July 7, 2021/InvestmentOne Report

Please click to view the June 2021 Macro & Markets Update

·        In the outgone month, oil price continued to surge as decent economic   data from US, China and other major economies supported Brent oil to US$75.13 per barrel (+11.27%m/m).  

·        At the June FOMC meeting, the committee concluded with a median projection that it would raise its benchmark rate to 0.6% from near zero by late 2023, a shift from its March projection that it would hold the rate steady near zero through that year (2023).

·        In the local scene, the NNPC affirmed that 42million litres of petrol is smuggled out of the country per day pushing Nigeria’s daily consumption to 102million litres per day.

·        Going forward, we expect oil output to improve as OPEC relaxes its    output cap on the back of recovery in global economy.

·        During the outgone month, the National Bureau of Statistics released the Inflation report for the month of May 2021, which showed that Headline inflation slowed by 19bps to 17.93%, from 18.12% in April 2021 – representing a second month consecutive decline in the pace of headline inflation.

·         The moderation in inflation was largely a result of high base effect; we recall that in May last year a COVID induced national lockdown was imposed, which significantly affected transportation of food and food prices during May 2020.      

·        While we view the moderation in headline inflation y/y as positive, we remain concerned about major factors that could be headwinds in the near term.

·        Another month and the bittersweet feeling of rising Brent crude price persists as it reached its highest level since October 2018 at US$76.18 per barrel.

·        For Nigeria, we believe the rise in price should be supportive of government revenues, export receipts and the CBN’s ability to defend the naira.

·        The rise in Brent crude has also caused a peculiar headache for policy makers as Africa’s largest oil producer struggles to keep up with the importation cost of PMS.

·        During the outgone month, money market rates remained elevated as liquidity in the system remained relatively tight.

·        At the CBNs OMO auction during the month, we observed a pick-up in average subscription level as it rose to 2.95x (from 0.92x in May).

·        On the other hand, at the NTB primary auction, we saw a decline in the stop rate of the longest tenure as overall subscription level settled at an average of 5.62x (2.92x in May).

·        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 the emergence of the new COVID-19 Delta variant which is reported to be present in about 85 countries.

·        In the local scene, following the adoption of the NAFEX/IEFX exchange rate as the nation’s official exchange rate, signifying an end to the official government-determined exchange rate (N379/USD), the CBN increased the exchange rate for cargo clearance from N381 per dollar to N404.97 per dollar.

·        Elsewhere, data from FMDQ showed that the CBN decreased its participation in the IEFX window accounting for about c.33% of total inflow, amounting to US$324.60million (from US$435.20billion last month).       

·        Going forward, we expect the naira to continue trading at current levels.

·        The Nigerian Equities Market saw a little buy interest across board         following sell-off in the preceding month.

·        Notwithstanding the NSE-ASI printed downwards by 1.38% m/m from 38,437.88pts at the end of May to 37,907.28pts at the end of June 2021 following significant selloff in AIRTELAFRICA.

·        As we head into earnings season and expect companies to perform strongly on the back of easing restrictions measures, economic recovery trends and low base effect of Q2/H1 2020, we expect investors to look more closely at equity names.