16 July 2018 ( Lagos ) 

Global Economy

In the US, rising input costs drove producer prices for final demand 0.3% MoM in June (3.4% YoY), with the core PCI rising 2.7% YoY (vs. 2.6% YoY in May). Pass-through of the rising input prices translated to higher consumer price, as inflation for June came in at 2.9% YoY – the strongest pace in more than six years, while MoM inflation rose 0.1%. 

In a surprise move, the Bank of Korea held its bank rate steady at 1.50% at its July monetary policy meeting, citing uncertainty surrounding the impact of the ongoing trade tensions between the U.S. and China. 

Elsewhere, the Bank of Canada raised the overnight lending rate 25 bps to 1.50 percent, marking its fourth hike in the past 12 months. A development likely to further escalate the trade tension, the China’s custom office revealed that trade surplus with the US expanded to $28.97 billion in June ($24.58 billion in May) as the growth in exports to US (+5.7% MoM) outpaced growth in imports from the U.S of 4% MoM .

Domestic Economy

This week, the apex bank released trade balance for the month of May 2018 which showed that trade surplus moderated for the period. Specifically, the surplus picture declined by 26% MoM to $1.84 billion as export tracked slower (-16.2% MoM to $4.7 billion) than import (-8.4% MoM to $2.6 billion). 

We link the sharp decline in export to weak crude oil production which – according to OPEC – shed 7.4% MoM to 1.63 mbpd in May. On the positives, trade surplus continued its fine growth trajectory in the first five-month of 2018. Pointedly, relative to last five months, trade balance surged 35% to $9.4 billion as export (+15.7% to $24.7 billion) continued to outperform import (+7.0% to $14.1 billion) thereby leaving the bourgeoning trade surplus unsullied

Equities

Despite closing 0.45% higher on Friday, Nigeria’s equity market continued its losing streak, ending the week 0.62% lower at 37,392.77 pts, making it the second consecutive week of decline. The decline was largely due to negative performances in Guaranty Bank (-3.73%), Dangote Flour Mills Plc (-3.0%), Dangote Sugar (-5.41%), UBA (-3.38%), Total (-4.76%) and Flour Mills (-5.54%). Dissecting the performance on a sectorial basis, the Construction, Banking and Brewers sectors were the worst performer for the week

Fixed Income

Yields in the fixed income market closed relatively flat this week as average yields rose 1bp to 13.22%. For context, yields dipped 11bps on Friday, following strong buy sentiment at both ends of the curve which offset higher yields earlier in the week due to tight market liquidity, particularly after the CBN on Thursday sold N315.5 billion for the 70day and 210day papers at stop rates 11.05% and 12.15%. Overall, average fixed income yields rose 1bp apiece at the T-bills market and bond market to 12.59% and 13.85% respectively.

Reporting for EasyKobo on Monday, 16 July 2018 in Lagos, Nigeria

Source: ARM Securities Limited

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