.03% to settle at ₦306/$.


  • Despitea4-daytradingweek,activityincreasedsignificantlyontheI&Ewindowto$1.7billion from $0.94 billion traded in the prior week. The outlook for the Naira remains positive, backed by value accretion to the external reserve and strong crude oil price.


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