- Overnight Lending Rate Falls Sharply on Cash Inflow
The overnight tenor of the Nigerian Interbank Offered Rates (NIBOR) dropped sharply to an average of 3.9 per cent on Friday from 10 per cent a week ago following an injection of naira liquidity into the banking system.
A total of N454 billion in debt refund to state governments and matured treasury bills entered the system last week, raising liquidity and pushing down borrowing cost among lenders Reuters disclosed.
Traders said the central bank sold around N115.68 billion worth of open market operations treasury bills between Wednesday and Thursday, but the market remained sufficiently liquid to keep rates at below double digits. In the same vein, last week the central bank paid owed monies to state governments, which improved liquidity as did N49 billion distributed from Nigeria’s oil savings excess crude account.
Meanwhile, analysts at Afrinvest West Africa Limited have pointed out that considering the relatively high liquidity level in the system, sentiment in the Treasury Bills (TB) market was largely bullish all through the week as investors took advantage of the attractive yield environment.
Buy interest was noticed across all tenors but with more interest in shorter tenured bills while average TB yield stood at 19.2 per cent on Tuesday and declined to 18.8 per cent on Wednesday. Following a spike in liquidity on Thursday, buy sentiment on TB strengthened further as average yield further declined to 17.8 per cent on Friday.
“All through the week, investors’ interest remained centered on shorter tenored T-bills and this is expected to continue in the coming week, especially given the current system liquidity and closure of T-bills primary market for the year,” Afrinvest stated.
Lending rates could trade flat this week, traders said, as firms and banks close activities for the end of the year.
Bond Market Review
Activity level in the bond market remained soft during the week as investors continued to favour shorter tenored instruments (T-bills) which currently offer attractive yields.
Nevertheless, performance of the bonds market was positive as average yield pared week-on-week across benchmark instruments to settle at 15.8 per cent on Friday.
Similarly, the FGN Eurobonds enjoyed buying interest during the week as average yield across all instruments declined from 6.4 per cent on Tuesday to close the week at 6.3 per cent with the JAN 2021 instrument being the pest performer. Performance of the Corporate Eurobonds was equally bullish as ACCESS 2017 and FIDELITY 2018 instruments fell 0.2% and 1.3% week-on-week respectively.
In the coming week, the DMO will conduct its last Bond auction for the year 2016. The instruments on offer are: JUL 2021 (N30 – 40bn on offer), JAN 2026 (N20 – N30bn on offer) and MAR 2036 (N30bn – 40bn on offer).
” In our view, the trend witnessed in the previous three consecutive bond auctions in which instruments were under allotted on account of higher range of bids will likely persist at the December auction. November 2016 Inflation report due for release this week will drive sentiment. Investors will be looking to see the pace of month-on-month Consumer Price Index (CPI) growth in setting trading strategy for next year. We project a flattish month-on-month movement but still expect Inflation rate to accelerate on year-on-year basis due to low base effect,” Afrinvest added.
Forex Review and Outlook
There was no new development in the foreign exchange market last week as the CBN maintained its daily $1.5 million intervention at a pegged rate of N305/$. Thus, the interbank spot rate was flat at N305/$ Liquidity however remained a bottleneck to performance of the FX market with spread between interbank and parallel rates ranging from N180/$ to N170/$.
Meanwhile, the parallel market remained volatile with exchange rate on the street opening at N484/$ (relative to N482/$ the preceding Friday), but depreciated to N485/$ by Friday.
Amid sustained concerns by investors about the direction of foreign exchange policy and the absence of decisive policy actions to restore confidence in the Nigerian economy, a former deputy governor of the CBN, Mr. Kingsley Moghalu noted in an article published by Financial Times during the week that restoring transparency in the market and a phased approach to structural reforms are key priorities for the central bank and other economic managers.
At the FMDQ OTC derivatives market, the value of FX futures opened contract increased by $73.2 million to $3.8billion from $3.7billion in the previous week. Strong interests were observed in the NGUS JUN 2017, NGUS JUL 2017 and NGUS AUG 2017 contracts which traded at N276/$, N272/$ and N269/$.
