14 June 2018 ( Lagos)

Global Economy

This week, the US central bank (FED) meeting delivered the expected 0.25% increase in its key policy rate, the second move this year, taking the top-end of its target band to 2.0%. This was not a surprise as market had attached a ~90% probability to the rise in interest rates. However, contrary to earlier views, the Fed signaled two more rate hikes this year, as decline in unemployment rate in the face of sturdy economic growth signals future upward pressure on Inflation. 

In Europe, the European Central Bank (ECB), at its policy meeting today, announced its intention to end its Quantitative Easing (QE) program in December and keep its three policy rates at current levels, at least through Q3 2019. The ECB guided to purchase €30 billion worth of bonds monthly through September, reduce to €15 billion monthly from October and cease buying bonds after December, assuming the pace of economic activity and inflation outlook develops in line with its forecast. Elsewhere, China’s economy showed sign of slowdown as May industrial production data printed slower than expected at 22-year low of 6.8% YoY (April: 7.0% YoY). Furthermore, retail sales also retreated to its lowest level in 15 years (-90bps to 8.5% YoY).

Domestic Economy

Nigeria’s headline inflation continued its descent in the month of May to 11.61% YoY (April 18: 12.48% YoY), in line with our May forecast of 11.65% YoY (-4bps deviation). As in prior months, base effects, largely from the food basket, underpinned the moderation in inflation even as MoM headline reading advanced to 1.09% (+26bps from 0.83% in April). 

According to the NBS, average petrol price declined for the fourth consecutive month to N150.2/liter, after touching a 30-month high of N190/liter in January. However, 13 states recorded a slight increase in petrol price, with Borno recording the highest increase of N6.08 to N166.08/liter.

Equities

Following an impressive performance last week (5.03% WoW), the NGSE ASI sustained the gains this week, closing slightly higher by 0.67% WoW with YTD re- turn printing at 1.79%. This week’s gains reflected price positive performance in ( SEPLAT ) (+6.16%), ( NESTLE ) (+3.09%), ( FBNH ) (+2.84%), ( DANGCEM ) (+1.36%), and ( GTB ) (+0.85%).

Fixed Income Market:

Yields in the Nigerian Fixed Income market bucked their upward trend as average yields dipped 51bps WoW to 12.83%. This was largely driven by sharp drop in treasury bill yields (-96bps WoW to 12.33%) which were submerged by elevated liquidity in the market. This came in despite higher stop rates (+30bps to 10.73%) at this week’s NTB auction where FG sold N180.9 billion worth of treasury bills which were in line with its planned offer. Furthermore, Bond yields also dipped 7bps WoW to 13.33%.

Source: Analysts at ARM Securities Limited