November 8, 2022/InvestmentOne Report

Please click to view the October 2022 Macro & Markets Update

 The Central Bank of Nigeria (CBN) recently announced plans to redesign the N100, N200, N500 and N1000 notes in a special press briefing on the 26th of October. The new notes will be released and   circulated from December 15, 2022, while existing currencies will cease to be legal tenders from January 31, 2023. In defense of its move, the bank affirmed that global best practice is for Central Banks to redesign, produce and circulate new local legal tender every 5-8 years, the Naira has not been redesigned in the last 20 years and the President also approved the decision. The policy move has however led to unintended consequences, particularly in the foreign exchange market.  

• Nigeria’s inflation figures continue to hover at lofty levels as soaring consumer prices further shrank the incomes of households and businesses amid tough economic conditions.   According to the September Consumer Price Index (CPI) report by the National Bureau of Statistics (NBS), headline inflation surged to a fresh high of 20.77% y/y in September 2022, 25bps higher than the 20.52% y/y printed in the prior month.
  

• In a bid to ensure the timely passage of the appropriation bill and the consistent follow through with the January-December budget cycle, which has been the trend in recent years, the President presented the 2023 budget to both chambers of the legislature in October. The 2023 budget, which is the eighth and final one of this administration is tagged:  “Budget of Fiscal Sustainability and Transition”. Elsewhere, Federal Account Allocation Committee (FAAC) disbursement among the three tiers of government resumed its uptrend as the amount paid out in the month of October (from revenues generated in September) printed at N760.24 billion, 12.93% higher than N673.14 billion disbursed in the previous month.
  

• Liquidity conditions remained tight in the financial system with   interbank rates steady at double digits rates. However, the Open Buy back and Overnight rates declined by 100bps and 83bps to 14.50% and 15.17%, as the inflows (FGN coupon payments, OMO maturities and net primary market auctions) provided support during the month. During the month, the apex bank released a circular refraining access to the discount window on auction and settlement date for open market operations (OMO), treasury bills (T-bills) and foreign exchange (FX) auctions for deposit money banks. Elsewhere, the bearish sentiment persisted in the fixed income market as stop rates continued to trot upwards.
  

• In the previous month, oil prices reversed course to the upside driven by OPEC+ decision to cut production quota by 2million bpd, representing the largest cut since early 2020. Bringing it down to the local space, oil earnings sustained its underwhelming performance majorly driven by sub optimal production and subsidy payments, thus, foreign reserves slide by 2.24% m/m to settle at $37.39 billion. At the IEFX window, Naira continued to lose value against the USD, as it depreciated by 1.37% to close at N443.00/$ against the backdrop of declining reserves, low   foreign portfolio inflows and diaspora remittances. In the same vein, the pressure on the Naira at the black market worsened as the CBN’s decision to redesign the Naira notes in a short timeframe ignited intense speculation, and a switch to the greenback by some currency hoarders.
  

• The last quarter of the year began on a gory note for the equities market as the bearish momentum in the past months remained prevalent. In details, the local bourse plummeted by 10.58% (steepest monthly decline this year) in October, marking the fifth consecutive month on month loss recorded in the year 2022. The All-Share Index settled at 43,839.08pts. Consequently, market capitalization declined to N23.87 trillion from N26.45 trillion, while the year-to-date return decreased significantly to 2.63% from 14.77% in the prior month.