The recent release of Nigeria’s Gross Domestic Product (GDP) report for the second quarter of 2023 by the National Bureau of Statistics (NBS) paints a mixed picture of the country’s economic performance. According to the report, Nigeria’s GDP exhibited a year-on-year growth of 2.51% in real terms during the second quarter of 2023. While this represents an improvement from the previous quarter’s growth of 2.31%, it also reflects a decline of 1.03% compared to the corresponding period in 2022, when the GDP growth was 3.54%. This deceleration in growth might raise concerns about the pace of the country’s economic recovery. A significant contributor to the GDP growth in Q2 2023 was the Services sector, which expanded by 4.42% and accounted for 58.42% of the total GDP. This robust performance is indicative of the growing importance of the services industry to Nigeria’s economic landscape. However, the Agriculture sector’s growth, which improved to 1.50% from 1.2% in the same quarter of the previous year, and the industry sector’s growth at -1.94% were more muted. These figures suggest that while the Services and Agriculture sectors are driving growth, the industrial segment is facing challenges.
Notably, the Oil sector’s performance remained a concern, with a real growth rate of -13.43% in Q2 2023. This marks a decline from the previous year and the first quarter of 2023. The oil sector’s contribution to the GDP also decreased, highlighting the vulnerability of Nigeria’s economy to fluctuations in oil prices and production. With the oil sector’s share in the total GDP at 5.34% in Q2 2023, the need for diversification away from oil-dependent growth becomes even more pronounced. On the other hand, the non-oil sector demonstrated resilience, growing by 3.58% in real terms in Q2 2023. This growth rate, although lower than the same quarter in 2022, is indicative of the broader economic activities beyond the oil industry. The Information and Communication, Financial and Insurance, Trade, Agriculture, Manufacturing, Construction, and Real Estate sectors were identified as the main drivers of this growth. The fact that the non-oil sector contributed 94.66% to Nigeria’s GDP in Q2 2023 underscores the importance of diversification efforts to reduce the country’s dependence on oil revenues. It is evident that the country’s ongoing efforts to diversify its economy away from oil, enhance industrial growth, and foster a conducive business environment will play a crucial role in determining its economic trajectory in the coming quarters.
In the U.S market, the message of the Federal reserve Chairman, Jerome Powell was clear “the job is not done yet; Federal Reserve is prepared to hike rates more if needed”. Powell’s reiterated commitment to raising interest rates further at the Jackson Hole symposium signifies the Federal Reserve’s proactive stance in addressing inflation concerns until they are convinced, they are heading towards their 2% core inflation target. The impact of this statement extends beyond domestic markets, influencing global economic dynamics and investor sentiment. As the world navigates a complex economic landscape, the Fed’s actions will undoubtedly shape the trajectory of recovery and inflation control strategies worldwide.
Money Market
Throughout the week, interbank market rates demonstrated an upward trajectory due to liquidity constraints, even in the presence of a ₦112 billion bond coupon injection into the system. As a result, the Open Buy Back rate (OBB) underwent a significant increase of 461 bps in a week-on-week analysis, reaching a pinnacle of 24.25%. Simultaneously, the Overnight rate (O/N) witnessed a substantial surge of 541 bps, culminating at 25.20%.
Anticipating forthcoming FAAC inflows, we foresee rates maintaining their current levels.
Treasury Bills
Due to the prevailing tight liquidity conditions, the Treasury Bills market adopted a cautious stance at the onset of the week, with offers emerging across the yield curve. This sense of caution was accentuated by the NTB auction held on Wednesday, during which the DMO floated and offered ₦303.2 billion across the 91, 182, and 364-day maturities despite robust subscription totaling a substantial ₦1.54 trillion. The auction’s stop rates settled at 5.19%, 8.00%, and 13.97% for the respective maturities.
In the wake of this auction, investor interest notably gravitated towards the freshly issued 1-year bill, resulting in most trades concluding around the 11.70% range by week’s end. The 26-Oct-23 paper also witnessed increased demand, prompting a 298 bps week-on-week decline. As anticipated, the average benchmark yield experienced a decline of 40 bps over the week, ultimately closing at 7.92%.
We forecast lower yields as the market positions ahead of the FAAC inflow expected next week.
FGN Bond Market
Over the course of the observed week, a discernible trend towards increased selling activity was evident in both the short-term and long-term maturities within the FGN Bonds market. This trend mirrored the previous week’s behavior, resulting in a 26 bps upward movement in the average benchmark yield, ultimately settling at a closing rate of 14.15%.
We foresee cautious activity at the next trading session.
Eurobond Market
Throughout the week, the FGN Eurobonds market exhibited a slightly bullish trend, largely influenced by the US S&P Global Manufacturing PMI, which concluded at 47, falling short of the anticipated 49.30. Consequently, the average benchmark yield experienced a marginal decline of 29 bps, culminating in a closing rate of 10.93%.
Considering the impact of Powell’s speech today, we anticipate a sense of prudence in the upcoming trading session.
Currency Market
The value of the Naira to the dollar weakened by 526 bps to print at ₦778.42/$ this week at the Investors and Exporters FX Window.
Equities Market
The local stock market displayed a positive trend for 4 out of 5 consecutive days, with the NGX All-Share Index (NGXASI) registering a day-on-day increase of 24 bps and a week-on-week increase of 126 bps to conclude at 65,558.91 points. This upward momentum was mainly driven by increased investor interest in TRANSCORP, as well as certain consumer goods stocks such as DANGSUGAR, NASCON, and BUAFOODS. Consequently, the overall market capitalization saw a significant rise, increasing by ₦80 billion to reach a closing value of ₦35.88 trillion. This was accompanied by a substantial year-to-date revenue growth of 27.92%. Conversely, the market breadth was at 0.72x, indicating that there were 46 decliners compared to 33 advancers.
Upon analyzing the comprehensive trade metrics, the total trading volume witnessed a 22.04% surge, culminating at 356.01 million units. However, the total traded value experienced a decrease of 43.04%, amounting to ₦4.23 billion. When considering the week-on-week analysis, the stocks with the highest trading volumes were TRANSCORP, Fidelity Bank, and Access Corporation, while the leading stocks in terms of trading value were MTN Nigeria, Dangote Sugar, and Guaranty Trust Holding Company.
