September 5, 2018/InvestmentOne Report
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· During the course of the month, we saw the U.S and China impose tariffs on US$16 billion worth of goods imported from the rival nations, hence completing the initial wave of US$50billion to be taxed. The U.S President also announced another wave of tariffs on Chinese imports worth US$200billion to take effect in September 2018, further heightening concerns on the negative impact of the trade war on global economic growth.
· The CBN purchasing managers’ Index for the month of August 2018 came in positive indicating that business sentiment remains strong. The index showed expansion in manufacturing and non-manufacturing index for the consecutive 17th and 16th month respectively. The report indicates that, growth in manufacturing PMI at 57.1pts and non-manufacturing PMI at 58.0pts in August 2018 were both faster than July 2018.
· We highlight that, we are beginning to FAAC monthly allocation rise above the mooted monthly requirement of N709 billion. This should be positive for economic activities especially in terms of consumption which is a key driver of economic growth.
· The Central Bank of Nigeria (CBN) continued its’ intervention into the foreign exchange market, and this pressured FX reserves to a 2.64% decline to US$45.87 billion. We saw the naira depreciate against the US dollar in the parallel market by 2.78% to N361 as at August 30 2018.
· Similar to last month, the sell-off in the fixed income space continued as yields across most tenors maintained an upward trajectory in the short and long end of the curve. Consequently, yields on the 5yr, 7yr and 10yr benchmark bonds rose by 88bps m/m, 108bps m/m and 81bps m/m to close at 14.65%, 15.08% and 15.13% respectively.
· In our opinion, we believe the market is still weak due to factors such as the increasing U.S treasury yields. In anticipation of more rate hikes by the U.S Fed as well as investors’ skepticism around the country’s 2019 election we expect that activities in the equity space should remain quiet going forward as domestic and foreign investors may likely remain on side-lines. Furthermore, we may see investors move to the fixed income space to take advantage of the rising domestic yields.