Gold Gained Ahead of Joe Biden Inauguration 2021
Gold price rose from one and a half month low on Tuesday ahead of President-elect Joe Biden’s inauguration on Wednesday.
The precious metal, largely regarded as a haven asset by investors, edged up by 0.2 percent to $1,844.52 per ounce on Tuesday, up from $1,802.61 on Monday.
He said, “The key factor appears to be the (U.S.) currency.”
As expected, a change in administration comes with the change in economic policies, especially taking into consideration the peculiarities of the present situation. In fact, even though Biden, Janet Yellen and the rest of the new cabinet are expected to go all out on additional stimulus with the support of Democrats controlled Houses, economic uncertainties with rising COVID-19 cases and slow vaccine distribution remained a huge concern.
Also, the effectiveness of the vaccines can not be ascertained until wider rollout.
Still, which policy would be halted or sustained by the incoming administration remained a concern that has forced many investors to once again flee other assets for Gold ahead of tomorrow’s inauguration.
Crude Oil Holds Steady Above $55 Per Barrel on Tuesday
Brent Crude oil, against which Nigerian crude oil is priced, rose from $54.46 per barrel on Monday to $55.27 per barrel as of 9:03 am Nigerian time on Tuesday.
Last week, Brent crude oil rose to 11 months high of $57.38 per barrel before pulling back on rising COVID-19 cases and lockdowns in key global economies like the United Kingdom, Euro-Area, China, etc.
While OPEC has left 2021 oil demand unchanged and President-elect Joe Biden has announced a $1.9 trillion stimulus package, experts are saying the rising number of new cases of COVID-19 amid poor vaccine distribution could drag on growth and demand for oil in 2021.
On Friday, Dan Yergin, vice-chairman at IHS Markit, said in addition to the stimulus package “There are two other things that are going with it … one is of course, vaccinations — in the sense that eventually this crisis is going to end, and maybe by the spring, lockdowns will be over.”
“The other thing is what Saudi Arabia did. This is the third time Saudi Arabia has made a sudden change in policy in less than a year, and this one was to announce (the) 1 million barrel a day cut — partly because they are worried about the impact of the surge in virus that’s occurring,” he said.
Also, the stimulus being injected into the United States economy could spur huge Shale production and disrupt OPEC and allies’ efforts at balancing the global oil market in 2021.
Crude Oil Pulled Back Despite Joe Biden Stimulus
Crude oil pulled back on Friday despite the $1.9 trillion stimulus package announced by U.S President-elect, Joe Biden.
Brent crude oil, against which Nigeria’s oil is priced, pulled back from $57.38 per barrel on Wednesday to $55.52 per barrel on Friday in spite of the huge stimulus package announced on Thursday.
On Thursday, OPEC, in its latest outlook for the year, said uncertainties remain high in 2021 with the number of COVID-19 new cases on the rise.
OPEC said, “Uncertainties remain high going forward with the main downside risks being issues related to COVID-19 containment measures and the impact of the pandemic on consumer behavior.”
“These will also include how many countries are adapting lockdown measures, and for how long. At the same time, quicker vaccination plans and a recovery in consumer confidence provide some upside optimism.”
Governments across Europe have announced tighter and longer coronavirus lockdowns, with vaccinations not expected to have a significant impact for the next few months.
“The complex remains in pause mode, a development that should not be surprising given the magnitude of the oil price gains that have been developing for some 2-1/2 months,” Jim Ritterbusch, president of Ritterbusch and Associates, said.
Still, OPEC left its crude oil projections unchanged for the year. The oil cartel expected global oil demand to increase by 5.9 million barrels per day year on year to an average of 95.9 million per day in 2020.
But also OPEC expects a recent rally and stimulus to boost U.S. Shale crude oil production in the year, a projection Investors King experts expect to hurt OPEC strategy in 2021.
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