- Survey Shows PMI Rose Five-month High in December
The Stanbic IBTC’s Purchasing Managers’ Index (PMI) has indicated that the index attained a five month high, which was a reflection of an improvement in the macroeconomy.
This emerged after the Central Bank of Nigeria (CBN) revealed that its Manufacturing PMI stood at 52 index points in December 2016, also indicating an expansion in the manufacturing sector during the review period. The central bank’s PMI index had recorded decline in the preceding eleven months.
Continuing, Stanbic IBTC explained that the headline figure was derived from its Purchasing Managers’ IndexTM (PMITM). Readings above 50.0 signalled an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
At 48.1 in December, up from November’s 47.7, the headline figure rose to a five-month high but remained below the crucial 50.0 no-change mark. It therefore signalled a further contraction of Nigeria’s private sector. Moreover, the latest figure lengthened the current downturn to eight successive months.
Commenting on December’s survey findings, Ayomide Mejabi, Economist at Stanbic IBTC Bank said: “The rate of contraction in Nigeria’s private sector slowed in December as a result of weaker declines in output and new export orders as well as a slower increase in output prices. The headline PMI rose to its best level in the last five months, perhaps indicating that underlying macro-economic bottlenecks are being resolved. Having said that, most other facets of activity continue to deteriorate as new business orders returned to contraction territory.
“In addition, after recording marginal growth in October, employment extended its recent decline from November into December. The price PMI sub-indices on the other hand show that underlying inflationary pressures may be subsiding, as while output prices continue to increase, they are doing so at a slower pace compared to earlier in the year. In summary, it is perhaps still too early to ascertain if a turnaround in Nigeria’s economic challenges is imminent as anecdotal evidence still suggests that many of the productive sectors continue to struggle with foreign exchange needed to boost domestic investment and consequently, growth.”
Furthermore, it stated that the main findings of the December survey were the weakening of Nigeria’s private sector stemmed from a slower decline in output, with panel members citing weaker underlying demand. Furthermore, business activity has decreased in every month since February.
The latest survey data signalled a return to contraction territory for new business following a marginal increase in November. The fall was broad-based, as new export orders also lowered. Inflationary pressures weighed on consumer demand, according to several survey respondents.
Meanwhile, firms continued to work through their outstanding business levels in December. Although the rate of deterioration eased to the slowest in four months, it remained strong in comparison to the three-year series average.
Job cuts in Nigeria’s private sector were evident for the second month in a row. In fact, the rate of job shedding was the fastest in the series history, despite being relatively moderate. Nigerian businesses raised output prices again in December. The rate of inflation was marked despite slowing since the previous month. Moreover, output charges rose at a stronger pace than input prices. Nigerian private sector firms commented on exchange rate depreciation, rising delivery costs and higher foods prices as the main factors driving inflation.
For the fifth time in as many months, input buying in the private sector of Nigeria decreased. The rate of decline was little-changed from November, with firms linking the fall to a lack of working capital. That said, pre-production inventories accumulated at a fractional rate in December.
Finally, suppliers’ lead times shortened in Nigeria’s private sector during the month. However, the rate at which vendor performance improved was only slight.
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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