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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 United Kingdom (UK) Office for National Statistics published its Consumer Price Index (CPI) data for July 2023. The CPI experienced a year-on-year (YoY) increase of 6.8% in July 2023, which is a decrease from the 7.9% YoY recorded in June 2023. This shift indicates a notable reduction in inflation since its peak at 11.1% in October 2022. On a month-on-month basis (MoM), the CPI decreased by 0.4% in July 2023, in contrast to the 0.6% increase observed in July 2022. This decline is primarily attributed to the decline in gas and electricity prices. The Core CPI, which excludes energy, food, alcohol, and tobacco, maintained its rate at 6.9%, consistent with the rate reported in June 2023. On a month-on-month basis, the Core CPI saw a 0.4% decrease. Additionally, the Food CPI displayed a year-on-year easing to 14.9% in July 2023, a decrease from the 17.4% recorded in June. This marks the slowest growth rate since September 2022. MoM, the Food CPI increased by 0.1% in July 2023, a notable contrast to the 2.3% increase seen in June 2023.

Domestic Economy

Earlier this week, the NBS released the inflation report for July 2023. Headline inflation spiked by 129 basis points (bps) Year-on-Year (YoY) to 24.08% (compared to 22.79% in June 2023), marking the highest rate recorded in Nigeria since the reconstitution of the CPI in 2009. The surge in Headline inflation is attributed to a significant increase in Food inflation (+173 bps YoY to 26.98%) and Core inflation (+41 bps YoY to 20.47%). Earlier this week on Wednesday, the Nigerian National Petroleum Company Limited (NNPCL) announced that it had secured a US$3bn emergency crude repayment loan from the African Export-Import (AFREXIM) bank. According to the NNPCL, this loan agreement is not a crude-for-refined product swap but an upfront cash loan against proceeds from a limited amount of future crude oil production. The disbursement will be in tranches based on the FGN’s specific needs & requirements and there are no sovereign guarantees tied to the loan, which means that it would not be added to the public debt profile but sit in the NNPCL’s balance sheet. Furthermore, The Central Bank of Nigeria (CBN) has officially launched its Price Verification System (PVS) portal after successfully completing the pilot phase and training with Nigerian banks.  Also, starting on August 31, 2023, applications for Form M will require a valid Price Verification Report from the newly established portal. This move aims to enhance transparency and standardization in trade operations. The Price Verification Report will become a prerequisite trade document for completing a Form M, reflecting the CBN’s efforts to regulate financial transactions. Non-compliance will result in sanctions, so banks must inform customers and adapt to the new system for the benefit of Nigeria’s economy.

Equities and Stock Recommendation

This week, bearish sentiment permeated the Nigerian Equities Market as the market gained in only one (1) out of the five (5) trading days in the week. Consequently, the NGX All Share Index (ASI) slipped by 89bps WoW to 64,743.96 points. Similarly, the year-to-date returns fell to 26.33% from 27.46% last week. On a sectoral basis, the Banking (-2.94% WoW) and Oil and Gas (-1.41% WoW) sectors closed in the red while the Industrial (+0.21% WoW), Consumer Goods (+3.75% WoW) and Insurance (+4.34% WoW) sectors witnessed bullish sentiment. Top tickers for the week include SKYAVN (+73.8% to NGN28.15), SUNUASSUR (+54.7% to NGN0.82) and ABBEYBDS (+51.8% to NGN1.70). On the flipside, JOHNHOLT (-46.5% to NGN1.45), ETERNA (-38.4% to NGN17.85) and NSLTECH (-35.3% to NGN0.33) led the losers’ chart. In the coming week, we expect investors to sustain profit-taking activities in the market.

Fixed Income

The Nigerian Treasury Bills market ended the week bearish as average yield surged 106bps WoW to settle at 8.39%.  At the primary bond auction for August 2023, the DMO sold NGN227.76bn worth of bonds across the re-opening of four (4) instruments (APR-2029: NGN10.43bn, JUN-2033: NGN4.07bn, JUN-2038: NGN25.53bn, and JUN-2053: NGN187.73bn). There was a decline in demand for the instruments as the average bid-to-cover ratio dipped by 176bps to 0.87x (vs. 2.63x at the last auction). Consequently, the average stop rate surged by 135bps to 14.98% from 13.63% at the last auction. Stop rates for the APR-2029, JUN-2033, JUN-2038, and JUN-2053 instruments surged by 135bps, 140bps, 110bps, and 155bps respectively. The bearish sentiment at the auction trickled down to the secondary bond market as average yield rose by 31bps WoW to 13.83%. This is following selloffs in the MAR-2024 (+67bps), and JAN-2026 (+5bps). Overall, the Naira Fixed income market closed the week bearish as average yield increased by 68bps WoW to settle at 11.11%.

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