The naira depreciated in both the parallel and official markets, closing the week at N155.50/$1 and N147.38/$1 respectively – down from N154/$1 and N146.30 in the previous week. The stock market closed the week on a marginally higher note than the previous week (albeit still with a bearish trend), with the All Share Index (ASI) closing the week at 23,924.10 – 1.13% higher than the 23,656.42 recorded in the
previous week.
ECONOMY
There was a reduction in the level of the composite food index to 13.1% in June, from 15.7% in May, in comparison to corresponding levels in 2008. Food prices rose by 2.2% in June, attributable to rises in bread, fish, fruit and seafood prices.
Inflation Falls in June
The rate of inflation (the Consumer Price Index) fell from 13.2% in the month of May to a 12-month low of 11.2% in June ‘09. This drop is the biggest month-on-month decline recorded in the last 2 years.
Comments:
– The consistent and heavy rains observed so far are a likely implication that expected future harvests will be abundant.
– This development will likely enhance economic activity, with consumers seeking to take advantage of favorable purchasing power.
– If this trend continues, lending rates will likely reduce– a reinforcement of the above point that consumer spending will be boosted.
– However, with the resolve by the FG to hasten the deregulation of the downstream oil sector, potentially higher petrol prices may translate into a spiral of rising transportation and food costs amongst others.
– We may thus see the inflation rate rise in subsequent months if this development materializes. Crude Oil Earnings Decline by 50% Official statistics have revealed that crude oil receipts to the nation dropped by half, from $9.86 billion in the first quarter of 2008, to $4.9 billion in Q1 2009. Presently, over 90% of the nation’s revenue comes from crude oil exports.
Comments:
– As shown in the table above, average production fell below 1.3 million barrels per day (mbpd) between April and May
– Mainly due to the intensified Niger Delta violence during this period. – The expected increase in oil revenue during Q2 due to the surge in oil prices to a 7-month high of $73 pb, is likely to have been eroded by reduced production levels.
– In light of the higher oil prices witnessed in Q2, we expect the period’s crude oil earnings to be marginally higher than what obtained in Q1.
– Ongoing efforts by the FG towards resolving the Niger Delta crisis may see more stable production volumes in coming months.
– This coupled with stable and/or rising oil prices in the $60-$65 pb range, should strengthen the nation’s oil receipts.
– This development should further drive home the need for a significant diversification of the nation’s earning’s base from crude oil exports, given the presently unpredictable nature of oil price and production levels.
Nigeria’s Rising External Debt Reports by the Federal Government (FG) put the nation’s external debt at $3.6 billion
– a validation of the position of the FG earlier this year that the external debt figure may reach $3.75 billion by the end of 2009. Included in this figure is the recently secured $195 million towards the development of Secondary School education in Lagos State and the fight against Malaria. From the standpoint of the Debt Management Office (DMO), this debt level is acceptable.
Comments:
– Presently, the nation’s multilateral debt stands at about $3.09 billion – With such loans being provided with favourable payback timelines and interest rates.
– The National House of Assembly has however expressed opposition to this borrowing, citing failure of the FG to follow due process, as well as the non-criticality of the areas for which the additional borrowing has been sought.
– Contrary views believe that such facilities should be engendered towards enhancing the nation’s Gross Domestic Product (GDP).
– Fears expressed by the lawmakers are justified due to past occurrences of such facilities going bad, project failure and ensuing corruption allegations.
– Due to the absence of local technical capabilities, such funds often end up being repatriated to funding-partner economies.
– It is a well known fact however, that a healthy populace will lead to a productive economy.
MONEY MARKET
The inter-bank market was met with a welcome development with a significant drop in the 7-Day, 30-Day and 90-Day NIBOR as shown below:
Comments:
– The N156 billion from the Federal Account Allocation Committee (FAAC) for July is likely to have significantly buoyed liquidity.
– The Central Bank of Nigeria (CBN’s) recent move to guarantee inter-bank borrowing is also likely to have impacted liquidity.
– Reduced lending rates by financial institutions may be a development to watch out for in coming months.
FOREX
The CBN offered a total of $400 million and sold $411.35 million at its bi-weekly Wholesale Dutch Auction System (WDAS)
– representing a 3.68% increase from the previous week’s sale of $396.76 million. The gap between FOREX demand and supply was marginal, with the increased demand in the last few weeks possibly linked to the summer holiday period.
The naira depreciated in both the parallel and official markets, closing the week at N155.50/$1 and N147.38/$1 respectively – down from N154/$1 and N146.30 in the previous week.
CAPITAL MARKET The stock market closed the week on a marginally higher note than the previous week (albeit still with a bearish trend), with the All Share Index (ASI) closing the week at 23,924.10
– 1.13% higher than the 23,656.42 recorded in the previous week. Market breadth for the week was negative, with 34 stocks recording gains, while 82 stocks recorded losses
– an improvement from the previous week’s performance.
The top 5 gainers and losers for the week are as follows:
Top 5 Gainers Company Opening Price(N) Closing Price (N) Gain (N) % Gain
UNILEVER 10.66 13.14 2.48 23.26
NAHCO 7.60 8.74 1.14 15.00
GTBANK 13.04 14.59 1.55 11.89
CUSTODIAN 2.37 2.64 0.27 11.39
STANBIC IBTC 6.17 6.83 0.66 10.70
Top 5 Losers Company Opening Price(N) Closing Price (N) Loss (N) % Loss
DAAR COMMS 1.52 1.20 0.32 21.05
FIRST BANK 18.92 14.99 3.93 20.77
CHAMS 0.80 0.65 0.15 18.75
NIGER INSURANCE 2.26 1.90 0.36 15.93
FTN COCOA 0.82 0.70 0.12 14.63
Comment:
–We expect that the liquidity boost from the recent lowering of the Monetary Policy Rate (MPR) by the CBN will have a spill
-over effect for potential investors in the stock market
– this may mean an increase in stock market activity in coming weeks.
– It appears that stakeholders are coming to terms with the CBN policy on exposure of margin facilities by banks.
Global Developments
Oil
Crude oil closed the week at $68.05 per barrel (pb), 4.87% higher than the previous week’s closing figure of $64.89 pb.
The Organisation of Petroleum Exporting Countries (OPEC) reported a 35% increase in earnings to an estimated $1 trillion in 2008, from $746 billion recorded in 2007
– largely as a result of the oil price surge reaching $147 pb in July ’08. Saudi Arabia ranked 1st as the cartel’s biggest beneficiary of the surge in crude oil prices, earning $283 billion in 2008, up from $206 billion in 2007.
Nigeria ranked 6th with an increase from $56.9 billion in 2007, to $74.7 in 2008. Angola, a major contender of Nigeria ranked 4th, with an increase from $42 billion in 2007 to $64 billion in 2008.
UK Economy Shrinks by 0.8% The UK economy shrank to 0.8% in the second quarter when compared to the 0.3% which was forecast (i.e. a decline by more than 50%). The economy has now shrunk by 5.7% since the recession began in 2008.
Comments:
– The decline in the nation’s GDP was largely driven by the decline in business services and finances – hard hit by the recession.
– Although this contraction is smaller than the 2.4% decline recorded in the first quarter, this is an indicator that the recovery of the economy may take longer.
– The government in a bid to boost the economy via tax cuts and increased unemployment spending is likely to increase its borrowing.
– These developments do not auger well for the incumbent Labour party, presently trailing the opposition Conservatives in polls for the coming 2010 elections.
Source: Nigeria Treasury Reports