As we come to the end the first half of 2019 Nigeria’s monetary authorities can give themselves a pat on the back. FX reserves are high and interest rates are 300bps lower than at the end of the year. However, the entire public sector is small fry compared with the private sector. See page 2.
FX
The Central Bank of Nigeria’s (CBN) FX reserves are currently reported at (a three-month moving average of) US$45.09bn. Since the beginning of the year US$11.41bn has been injected into the NAFEX market through Foreign Portfolio Investment (FPI) while the CBN’s contribution has been just US$0.56bn. We believe that the current reserve level is sufficient for the CBN to defend the Naira exchange rate through to the end of 2019.
Bonds & T-bills
The yield on a Federal Government of Nigeria (FGN) Naira bond with 10 years to maturity fell by 21bps to 14.55%, and at 3 years declined by 63bps to 13.91% last week. The yield on a 364-day T-bill declined by 12bps to 13.60%. The yield on a T-bill with 3 months to maturity increased by 20bps to 11.16%.
Amidst inflows from maturing open market operation (OMO) bills from the CBN, the liquidity in the system looked strong last week. At the same time the market was aware of both the accommodating stance – if not actual cuts – from the US Federal Reserve and was aware that oil prices were rising again. Some of the risk trade therefore went back onto long-dated bonds. But we think that with the 1-year just 220bps above inflation, the CBN would not mind if 1-year market rates rise slightly.
Oil
The price of Brent rose by 5.14% last week to US$65.20/bbl. The average price, year-to-date, is US$66.22/bbl, 7.63% lower than the average of US$71.69/bbl in 2018, but 20.97% higher than the US$54.75/bbl average seen in 2017.
Oil prices spiked as tensions heightened between the US and Iran which shot down a US military drone. The strike came after the US blamed Iran for the attacks on two oil tankers in the Gulf of Oman near the Strait of Hormuz last week.
Equities
The Nigerian Stock Exchange (NSE) All-Share Index dipped by 0.65% last week, resulting in a year-to-date return of negative 5.02%. Last week Dangote Sugar (+17.45%), Access Bank (+7.81%) and Lafarge Africa (+7.69%) closed positive while Okomu Oil (-10.0%), International Breweries (-9.97%) and Presco (-9.09%) fell.
Following in MTN Nigeria’s footsteps’, Airtel Africa is set to be listed on the Nigerian Stock exchange on July 4 with an indicative price range of N363-N454 Naira per share. Its listing most likely signals a rebound positive sentiments and an increase market participation.
