Weekly Cordros Capital Economic, Market Reports

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Cordros Capital Released its Weekly Economic and Market Reports for the period ended on Friday February 9, 2018 as follows:

Global Economy

According to data from the US Commerce Department, the US trade deficit widened in December 2017 to USD53.1 billion – highest since October 2008 – following a downward revision of USD50.4 billion deficit in November. Imports (+2.5% to USD256.5 billion) and Exports (+1.8% to USD203.35 billion) reached record highs – with exports growing at a slower pace. Imports of consumer goods, pharmaceutical preparations, and cell phones, drove the increase in imports, while industrial supplies, organic chemicals, and fuel oil supported increased imports. The new tax cuts aimed at boosting US economic activity, is expected to support a stronger dollar, and could consequently lead to expansion of the US trade deficits.

The National Bureau of Statistics in China reported a slowdown in inflation rate in January, with the pace of consumer and producer price growth coming lower at 1.5% y/y (previously 1.8% in December 2017) and 4.3% y/y (previously 4.9% in December) respectively. The increase, albeit slower in consumer prices was attributed to drop in food prices by 0.5% from a year earlier, while non food prices grew by 2.0% y/y, from 2.4% in December. Meanwhile, softer pace of growth in cost for means of production (5.7%; 6.4% in December) and consumer goods (0.3%; 0.5% in December), drove the slower growth in the producer price index. Consumer prices are likely to rise in the coming quarters, supported by higher food and services prices (driven by seasonality), as well as the pass-through of high producer and property prices.

Global Markets

Global market rout persisted this week, sparked by sharp losses in the US, with most stock indices plunging further to record low levels and wiping out the year’s gain. The rout was largely catalyzed by volatility shocks, inflation concerns, economic data, monetary policy decision, increasing oil production and rising bond yields. Specifically, Asian stocks (CSI 300: -10.08%, Nikkei 225: -8.13%) posted the largest loss, followed by the US equities (DJIA: -6.51%, S&P 500: -6.56%), and European shares (FTSE 100: -4.35%; Euro Stoxx 50: -5.46 %). The MSCI EM index (-5.50%) closed lower, as selloffs persisted in China and Brazil (-3.0%). Similarly, the MSCI FM index (-2.98%) sustained bearish trend, as pressures in Nigeria (-3.39%) and Kenya (-0.7%) offset gains in Ghana (+3.40%).



During the week, the National Bureau of Statistics published data on pension asset and membership for Q4 2017, showing that 7.82 million workers were registered under the pension scheme during the quarter, compared to 7.71 million in Q3. It also showed that Pension Fund Asset under Management as at Q4 2017 stood at NGN7.52 trillion (previously NGN7.16 trillion in Q3. Furthermore, the data showed that 71.9% (NGN5.15 trillion) was invested in FGN securities, with a bulk in FGN bonds (54.09% of total assets; NGN3.87 trillion). Meanwhile, investments in domestic ordinary shares and local money market securities bore 8.66% (NGN620.60 billion) and 7.61% (NGN545 billion) of total pension fund assets. Increased pension fund assets, amidst tighter pension regulations, suggests likelihood of increased participation by PFAs in the financial market, particularly in equities, amidst rising expectation of lower yields in the fixed income market

The Central Bank of Nigeria on Thursday released its quarterly economic report for Q4 2017 which showed that aggregate foreign exchange inflow into the economy increased by 14.5% q/q and 86.9% y/y to 30.45 billion in the quarter, following 22.7% and 7.7% increase in inflows through bank and autonomous sources, respectively. Oil sector receipts (accounting for 10.6% of total inflow) improved by 1.89% q/q and 63.96% y/y to USD3.23 billion, while non-oil public sector inflow (accounting for 37.7% of total inflow), surged 30.3% q/q, and 141.2% y/y to USD11.48 billion. On the other hand, aggregate foreign exchange outflow from the economy during the period stood at USD9.19 billion – reflecting a 9.6% q/q decline and 69.99% y/y increase. Consequently, net inflow of USD21.26 billion was recorded in the quarter (+29.49% q/q; +95.40% y/y). The improvement in foreign exchange inflow, particularly in the non-oil public sector receipts during the quarter, suggest the FGN’s policies to wean the economy away from oil is making steady progress, and may be expected to show further improvement, following the government’s aggressive tax strategy via Voluntary Assets and Income Declaration Scheme (VAIDs).

