This is a brief summary of the economic events that occurred this week in the global and domestic space. This report also provides investment strategies for investors in the coming week.
Global Economy
Earlier this week, the U.S. Bureau of Labor Statistics published the Consumer Price Index (CPI) data for June 2023. In June, the Headline CPI showed a month-on-month (MoM) increase of 0.20%, which was higher than the 0.10% increase recorded in May 2023.
On a year-on-year (YoY) basis, the Headline CPI rose by 3.00% in June 2023, marking its lowest annual rate in over two years since March 2021. Excluding volatile food and energy prices, the core CPI rose by 4.8% YoY, primarily driven by a significant increase in the US housing Index, which grew by 7.8% YoY. This accounted for over two-thirds of the US core CPI.
The CPI results released by the Feds indicate a slowdown in inflation in the US and suggest that monetary policy has been effective. However, analysts believe that this report is unlikely to prevent the Fed from raising rates again later this month, as core inflation still remains well above its 2% YoY target. It is expected that the Fed will raise rates by an additional 0.25% during their July 25-26 meeting.
In the European Union (EU), the Consumer Price Index (CPI) increased by 0.2% MoM, rebounding from a -0.1% decrease in May. On a YoY basis, CPI grew by 4.5% in June 2023, compared to a YoY increase of 5.1% in May. This decline in YoY inflation can be attributed to a YoY decrease in energy prices of -3.0% (compared to +0.2% in June 2022) and food prices of +13.7% (compared to 14.3% in June 2022). However, core inflation in the EU fell to 5.7% YoY (down from 5.8% YoY in May 2023).
Domestic Economy
Earlier this week, the National Bureau of Statistics (NBS) released the capital importation data for Q1:2023. Capital importation into Nigeria increased by 6.78% quarter-on-quarter (QoQ) to USD1.13bn (vs. USD1.06bn in Q4:2022). The increase in capital importation was primarily driven by a significant surge of 127.61% QoQ in Foreign Portfolio Investments to USD649.28mn.
However, Foreign Direct Investment witnessed a decline of 43.48% QoQ to USD47.60mn. Furthermore, the Central Bank of Nigeria (CBN) issued a circular announcing the inclusion of the Naira as a payout option for diaspora remittances. According to the circular, recipients of diaspora remittances now have the flexibility to receive payments in Naira, US Dollars, or E-Naira.
The circular also specifies that Deposit Money Banks (DMBs) and International Money Transfer Operators (IMTOs) are required to process the payment of funds using the exchange rate at the Investors’ & Exporters’ (I&E) Window. This measure aims to ensure an adequate supply of foreign exchange within the banking system. In addition, the Central Bank released a circular announcing the reduction of Cash Reserve Requirement (CRR) to 10.0% from 32.5%.
They backed up this decision with the need to enable banks provide long term financing needed to improve the Nigerian economy. We opine that system liquidity will experience a surge, further emphasizing our expectation that yields in the fixed income market will decline in H2:2023. Finally, Access Holding PLC has announced that its major subsidiary, Access Bank PLC has entered into agreements to acquire majority of Standard Chartered shareholdings in some of its subsidiaries in Angola, The Gambia, Sierra-Leone and Cameroon.
The Bank will also acquire a majority equity stake in African Banking Corporation, Tanzania. This is in line with it’s five-year strategy to strengthen its presence across sub-Saharan Africa and we expect this to help the Group increase its income streams and consequently, profitability.
Equities and Stock Recommendation
The Nigerian Equities Market ended the week bearish for the first time after eight (8) consecutive weeks of bullish gains. The NGX All Share Index shed 75bps to settle at 62,569.73pts. This decline is coming after gaining in only the first two (2) trading days of the week. Consequently, the year-to-date returns settled at 22.08% (last week’s print: 23.00%).
This week, Banking (-14.32%), Consumer Goods (-2.29%) and Insurance (-11.53%) sectors all closed in the red while Industrial Goods (+9.01%) and Oil and Gas (+1.43%) sectors closed bullish. DAARCOMM (+50.0% to NGN0.30), JOHNHOLT (+44.8% to NGN1.81) and DEAPCAP (+34.6% to NGN0.35) led this week’s gainers. On the flipside, CHAMPION (-31.5% to NGN3.15), ACADEMY (-26.8% to NGN1.83) and STERLINGNG (-25.8% to NGN3.11) led the decliners’ chart. We might see profit-taking activities in the coming week.
Fixed Income
At the primary NTB auction held this week, the average bid-to-cover ratio climbed 85bps to settle at 4.88x (vs. 4.03x at the previous auction). Following improved demand, average stop rate declined by 39bps to 4.10% (vs 4.49% at the last auction).
We observed significant demand for the 182-day bill instrument as its average bid-to-cover ratio surged by 18.89% to 21.07x compared to 2.18x at the previous auction. Consequently, its stop rate fell by 87bps to 3.5% (vs. 4.37% at the previous auction). The bullish sentiment at the auction trickled down to the secondary Nigerian Treasury Bills market as average yield tapered 4bps WoW to settle at 6.25%. Similarly, the secondary bond market closed the week on a positive note as average yield dropped 21bps WoW to 12.74%. This is on the back of buying interest across the curve.
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