Weekly Economic and Market Report - 30-Sep-2021

 Global Economy

Last week, we saw a couple of economic releases globally. Beginning with the US, the Conference Board Consumer Confidence Index fell to a seven-month low after it declined for the third consecutive time in September to 109.3 (vs 115.2 in August). The metric is an economic indicator that gauges how confident people feel about their income's stability which in turn impacts their economic decisions such as their spending activity. The gradual erosion in consumer confidence mirrors the spread of the Delta variants which continues to dent consumers’ outlook for the economy. Although new covid-19 cases have reduced nationally, they are still rising in some states and Americans are paying more for household goods, which has weighed on sentiments. Compared to historical standards, we note that the metric remains high and may not deter the Fed from pursuing its tapering plan before the end of the year.

According to the EIA, US crude oil inventories rose for the first time since the 4th of August by 4.6m barrels for the week ending September 24th, 2021 (vs expectation for a decline of 2.5m barrels), thus exacting downward pressure on crude oil prices. However, Brent oil prices gained 3.2% WoW to $78.64/bbl supported by rising global demand as economies recover from the pandemic. Caught short by the demand rebound, members of the Organization of the Petroleum Exporting Countries and their allies, known as OPEC+, have had difficulty raising output as underinvestment or maintenance delays persist from the pandemic. U.S. supply constraints will continue to provide upside to oil prices, as Ida-related outages will still affect U.S. supply in the first quarter of 2022.

In the week ending September 25th, US unemployment claims increased by 11,000 from the previous week to 362,000. Although still significantly lower than levels seen in 2020 when the pandemic hit hard on the economy, we note that the latest print was the highest since August 12th as the pace of economic recovery slows upon the continuing fight against the Delta variant.

In the Asian region, data from the IHS Markit showed that China’s manufacturing sector stabilized in September, after a slight deterioration in August. The index rose to 50.0pts in September from 49.2pts in August.

Global Markets

The S&P 500 index fell 2.2% week-on-week, driving by investors exercising caution amidst concerns about inflation, supply chain disruptions, and continued pandemic impacts on economic growth. Further adding to the negative sentiment in the equity space was the US Fed announced that it may begin to reduce bond buying as soon as November and could start raising rates next year. On a monthly basis, the index is down by 4.8%. Similarly, the DJIA was down by 1.1% week-on-week.

Likewise, the pan-European STOXX 600 index also retreated by -1.8% as recovery in government yields led to investors' profit-taking on some of their equity holdings, especially technology shares. Investors’ searchlight is also on happenings in the Chinese economy and that also has impacted negatively on sentiments.  Elsewhere, Asian (Nikkei 225: -0.6%; and SSE: -2.0%) shares closed lower on concerns about slowing growth in China amid reactions to the selloffs on Wall Street.

 

Domestic Market

 

EQUITIES MARKET

Although the local bourse started the week negative, positive sentiments returned to the market towards the end of the week following renewed buy interests in large-cap names like DANGCEM (+14.29%), FBNH (+7.33%), NESTLE (+5.71%), and GTCO (+2.19%). Consequently, the All-Share Index inched higher beyond the 40,000 psychological mark to close at 40,221.17 points implying a 3.23% week-on-week gain. Activity levels were stronger as volume and value traded surged by 73.2% w/w and 17.9% w/w, respectively. Consequently, the MTD return turned positive (+2.55%), while the YTD loss moderated to 0.12%. On a sectoral basis, most indices closed in green following gains in the Industrial Goods (+6.65%), Consumer Goods (+3.35%), Oil & Gas (+0.92%), and Banking (+0.60%) while Insurance (-7.58%) closed as the lone loser.

 

FOREIGN EXCHANGE MARKET

Nigeria’s FX reserves sustained its weekly accretion as the gross reserve position increased by $487.02 million relative to the previous week to close at $36.60 billion as at the 29th of September 2021. This may have supported increased CBN intervention in the FX space with the Naira appreciating by 0.4% w/w to NGN413.38/$ at the I&E window (IEW). At the IEW, total turnover decreased by 5.21% w/w to $852.40 million with trades within the NGN404.00 – 447.83/$ band.

 

MONEY MARKET

Overnight and Open Buy Back lending rates both contracted by 150bps and 100bps relative to the previous week to 15.75% and 15.00% respectively as inflows from FAAC disbursements (NGN407.71 billion), OMO maturities (NGN101.61 billion), and FGN bond coupon payments (NGN40.77 billion) offset late debits for CRR, weekly FX auction and net NTB issuances (NGN3.54 billion).

 

FIXED INCOME MARKET

TREASURY BILLS

Trading in the NTB secondary market was bullish, as the average yields contracted by 32bps to 5.29%. At the NTB PMA, the CBN offered NGN111.87 billion for sale and eventually allotted NGN115.42 billion (out of NGN174.74 billion subscribed for) – NGN4.61 billion of the 91D, NGN2.09 billion of the 182D, and NGN108.71 billion of the 364D bills with stop rates of 2.50% (unchanged), 3.50% (unchanged), and 7.50% (previously 7.20%), respectively.

BONDS

Trading in the bond market was bullish, as the average yield contracted by 3bps to 11.20%. The was mostly felt at the short-end of the curve as investors demanded for the APR-23 (-45bps), JAN-22 (-39bps), MAR-24 (-32bps) and MAR-25 (-18bps) bonds respectively.