Capital Market


The equities market reversed last week’s gain, recording losses in every session of the week. The All Share Index shed 3.39% w/w to 43,127.92 points, as investors took profit across major sectors. Month-to-Date and Year-to-Date returns dropped to -2.74% and 12.77% respectively. All sector indices closed in the red, with the Industrial Goods (-3.52%) index recording the largest loss, and the Banking (-3.41%), Consumer Goods (-2.60%), Oil & Gas (-1.27%), and Insurance (-0.73%) indices following suit. Notable stocks of the week include DANGCEM (-4.06%), GUARANTY (-2.04%), NESTLE (-5.88%), MOBIL (-7.64%), and AIICO (-8.75%) respectively.

Favourable relative valuations of the NSE (current P/E: 13.73), coupled with strengthening fundamentals, support attractiveness of the equities market and suggest legroom for gains; more so, as investors take position ahead of Q4-2017 earnings.

Fixed Income

Money Market

The overnight lending rate spiked by 3,333 bps to 45.50%, in line with our expectation, as outflows via OMO and FX sales worth NGN389.90 billion and USD210 million respectively, outweighed the inflow of NGN67.68 billion via matured OMO bills during the week.

The overnight money market rate is likely to contract in the coming week, as inflows of maturing OMO bills, and coupon payment on the Feb 2020 bond valued at NGN89.08 billion and NGN47.12 billion, respectively, are likely to outweigh outflows in the coming week.

Treasury Bills

Activities in the NTB market were broadly bearish during the week, with average yield expanding by 62 bps w/w to 14.3% — recording expansions in all sessions of the week. Yields expanded across all ends of the curve – short (+143 bps), mid (+33 bps), and long (+20 bps) – owing to selloffs of the 55DTM (+207 bps), 153DTM (+67 bps) and 265DTM (+68 bps) bills respectively. Meanwhile, during the week, the Minister of Finance, Kemi Adeosun, announced plans to redeem treasury bills worth NGN762.5 billion using proceeds of a planned USD2.5 billion Eurobond – the second tranche of the USD5.5 billion which was approved last year – in line with the government’s new debt management strategy aimed at reducing borrowing costs.  

The likelihood of improved liquidity position suggests demand is likely to improve, causing yields to tread southward in the coming week. At next week’s NTB auction, the apex bank will offer NGN10.25 billion, NGN26.6 billion, and NGN193 billion of the 91-day, 182-day, and 364-day bills respectively.


Similarly, investors were downbeat in the bond market, as average yield inched higher by 36 bps to 13.78%. Yields rose at the short (+33 bps), mid (+38 bps), and long (+36 bps) ends of the curve, driven by selloffs of the JUN-2019 (+33 bps), JUL-2021 (+39 bps), and JAN-2022 (+77 bps) bonds respectively.

Our outlook on the bond market continues to favour lower yields, as expected monetary easing, moderating inflation, and the government’s debt management strategy remain key drivers.

Foreign Exchange

The naira remained flat against the dollar at NGN363 in the parallel market (as it had in all sessions of the week), while it strengthened in the I&E FX window by 0.12% to NGN360.27. Meanwhile, total trades in the I&E FX window continued to decline, dropping by 32.38% to USD716.61 million from corresponding period in the previous week. The apex bank continued its intervention in the FX market – supported by steady accretion to the foreign reserves (currently USD41.01 billion) – allocating USD100 million, USD55 million, and USD55 million to the wholesale, SMEs, and invisibles windows, respectively. Meanwhile, it was announced during the week at the Banker’s committee meeting, that banks should halt commission charges on FX sales, particularly on Personal Travel Allowance, Business Travel Allowance, tuition and medical bills payments.

Our theme on the FX market remains stability, as oil prices and stable oil production continue to support healthy foreign reserves.

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