economic indices for july

POLITICS & POLICY

Fed Govt votes N37b for jobs

The Federal Government has disclosed plans to spend about N37bn in the agricultural sector for additional job creation. Akinwunmi Adesina, Agriculture Minister, believes the agric initiative is a quick way to tackle the unemployment problem.

ECONOMY

FG signs $4.5bn MoU for six refinery projects

The Federal Government (FG) has signed a $4.5billion (N689bn) Memorandum of Understanding (MOU) with a conglomerate of local and foreign companies for the construction of six modular refineries. This is aimed at attracting investments into key sectors expected to have positive multiplier effects on the Nigeria economy. The six refineries would have a combined capacity to refine 180,000 barrels of crude oil in-country and produce up to 30 million litres per day of refined products.

REGIONAL DEVELOPMENT

Africa

Foreign direct investment into Africa to double by 2014 FDIs into sub-Saharan Africa rose by 25% to $36.9 billion in 2011 as commodity-rich countries in west and central Africa saw a rise in new projects. With stronger economic growth, ongoing reforms and improved perception of continent by investors, the rate is likely to double up by 2014. However, for the third consecutive year, Foreign Direct Investment (FDI) into Africa fell to $42.7 billion in 2011 from $43.1 billion in 2010 due to reduced inflows to North Africa as social and political unrest in Egypt and Libya deter investors. FDI into Africa is projected to grow between $55 - $65 billion in 2012, $70-$85 billion in 2013 and $75-$100 billion in 2014. Developing economies funds into Africa ($45.5 billion), outstripped that from developed economies ($43.2 billion) during the review period.

South Africa

Rand weakness - Main Inflation Risk The rand hit a 3-year low against the dollar last month – reaching ZAR8.71/US$ on global fears of contagion from Eurozone’s debt problems, South Africa's biggest trading partner bloc. The falling rand remained upside risk to inflation – expected to stay within its 3-6% target range on a sustained basis. The Reserve Bank however, is currently building reserves to ensure stability in the foreign exchange market and had purchased approximately $4 billion of foreign exchange in 2012. The banking regulator also reiterated that the domestic growth outlook had deteriorated mainly due to global uncertainties, trimming its growth forecasts to 2.9% from 3% initial estimate.

WORLD ECONOMY

China

China cuts key interest rates for second time this year In a bid to shore up Chinese slow growth, the People's Bank of China (PBoC) lowered interest rate for the second time in 2012. The one-year deposit rate was lowered by 25 basis points to 3% while one-year lending rate was reduced to 6% from 6.31% – a 31 basis points cut. The reserve requirement ratio (RRR) was left unchanged at 20%. The rate cut is expected to stimulate domestic economic activities as the ongoing debt crisis in Europe may continue to shrink external demand for Chinese goods. The world’s second largest economy grew 8.1% in Q1 2012 – the slowest pace in almost three years and a further slowdown is likely in Q2 following decline in industrial profits for a second straight month in May. World Bank expects economic growth to ease 8.2% in 2012 from 9.2% in 2011.

Eurozone

ECB cuts Eurozone rates to record low of 0.75%  The European Central Bank (ECB) cut its benchmark interest rate to a record low of 0.75% from 1% – the lowest rate cut ever in the short history of the 17-nation currency bloc. The deposit rate was lowered by 25 basis points to zero while marginal lending facility rate was slashed to 1.5% from 1.75%, implying a narrowing of the interest corridor. The widely anticipated rate cut is a move to support the deteriorating euro zone economy and complement measures agreed by leaders a fortnight ago to tackle the bloc's debt crisis. Weak economic outlook, absence of inflationary threat and heightened uncertainty weighing on market sentiment are justification reached by ECB for the rate cut.

UK

Bank of England hikes stimulus by £50bn holds rate  Bank of England (BoE) raised the size of its asset purchase plan by £50 billion to £375 billion – a move intended to give the recession-hit economy a jump start. BoE had temporarily halted its quantitative easing programme back in May, but with inflation in check and the European economy teetering, the decision for another round of economic boost was seen as necessary. The programme is expected to take four months to complete. Also, at the Monetary Policy Committee (MPC) meeting, the interest rate was left unchanged at 0.50% as widely expected. The rate has been maintained at the current level since March 2009.

MARKET ANALYSIS

The Stock Market

Last week, trading activities at the Nigerian Stock Exchange (NSE) closed positive for the fourth week in succession as the key benchmark indicator closed above the 22,000 psychological line. Equities recorded an increase in major performance indicators – All Share Index (ASI) and market capitalization – adding 2.64% to finish at 22,110.91 points and N7.06 trillion for the week ended July 6, 2012. The buoyant mood in the market can be traced partly to short term speculations on expectation of impressive half year results of quoted companies. Demand rose steadily as investors held back on supply in further anticipation of bullish trading. This week, we expect the market to thrive on renewed confidence with attendant impact on trading/speculative activities. Investors will likely grab more shares in anticipation of good scoring performance in financials of bluechip companies.

