WEEKLY MARKET UPDATE (May 19 – May 26, 2017) | InfoWARE Finance
WEEKLY MARKET UPDATE (May 19 – May 26, 2017)
(Source: AAML, Date: 26-May-2017)
WEEKLY MARKET UPDATE (May 19 – May 26, 2017) |
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Global Economy Fears about debt levels in the world's second-largest economy have been flagged last year by the International Monetary Fund as corporate debt in China soared to around 170% of GDP in 2016. Following the alertness, China’s authorities introduced a series of measures to tackle local government debt and bad bank loans. Even, reduce the economy's dependence on credit as a way to fuel growth. During the week United States rating agency, Moody’s, for the first time since 1989 downgraded China’s credit rating one notch from Aa3 to A1 citing concerns over rising debt and the slow pace of economic reform intended to transform the country’s growth model. The agency predicted China’s financial strength to erode possibly 2018. Crude Oil Market At Thursday's meeting in Vienna, the Organization of the Petroleum Exporting Countries and 10 non-OPEC producers agreed to extend supply cuts of 1.8 million barrels per day (bpd) until the end of the first quarter of 2018 in a bid to further stem the global glut of crude in the market and prop up prices. Following this development, the global benchmark Brent crude settled down 4.01% at $51.46 a barrel from $53.61 per barrel w-o-w. Likewise, U.S. crude, West Texas Intermediate (WTI), ended the week down at 2.84% to $48.90 a barrel from $50.33 per barrel w-o-w, breaking below $50 for the first time all week. The crude oil prices decline was due to some oil market investors who had hoped producers would agree to longer or deeper cuts to drain a global glut of crude supplies. |
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Nigeria Economy |
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Nigeria’s Q1’2017 GDP growth shrinks by -0.52% |
The National Bureau of Statistics during the week reported Q1’2017 real GDP figure which indicates that Nigeria economic growth contracted by 0.52% y-o-y, representing 0.15% and 1.21% higher than the rate recorded in Q1’2016 and Q4’2016 respectively. This is the fifth consecutive quarter of contraction that the economy would record since the first quarter of 2016. |
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Oil sector contributed 8.90% of the total real GDP in Q1’2017, down from the 10.02% recorded in Q1’2016. In contrast, non-oil sector share of the economic growth was 91.10%, up from the 89.98% recorded in Q1’2016. |
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Thus, the data shows that the economy is firmly on the path of recovery largely driven by the activities in the non-oil, agricultural sector, particularly crop production (3.5%), and other services such as metal ores (40.79%), Information and Communication Technology (2.89%), manufacturing, road transportation (12.35%), and forestry (2.59%). Meanwhile, as Nigeria economy showing signs of recovery from recession seen in GDP contraction by 0.52% in Q1’2017, inflation tending downwards to 17.24% in April, Naira traded fairly stable in the foreign exchange market and industrial capacity beginning to improve as manufacturing PMI grew by 51.1% in April, from 47.7% in March, however, Nigeria’s indebtedness keep rising. At the end of 2015 and 2016, Nigeria’s debt to GDP ratio stood at 12.10% and 18.60% respectively. The IMF, projected that by the end of 2017 and 2018, the country’s current indebtedness would have reached 23.03% and 24.10% respectively of the GDP. This means that within three years, the nation’s debt to GDP ratio would have gone up by 100% from 12.1% cent in 2015 to 24.1%. Worthy to note that the economy recorded its second lowest investment inflow in 10 years, with the country attracting a total investment of $908.27m in the Q1’ 2017 compared to the $1.55bn in the Q4’2016 which represents a decline of $640.61m or 41.36%. |
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Monetary Policy Committee (MPC) retains MPR at 14% At the end of the Monetary Policy Committee (MPC) meeting of the central bank held on Monday and Tuesday, the committee voted unanimously to retain the Monetary Policy Rate (MPR) at 14% alongside all other policy parameters. Accordingly, the MPC retained the cash reserve ratio (CRR) at 22.5%, liquidity ratio at 30%, and the asymmetric corridor at +200 and -500 basis points around the MPR. This decision shows that the committee chooses to sustain its policies to maintain the current momentum rather than focusing on growth thereby lowering MPR. During the week, the Federal Ministry of Finance released monthly allocations from the Federation Account to the three tiers of government. The allocations for the month of April declined by N52.07bn to N415.73bn from the N467.8bn shared in March. Declined in revenue allocated was attributed to crude oil production setbacks arising from sabotage and shutdown of installations. Accordingly, the Federal Government received N163.89bn; states, N117.59bn; and the 774 local government councils, N87.77bn. In addition, the sum of N29.83bn was shared to the oil-producing states based on the 13% derivation principle, while the revenue-generating agencies received N16.52bn as cost of revenue collection. The much awaited Petroleum Industry Governance Bill (PIGB) capable of attracting $30bn investment into Nigeria has been passed by Senate on Thursday to take care of the governance aspect of petroleum industry of the Nigeria economy. The bill seeks to open up the sector to more and better business opportunities, make the sector more transparent and ensure better accountability of revenue derived from oil. The final aspect of the bill is an assent by House of Representatives and finally the President to become law. |
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Money Market |
During the week, FMDQ OTC Securities Exchange approved the listing of Rand Merchant Bank’s N80 billion Commercial Paper, CP, programme on its platform. This development will positioned the bank to easily and quickly raise short-term finance from the debt market at a time in the future through CP issues and within the current CP Programme limit. Meanwhile, the OBB and overnight rates opened at 22.50% and 22.83%; and declined to close the week at 16.50% and 17.92% respectively indicating improved level of liquidity in the banking system. In the absence of Treasury bills auction next week, we expect some ease in the financial system liquidity and resultant decrease in interbank rates. |
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Foreign Exchange Market |
The apex bank after the monetary policy meeting pledged to sustained its’ dollar supply interventions to commercial banks and other windows to keep the stability of naira against United States dollar. The naira appreciated in both the interbank and parallel markets closing at N305.40/$ and N380.00/$, respectively as against N305.45/$ and N381.00/$ previous week. We expect the naira to trade within the prevailing band next week as CBN maintains its’ various interventions. Meanwhile, external reserves has declined by 1.04% to $30.66 billion from $30.9bn w-o-w due to apex bank continuous injection of dollar into the foreign exchange market aiming to close the huge gap between the official and black market. |
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Nigerian Stock Market The equity market stretched its rally for five consecutive days save of the week. The bullish sentiment witnessed can be attributed to the renew investors’ confidence as all macroeconomic indicators are gradually retracting into positive territory. GDP contraction by 0.52% in Q1’2017, manufacturing PMI grew by 51.1% in April, Naira showing appreciation leading to inflation tending downwards to 17.24% in April. Likewise, investors awaiting and positioning for half year corporate results often come with declared dividends. With this, the NSE ASI and Market Capitalization appreciated by 3.38% week-on-week to close at 29,064.52 points and N10.047tn, respectively. This is the highest performance recorded since January 2017 going by the key market indices representing a positive year-to-date return of 8.15%. Next week, we expect a mix of bargain hunting and profit-taking activities. |
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