The NBS released the Consumer Price Index (CPI) report for August 2023. According to the report, the inflation rate has soared to a staggering 25.80%, marking a substantial 1.72% increase from the previous month’s 24.08%. This sharp rise can be attributed to two major factors: the removal of petrol subsidies and the devaluation of the official exchange rate. These policy decisions have directly impacted consumer prices, driving up the cost of goods and services. In terms of sectors, food and non-alcoholic beverages have contributed the most to the inflation rate, standing at 13.36%. This is followed by housing, water, electricity, gas, and other fuels at 4.32%, and clothing and footwear at 1.97%. Food inflation is a particularly concerning aspect, with a rate of 29.34% in August 2023. Examining core inflation, which excludes volatile agricultural produce, it stands at 21.15% in August 2023. This represents a notable increase from the 20.47% recorded in July 2023, indicating that the inflationary pressures are not solely driven by food prices. Nigeria is currently grappling with severe inflation, and addressing this issue will necessitate a coordinated and strategic approach from both fiscal and monetary authorities to mitigate its impact on the population and stabilize the economy.
Money Market
During the week, interbank market rates exhibited an upward trend driven by liquidity constraints, despite CRR refunds and bond coupon injections into the system. Consequently, the Open Buy Back rate (OBB) surged by 581 basis points in a week-over-week assessment, peaking at 23.64%. Simultaneously, the Overnight rate (O/N) experienced a significant increase of 567 basis points, reaching 24.42%.
With expectations inflows next week, we anticipate that rates will decline.
Treasury Bills
Amid tight interbank liquidity conditions in the money market, the Treasury Bills market adopted a cautious approach at the beginning of the week. This cautious sentiment was further heightened by the NTB auction held on Wednesday, during which the DMO floated and offered ₦150.18 billion across the 91, 182, and 364-day maturities despite the subscription totaling ₦638.67 billion. The auction’s stop rates settled at 4.50%, 7.00%, and 12.98% for the respective maturities.
Following this auction, investor interest notably focused on the newly issued 1-year Treasury bill (12-Sept-24), resulting in most trades settling in the range of approximately 11.50% by the end of the week. Nonetheless, average benchmark yield inched higher by 5 bps over the week, ultimately closing at 6.87%.
We forecast lower yields as the market positions ahead of the bond coupon payments expected next week.
FGN Bond Market
The FGN Bonds market commenced the week with subdued trading, marked by heightened anticipation surrounding the results of Monday’s FGN bonds auction. The Debt Management Office (DMO) offered N360 billion worth of bonds across four different tenors (29s, 33s, 38s, and 53s) at the auction. However, the total subscription amounted to only N290.99 billion, falling short of the offering, and the allotted amount was N251.49 billion. Notably, stop rates saw an increase compared to the previous auction levels, settling at 14.50%, 15.45%, 15.55%, and 16.25% for the respective tenors, in contrast to the prior rates of 13.85%, 15.00%, 15.20%, and 15.85%.
Taking a cue from the auction and amid tight liquidity conditions in the financial system, yields moved higher across the yield curve. However, by the week’s end, there was increased interest in long-tenured bonds, driven by anticipation of bond coupon payments next week, acted as a stabilizing factor, resulting in the average benchmark yield closing the week at 14.65%, reflecting a 34 bps increase week-on-week.
We anticipate improved demand driven by bond coupon payments expected next week.
Eurobond Market
The FGN Eurobonds traded mixed sentiments in the week under review as average benchmark yield closed flat at 11.10%. This could be traced to the released reports during the week that strengthened market expectation of a pause in FEDs rate for September.
We anticipate cautious activities next week market awaits the FOMC meeting on Wednesday.
Currency Market
The value of the Naira to the dollar weakened by 478 bps week-on-week to print at ₦756.91/$ this week at the Investors and Exporters FX Window.
Equities Market
The local equity market exhibited a bullish trend over three of the past five consecutive trading days, with the NGX All-Share Index (NGXASI) showing a daily uptick of 9 bps and a weekly gain of 15 bps, closing at 67,395.74 points. This positive momentum was primarily fueled by heightened investor interest in banking equities such as UBA, as well as select oil-related stocks like OANDO. As a result, year-to-date returns surged by 31.50%. However, the aggregate market capitalization, which settled at ₦36.89 trillion, recorded a week-on-week dip of ₦405 billion. Correspondingly, the market breadth stood at 0.78x, indicating that there were 46 declining stocks compared to 35 advancing ones.
Upon scrutinizing the comprehensive trading metrics, the total trading volume saw a 21.39% contraction, culminating at 408.87 million shares, while the total traded value underwent a decline of 37.20%, amounting to ₦5.23 billion. In the context of week-on-week analysis, the stocks with the highest trading volumes included UBA (529.60 million shares), TRANSCORP (260.39 million shares), and ACCESSCORP (235.95 million shares), while the top performers in terms of trading value were UBA (₦8.23 billion), GTCO (₦4.29 billion), and DANGSUGAR (₦3.89 billion).
