The Week Ahead

MPC Meeting Set to Kick-Off On Monday – Q1’21 GDP Numbers Expected 

In the coming week, the Monetary Policy Committee (MPC) will hold its third set of meetings for the year on Monday and Tuesday (24th and 25th of May, 2021).

The Committee is expected to review the domestic and external macroeconomic conditions and financial markets developments since its last meeting in March and provide forward guidance on how it intends to balance the competing goals of price and exchange rate stability.

Read Also: FX, inflation possible consideration for a ‘hold’ as MPC meets Monday

Against this backdrop, the committee is expected to keep the monetary policy parameters unchanged and affirm the continued adoption of its secondary “toolbox” in addressing the imbalance in the external account and restoring macroeconomic stability.

Also, GDP figures for Q1 ’21 are expected to be released by the NBS on Monday alongside other release dates indicated on the NBS release calendar as follows:

· Monday 24th May, 2021: Nigerian Gross Domestic Product by Output report (Q1 2021) & Road Transport Data (Q1 2021)

· Tuesday 25th May, 2021: Company Income Tax (Q1 2021)

· Thursday 27th May, 2021: Pension Asset and Membership Data (Q1 2021)

· Friday 28th May, 2021: Telecoms Data: Voice and Internet per State, Porting and Tariff Information (Q1 2021).

OIL PRICES UNAFFECTED DESPITE 3-DAY PLUNGE

Oil prices nudged up on Friday, recovering from three days of losses as investors braced for the return of Iranian crude supplies after officials said Iran and world powers made progress on talks to revive a 2015 nuclear deal. Brent had a weekly decline of -2.76%. However, Brent crude oil futures are currently up 1.86%, trading at $66.32 while U.S. West Texas Intermediate is currently up 2.20% trading at $63.30.

On Tuesday, the Minister of State for Petroleum, Timipre Sylva said subsidy on petrol will soon be withdrawn and the passage of the Petroleum Industry Bill will not go beyond June.

On Wednesday, the Nigeria Governors Forum okay full deregulation of petrol (with the fuel selling between N380 and N408.5 per litre), wants the three refineries privatised after rehabilitation, and recommended the purchase of 113 buses to cushion the likely effects of the price increase.

Data from the Nigerian Oil Spill Monitor and Response Agency (NOSDRA) using a satellite-powered tracker showed that out of the 3363.03 barrels of oil spilled recorded from December 2020 through April 2021, 3140.10 barrels, representing a staggering 93.4 per cent, were from oil theft.

Outlook

In the coming week, oil prices are expected to dip marginally as Iranian oil is set to flood the market as the country and world powers make progress in a nuclear deal.

DATA FROM KEY INTERNATIONAL MARKETS ALTER GOLD PRICES

Gold prices are expected to be mixed in the coming week, pressured by the dollar and U.S. treasury yields.

The precious metal recorded significant losses at the last trading session of the week as an improvement in the global economic outlook strengthened investors’ risk appetite.

Gold futures plunged by 0.38% to $1,874.75 an ounce. The weaker greenback that often moves inversely to gold, inched down today, thereby capping the precious metal’s losses. Gold bugs seem to be taking a wait-and-see approach amid solid economic reports from key international markets that include the Eurozone, the United Kingdom, and the United States, as investors increased their buying pressures on riskier assets like global equities.

Recent price action, however, suggests gold bugs are pretty much in play, with the bullion assets springing above $1,850 an ounce amid signs of inflationary pressures. Market experts envisage that a break above $1,900 an ounce is still in the works on the bias that the precious metal is supported by “irrational” behaviour in response to a COVID-19-stressed global economy that threatens the value of fiat currencies.

In addition, gold traders seem to keep some of their bullish bets amid the reality that postulates COVID-19 is still far from being under control, triggering a flocking back to the safe-haven asset, despite the significant progress that was made in the past few months, and several COVID-19 vaccines already in the market.

AGRICULTURE

Cocoa prices are expected to decline in the coming week as a result of weak demand from Europe. Sugar prices on the other hand, are expected to rise next week due to the sugar supply shortage in Brazil. Corn prices are also expected to be bullish next week as a result of continued demand from China.

In the previous week, Cocoa prices and sugar prices dipped by -1.57% and -1.83% respectively. However, Corn prices climbed by 1.49% Week on Week (W-o-W).

MORE OF THE SAME FOR THE NAIRA

Overall, it was a bearish market for the Naira both at the official window and BDC window this week.

On a W-o-W basis, the Naira remained flat against the dollar and the Euro at the BDC window, however, against the Pound it was bearish. It depreciated against the British Pound by -0.44%, closing at £1/N680 at the BDC window.

At the I & E FX window, the Naira was depreciated marginally by -0.08% at the end of the week. The Naira closed the week at $/N412.0 at the I&E FX window, at the NAFEX (spot market) it closed at $/N410.71.

More of the same is expected in the week ahead as the Naira is anticipated to continue to hover around N406/$1-N412/$1 threshold.

MONEY MARKET OUTLOOK

Funding rates are expected to trend in double digits in the coming week.

