Macro-economic update of week of last week   

Global Economy 

 

19 November 2018 : In the U.S, CPI data released for the month of October showed that inflation rate came in stronger during the month, rising 2.5% YoY from 2.3%YoY in the prior month. The uptick was largely driven by higher energy and housing cost. However, the CPI less volatile components (i.e food & energy) moderated to 2.1% YoY (vs September: 2.2% YoY). In Asia, preliminary estimates of Japan’s GDP revealed the economy contracted by 1.2% YoY for the third quarter of 2018. The numbers reflects the natural disasters which struck the economy during the summer, dragging both the domestic demand and country’s exports. Elsewhere, in sync with the preliminary estimates released in October, the Euro Zone economy grew at its slowest pace in four years in the third quarter of 2018 by 1.7%. The contraction stemmed largely from growth slowdown in Germany, France and Italy.


Domestic Economy


The FG completed its $2.86 billion (N856.8 billion) Eurobond issuance on Wednesday, taking the country’s total Eurobond issuance for the year to $5.3 billion. The amount raised will be used to fund 2018 capital expenditure which runs exactly one year from the approval of the budget. The offer is made up of a $1.18 billion (7-Yr), $1 billion (12-Yr), and $750 million (30-Yr) priced at respective rates of 7.625%, 8.75% and 9.25%. Though, the issuance was oversubscribed, the issue appears expensive when compared to February 2018 Eurobond Issuance.  We think the higher pricing reflects ongoing EM risk off emanating from the recent spate of interest rate hikes in the US (2%-2.25%) – that have resulted in higher US treasury yields (10-year: +70bps Ytd to 3.1%), the ongoing trade spat between US and China and the recent currency bouts faced by major EM economies earlier in the year.


Equities


The Nigeria equity market closed negative with the All Share Index moderating by 0.44% WoW to close the week at 32,058.28 pts. The negative performance was spurred by sell pressure in Nestle (-9.99%), Access (-9.92%) and Oando (-9.69%). Dissecting the sectoral performance, the Food, Personal Care, Insurance and Oil & Gas recorded gains during the week, as opposed to the Banking, Brewers, Cement, Construction and Real Estate sectors that closed negative.


Fixed Income

Activities in the fixed income market remained largely bearish, with average yields expanding 10bps WoW to 15.03%. The upswing in the naira yield curve was driven by elevation at the short and long ends of the curve. On the former, NTB yields which had been on the rise for most part of the week, was further magnified by liquidity tightening by the CBN from the sale of OMO (N468 billion) on Thursday. Bond yields towed similar path, rising 3bps WoW to 15.42% due to sell off at the long end of the curve.


Reporting for EasyKobo on Monday , 19 November 2018 in Lagos, Nigeria


Source: ARM Securities Limited


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