Global Economy 

27 August 2018 : In Japan, headline inflation for the month of July disappointed after printing at 0.9% YoY – 110 bps away from the BOJ’s target of 2.0% – with driver attributed to higher energy prices. The closely watched core index, which excludes volatile energy and fresh food costs, inched higher to 0.3% (June: 0.2%), thereby indicating that the benign headline inflation could delay the BOJ’s exit from its loose policy. Elsewhere, the possibility of a trade agreement between the U.S and China appears to be falling through with no fruitful agreement reached in the two-day meeting held this week. Key gridlock remains U.S demands, some of which the Chinese officials tag undoable. As anticipated, both sides tariffs on $16 billion worth of import became effective on Thursday with additional tit-for-tat tariffs looking more likely.

Domestic Economy

The NBS released capital importation data for Q2 18 which showed a 12.5% QoQ moderation in flows to $5.5 billion, reflecting lower foreign portfolio investment (FPI). To be specific, FPI flows declined 9.8% QoQ to $4.1 billion largely on the back of lower portfolio flows to money market instruments (-24% QoQ to $2.7 billion). On the other hand, flows to bonds and equity market inched higher by 19.1% QoQ and 49% QoQ to $400 million and $1.05 billion respectively. Elsewhere, in line with CBN’s objective to increase flow of credit to the real sector and sustain economy recovery, the bank released guidelines for assessing the Real Sector Support Facility it earlier communicated at the July MPC meeting. Key highlights in the framework include 1. The facility will be granted to triple A-rated large corporates for long term projects that are employment and growth stimulating, 2. Maximum facility shall be N10 billion per project and 3. Facility shall attract an interest rate of 9% at a minimum tenor of seven years.

Equities

The Nigerian equity market overturned its three weeks of negative sentiment with the index shoring up 45 basis points WoW to close at 35,426.17pts. The positive performance was driven by a 6.82% price increase in Dangote Cement which masked declines in UBA (-4.19%), Zenith Bank (-3.94%), Nigerian Breweries (-2.91%), FBNH (-1.53%), and Guaranty (-1.32%). Analysis of the performance on a sectorial basis shows that Banking, Brewers, Food, Oil & Gas, Personal Care and Real Estate sectors closed in the red territory while the cement sector closed positive supported by the sturdy price gain in Dangote Cement.

Fixed Income

Yields in the Nigerian fixed income market bucked the bearish trend to close lower this week as average fixed income yields dipped 3bps WoW to 13.6%. This was mainly driven by a 6bps drop in Bond yields to 14.5% following renewed investors interest on the back of attractive yields at the long end of the curve. Elsewhere, treasury bill yields closed the week flattish at 12.7% (+1bp WoW). This emanated despite elevated liquidity in the system, as CBN failed to mop up the entire N364 billion worth of OMO maturities that hit the system yesterday – CBN only sold N98 billion worth of OMO bills at existing rates.

Reporting for EasyKobo on Monday ,27 August 2018 in Lagos, Nigeria

Source: ARM Securities Limited

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