Funding rates declined at the start of the previous week which was supported by system liquidity. Funding rates fell significantly at the close of the week. Open Buyback (OBB) closed at 16.50% while Overnight (O/N) rates closed at 17.0% indicating a Week-on-Week (W-o-W) decline of -38.62% for OBB and -41.14% for O/N rates.

TREASURY BILLS MARKET OUTLOOK

Activity in the treasury bills market is expected to remain subdued in the coming week as system liquidity remains relatively tight.

The Nigerian Treasury Bills market continued its bearish sentiment for most of the previous week, however, the sentiments improved slightly at the end of the week. At the close of the week, the average benchmark yield for T-bills rose by +13.68% to close at 5.76% while OMO bills rose by +7.10% W-o-W to close at 8.62%. Yield for Special bills rose significantly by +17.80% W-o-W to close at 8.87%.

MORE OF THE SAME FOR THE FGN BOND AND EUROBOND MARKET

Market sentiment is expected to remain soft in the absence of any trigger in the week ahead.

The Bond market started the previous week on a relatively quiet note as attention was drawn to the Bond auction. At the close of the week, the market was bearish with selling interest seen majorly at the short end of the curve. The overall average benchmark yields closed at 9.52% for the week which increased W-o-W by +4.61%.

The Eurobond market traded on a relatively weak note last week with sell-off seen across all SSA papers following the rise in US treasury yields coupled with a decline in crude oil prices. The average benchmark yield closed at 6.17% at the end of the week increasing marginally W-o-W by +0.82%.

NIGERIAN CAPITAL MARKET OUTLOOK

In the coming week, we expect a likelihood of undulating trading sessions during the week. Bargain hunting is also expected as the profit taking run would create attractive entry points. However, press releases from listed companies and macroeconomic developments are likely going to impact investors’ decisions. In addition, market analysts expect investors to monitor the movement of yields in the fixed income market.

Nigeria’s all share index fell further last week as investors sustained their profit taking on the exchange. The Nigerian bourse closed the week negative with a decline of -2.93%. The Nigerian Stock Exchange lost N603.48bn thus, year-to-date return deteriorated to -4.83%, while market capitalization settled at N19.98 trillion. The volume and value of stocks traded on the exchange last week declined by -20.61% and -33.09% respectively.

Performance across sectors tracked was broadly negative last week as the NSE Oil and Gas was the highest gainer for the week with +7.39% while NSE-IND recorded the highest decline with -3.34%. NSE Banking, NSE-30, NSE Insurance and NSE Consumer Goods closed the week negative with -1.53%, -1.48%, -0.74% and -0.03% respectively.

THE NIGERIAN ECONOMY IN RETROSPECT

To give an account of unremitted funds to the Consolidated Revenue Fund, the Senate Committee on Finance sent invites to over 60-government owned firms to start appearing before it. Prominent amongst the invited government-owned firms include the Central Bank of Nigeria, the Nigeria National Petroleum Corporation, the Nigeria Customs Service, and the Nigerian Maritime and Safety Administration Agency. The Chairman of the Senate panel, Solomon Adeola, noted that it was important for the government to raise money to fund the budget. Furthermore, he emphasized that the full-scale investigation hearing would also enable the National Assembly to identify various leakages of government revenue that had been leading to a yearly budget deficit.

In addressing the failure of MDAs to remit proper funds to Consolidated Revenue Funds, the Fiscal Responsibility Commission reported that ministries, departments, and agencies of the Federal Government are withholding about N1.2trn. According to the Commission, about 32 listed MDAs are yet to present their audit reports to it since 2007 when it was established. Some of the affected MDAs include the Administrative Staff College of Nigeria, Bank of Agriculture, Bank of Industry, Cement Technology Institute of Nigeria, Centre for Black African Arts and Civilization, Chad Basin National Park, Federal Radio Corporation of Nigeria, etc.

Nigeria’s inflation declined to 18.12% in April 2021 from 18.17% in March 2021. Also, food inflation declined from 22.95% in April 2021 to 22.72% in March 2021. The rise in the food index was attributed to the increases in prices of coffee, tea and cocoa, bread and cereals, soft drinks, milk, cheese and egg, vegetable, meat, oil and fats, fish and potatoes, yam, and other tubers. Furthermore, core inflation which excludes the prices of volatile agricultural produce stood at 12.74% in April 021 from 12.67% recorded in March 2021. The highest increases were recorded in prices of pharmaceutical products, vehicle spare parts, hairdressing salons, and personal grooming establishments, garments, furniture and furnishing, medical services, shoes, and other wears, motor cars, major household goods, and fuel and lubricants for personal transport equipment.

The House of Representatives at the plenary on Wednesday resolved to investigate the alleged abandonment of the Eastern Rail Line, the Port Harcourt-Maiduguri section after the Federal Government awarded the reconstruction contract for N72.34bn. It was noted that the panel would also confirm the status of the entire contracts awarded for the 1443km Eastern Railway Line for approximately N72.34bn to Messrs Esser Contracting and Industry Company (Turkey), CGGC Global Projects Nigeria Limited, and Lingo Nigeria Limited (in association with Strasky Husty and Partners Ltd of Czech Republic).