Global Economy

Earlier this week, S&P Global released a series of Purchasing Managers’ Index (PMI) reports for the US, UK and Eurozone. The headline S&P Global Flash US PMI Composite Output Index edged down from 54.3 points in July 2024 to a four-month low of 54.1 points in August 2024. Output has now risen continually over the past 19 months. However, growth has become increasingly uneven. While service sector growth remained strong, manufacturing output fell for the first time since January. The factory output decline was the steepest recorded since June 2023. In the UK, at 53.4 points in August 2024, up from 52.8 points in July 2024, the headline S&P Global Flash UK PMI Composite was the highest since April 2024 and signalled a solid increase in private sector business activity. The headline index has now posted above the 50.0 point no-change threshold for ten consecutive months. Manufacturing production increased at a particularly sharp pace in August (index at 54.2 points), with the latest reading only slightly softer than July’s near two-and-a-half-year high. Service providers meanwhile signalled an acceleration in business activity growth to its strongest for four months (index at 53.3 points), driven by greater business and consumer spending. In the Eurozone, the HCOB Flash Eurozone Composite PMI Output Index rose to 51.2 points in August 2024 from 50.2 points in July 2024, thereby signalling a faster pace of output growth in the private sector following two successive months of slower growth. Output has now risen in each of the past six months. The overall expansion in eurozone business activity remains centered on the service sector. Services activity increased solidly and at the fastest pace in four months, in large part due to the strongest expansion in France since May 2022 and a further solid rise across the Euro Area outside the big-2 economies. Meanwhile, services activity in Germany increased modestly. Manufacturing across the Eurozone also remained in contraction.

Domestic Economy

Earlier this week, the CBN reported a record USD553mn in remittance inflows for July 2024, marking a 130% increase compared to July 2023. This significant growth is the result of strategic policies by the CBN, including licensing new International Money Transfer Operators (IMTOs) and improving naira liquidity for these operators. These measures have boosted public confidence in Nigeria’s foreign exchange market, reinforcing the country’s economic stability. While the CBN’s efforts have had a positive impact, maintaining this momentum will require ongoing vigilance and adaptive policy measures to ensure that these gains are preserved and expanded. Furthermore, Oando PLC has successfully acquired the Nigerian Agip Oil Company (NAOC) from Eni for UD783mn, significantly increasing its stake in key Nigerian oil and gas assets. This acquisition doubles Oando’s reserves and is expected to be immediately cash generative, enhancing the company’s upstream operations. In the short term, we expect to see an increase in its share price as investors take an optimistic stance.

Equities and stock recommendation

After losing in three (3) out of this week’s five (5) trading sessions, the Nigerian equities market fell into negative territory for the second week running.  The NGX All Share Index (NGX ASI) fell by 1.16% WoW to print at 95,973.45 points, pushing the market’s year-to-date (YtD) returns down to 28.35% (vs. last Friday: 29.86% YtD). The gains observed in OANDO (+33.47% WoW to NGN47.85), BUACEM (+3.73% WoW to NGN113.90) and TRANSCORP (+11.63% WoW to NGN12.00) were outweighed by losses incurred on DANGCEM (-10.00% WoW to NGN532.00), TRANSCOHOT (-6.25% WoW to NGN90.00) and DANGSUGAR (-5.29% WoW to NGN38.50). Taking a sectoral look, the Oil and Gas sector (+3.54% WoW) led gains this week, following positive sentiment arising from the announcement of OANDO’s complete acquisition of Nigeria Agip Oil company. Following closely behind was the Insurance (+1.90% WoW) and Banking (+0.37% WoW) sectors, which recorded gains on the back of buying interest in CORNEST (+10.48% WoW to NGN2.32) and ACCESSCORP (+4.18% WoW to NGN19.95) respectively. On the other hand, the Industrial Goods (-4.94% WoW) and Consumer Goods (-1.42% WoW) sectors closed in the red, dragged down by losses in DANGCEM (-10.00% WoW to NGN532.00) and DANGSUGAR (-5.29% WoW to NGN38.50) respectively. Top gainers this week were RTBRISCOE (+59.4% WoW to NGN2.71), TANTALIZER (+54.5% WoW to NGN0.68) and OANDO (+33.5% WoW to NGN47.85). However, leaders of the laggards this week were CUTIX (-37.4% WoW to NGN3.10), DANGCEM (-10.0% WoW to NGN532.00) and BETAGLAS (-9.4% WoW to NGN48.00). We still continue to expect that the performance of the market would be hinged on the yield direction in the fixed income market. However, the positive sentiment brewing in the Oil and Gas sector could help buffer significant losses in the overall market.

Fixed Income

This week, following a series of auctions this week, the DMO conducted its primary FGN bond auction for August 2024, offering NGN190bn worth of bonds across the reopening of the APR-2029 (NGN70bn), FEB-2031 (NGN70bn), and MAY-2033 (NGN50bn) instruments. The average bid-to-cover ratio surged by 149bps to a significant 2.42x (vs. 0.93x at the previous auction). This is following an increase in investors’ demand for the instruments, notably in the MAY-2033 (+509bps to 7.50x) instrument. Consequently, average stop rate at the auction fell by 6bps to settle at 20.90% compared to 20.96% in the previous month. Overall, the DMO sold NGN374.75bn worth of instruments, representing a 1.97x overallotment. At the primary Nigerian Treasury bills (NT-bills) auction, the CBN offered NGN409.98bn worth of treasury bills across the 91-day (NGN60.69bn), 182-day (NGN66.25bn) and 364-day (NGN283.04bn) bills.  The average bid-to-cover ratio rose by 25bps to 2.51x (vs. 2.25x at the last auction). This increase was driven by heightened demand for treasury bills across all tenors, especially the 364-day bill. As a result, average stop rate declined by 53bps to 19.43% from 19.96% at the previous auction. This is following decreases in stop rates across the tenors (91-day: -30bps, 182-day: -30bps and 364-day: -99bps). Despite the high demand the CBN sold NGN291.03bn worth of NT-bills, a 0.71x the amount offered. In the secondary market, the NT-bills average yield declined significantly by 263bps WoW to close at 22.32%. This is following repricing across the tenors as investors sought to fulfill unmet bids at the primary auction. Likewise, the FGN bond market closed on a bullish note as the average yield went down by 8bps WoW to settle at 19.62%. This was driven by buying interest in the short and mid-end of the curve, particularly in the MAR-2025 (-143bps), MAY-2033 (-43bps) and FEB-2034 (-45bps) instruments. Consequently, the overall Naira fixed income market concluded the trading week with positive sentiment as the average yield decreased by 135bps WoW to 20.97%. In the coming week, we anticipate that the bullish trend in the secondary market will persist as investors seek to capitalize on their unsuccessful bids at the recent auctions. This is particularly likely given the significant oversubscription observed at both the FGN bond and NT-Bills auctions. However, tight liquidity conditions may potentially dampen this momentum.

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