Stock Market Trend

FGN Securities

Bond yields on the average moderated downwards across all maturities for the week ended July 6, 2012 to reverse the uptrend recorded the previous week. The dip in average yields was driven mainly by strong demand for government securities following increased investors’ appetite. Consequently, the Access Bank Government Bond Index recorded an increase of 0.5% to close the week at 1,552.09 points. The Debt Management Office (DMO) has announced plans to issue between N200 billion and N280 billion in sovereign bonds ranging from 5 to 10 years in Q3 2012. Africa's second biggest economy issues sovereign bonds monthly to support the local bond market, creates a benchmark for corporate issuance and funds its budget deficit. Bond yields may trend northward this week following expected tightness in market liquidity.

NIBOR

The Nigerian Inter-bank Offered Rate (NIBOR) trended northward last week due to withdrawal of about N100 billion for FX purchases at the CBN bi-weekly. Market closed the week with a cash deficit of about N50 billion, compared with a cash balance of about N118 billion the previous week. Interbank call and overnight rates rose to 15.58% and 15.50% from 15.25% and 15.08%, respectively. Open Buy Back (OBB) inched up to 15% from 14.54% recorded the previous week. Inflow of about N30 billion from maturing T-bills at the beginning of the trading week ended July 6, 2012 did not stop the rise in rates. This week, an estimated total outflow of about N354.61billion is expected from fixed income and foreign exchange markets. Given market statistics, rates should further trend northward.

NIBOR Trend

Average Deposit and Lending Rates

On the average, deposit and lending rates were relatively stable across maturities for the week ended July 6, 2012 amid liquidity tightness at the interbank market. We expect deposit rates to inch upwards as banks move to attract more deposits given tight liquidity situation. Similarly, average lending rate is expected to move slightly upward, as financial institutions seek to at least maintain net interest margins.

Foreign Exchange Market

Naira strengthened against the greenback after dollar sales of over $50.1 million by oil firms (Chevron and Addax) boosted liquidity amid weakening demand. The local currency gained N0.04k N2.13k and N0.50k at the CBN window, interbank and parallel markets to close the week ended July 6, 2012 at N155.90/US$ N161.00/US$, and N164.50/US$, in that order. It however remained unchanged at previous week’s levels of N164/US$ at the BDC segment of the FX market. At the WDAS on Wednesday, CBN sold $251 million at N155.90/US$ compared to the $350 million auctioned at N155.94/US$ on Monday. The banking regulator sold a total of $601 million at the auction last week as against $700 million the previous week – a 14% decline in supply. Month-to-date, Naira has weakened by 20 kobo to N155.90/US$, driven partly by an exit of offshore investors in the local debt market and demand by fuel importers. The central bank has been providing support for the Naira through direct intervention at the interbank market. This week, unless there is a resurgence in demand and slowdown in dollar sales by oil companies, we anticipate the market to remain around current levels hovering between N162.50/US$ – N163/US$ at the interbank market.

Naira Exchange Rates

BUSINESS UPDATE

Update on Commodities Market

Commodity prices moved northwards for the week ended July 5, 2012. Oil prices (OPEC) rose by 8.26% to close at $98.43 per barrel from $90.92 the previous week as mounting tension over Iran’s nuclear program sparked concerns about supply threats. Hopes for economic stimulus action by the Fed also supported the trend observed in oil prices. Natural gas prices trend upward by 8.19% to close at $2.95 per british thermal unit (btu). On the other hand, prices of gold and silver were up 3.34% and 4.98% to $1,604.58 and $27.68 per ounce, in that order. Bullion prices – a potential beneficiary of the world financial market uncertainties – rallied as world central banks resolved for more economic stimulus to shore up weak economies amid slowing global growth. Oil prices may close higher this week on supply short fall following strike by Norwegian energy workers. Precious metals may further trend upward as policy makers adoption of additional stimulus measures to boost growth would continue to increase demand for bullion.

NIGERIA ECONOMIC INDICATORS

External Reserves & Crude Oil (Bonny Light) Price

Average NIBOR

Average Deposit Rates

Average Prime Lending Rate

Trends in MPR Call Rate & Inflation

GDP Growth Rate

Inflation Rate

BUZZ WORD

Speculative Bubble

In financial economics, the term “Speculative Bubble” refers to a sharp increase in asset values within a particular industry, commodity or asset class. The bubble is amplified by exaggerated expectations of future growth, price appreciation and other events that could lead to an increase in asset values. This would increase trading volumes, as more investors cluster around the heightened expectation; hence buyers outnumbering sellers, pushing prices beyond what an objective analysis of intrinsic value would suggest. The bubble is complete only when the prices fall back to its normal level involving a period of fall in price during which most investors panic and sell out their investments.