June 7, 2021/InvestmentOne Report

Please click to view the May 2021 Macro & Markets Update

·        In the outgone month, oil prices continued to recover as decent economic   data from US, China and other major economies supported Brent oil to US$69.32 per barrel (+3.83%m/m).

·        With the Biden administration unveiling a US$6trillion 2022 fiscal plan and US Fed remaining dovish, we believe this could continue to improve sentiment in global economy.

·        In the local space, the nation’s GDP expanded by 0.51% in Q1 2021 higher than the growth of 0.11% in Q4 2020 but weaker than a growth of 1.87% in Q1 2020.

·        In the non-oil sector, output continued to expand as higher output, albeit at a slower pace on q/q basis, in Agriculture remains a major driver of growth in the subsector.

·        Contrary to our expectations, April 2021 inflation numbers came in higher as pressure on food prices continue to mount.

·        The slowdown in inflation over the course of the month represented the first moderation in headline number over the past nineteen months.

·        Going forward, we are not very optimistic in our outlook on inflation levels.

·        In the outgone month, we witnessed FAAC numbers print materially lower on a month-on-month basis as the NNPC was unable to contribute its quota following heightened subsidy bills.

·        Adding more to the subsidy woes was Brent crude rising 3% during the month following significant demand boost which outweighed fears of an Iran production comeback..

·        Also, the FG indicated plans to issue US$3billion or more in Eurobonds sometime soon.

·         In its third meeting in 2021, the MPC voted to maintain Monetary Policy Rate (MPR) at 11.50%, in line with our expectation.

·        At the NTB primary auction, we saw a decline in stop rates on the longest tenure as overall subscription level settled at an average of 2.92x (1.79x in April).

·        The outcome of the primary auctions held during the month suggests that, the CBN is holding firm on increasing stop rates significantly at both the NTB and OMO auctions.

·        In the outgone month, positive sentiments around the recovery of oil demand from the U.S. and other countries in the world outweighed concerns about slowing demand from Asian countries following recent wave of coronavirus cases in the region.

·        In the local scene, the CBN has adopted the NAFEX/IEFX exchange rate on its website as the nation’s official exchange rate, signifying an end to the official government-determined exchange rate (N379/USD).

·        Elsewhere, data from FMDQ showed that the CBN increased its participation in the IEFX window accounting for about c.42% of total inflow, amounting to US$435.20million (from US$143.20billion last month).

·        We believe the recent extension of the “Naira for dollar” scheme may bode positively for the flow of dollars into the parallel market however, this would depend on the level of recovery in FX remittances into the country.

·        The Nigerian Equities Market saw some profit taking during the month of May 2021, as the NSE-ASI printed downwards by 3.52% m/m from 39,834.42pts at the end of April to 38,437.88pts at the end of May 2021.

·        Further buttressing our opinion, in the month of May 2021, the market saw activity levels dwindle as average volume and value dipped by 7.8% and 28.7% respectively.  

·        With recovery in oil prices, and limited investment outlets, interest rate   direction remains the major risk factor in the equities market as a significant rise in interest rates may prompt more outflows from equities in spite of cheap valuations.