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FMDQ: Investors Splash N17.23trn on Fixed Income, Currency Instruments in June

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FMDQ Group - Investors King
  • FMDQ: Investors Splash N17.23trn on Fixed Income, Currency Instruments in June

Investors, who earn a living from short-and medium-term instruments offered in the money market, increased their spending by 20.53 per cent in June as total investments in the Fixed Income and Currency (FIC) markets rose to N17.23trillion.

“Transaction turnover in the markets for the month ended June 30, 2018 amounted to N17.23trillion, a 20.53 per cent (N2.93trillion) increase from the value recorded in May and a 36.49 percent (N4.61trillion) increase year –on- year(YoY),”a statement from FMDQ OTC revealed.

The treasury bills and FX segments jointly accounted for 79.35 per cent of total turnover in the FIC market in June, representing a marginal increase of 3.44 percentage points from the 75.91 per cent recorded in May. FX market turnover recorded the highest month-on-month increase, growing by 34.50 percent (N1.79trillion), while unsecured placement/takings turnover recorded the highest month-on-month (MoM) decrease, falling by 42.54 percent (N0.03trillion).

Total FX market turnover in the review month was $19.80billion, a 34.04 percent ($5.03billion) increase from the turnover recorded in May ($14.77billion). Turnover at the Investors & Exporters (I&E) FX Window in June was $3.93billion, representing a 38.59 percent ($2.47billion) MoM decrease from the value recorded in May ($6.40billion), and resulting in a decrease in its contribution to the total FX market turnover to 19.85per cent from 43.33per cent in May. However, the total turnover at the I&E FX Window for half year -ended June 2018, increased to $30.28billion.

Analysis of FX turnover by trade type showed that turnover increased across all trade types, with Inter- Member trades recording the highest relative MoM growth in turnover, increasing by 82.65per cent ($1.35billion), while Member-Clients trades recorded the highest nominal MoM growth in turnover, increasing by $2.52billion (28.97 per cent). Member-CBN trades also recorded a MoM increase in turnover by 26.11 per cent ($1.16billion).

In terms of contribution to total FX turnover, Inter-Member trades contributed 15.05 per cent to total FX turnover in June, a 4.01ppts increase from the 11.04 per cent contribution recorded in May. Member-Client and Member- CBN trades both contributed 56.62 per cent and 28.28 per cent to total FX turnover in June, decreasing from 58.90 per cent and 30.06percent in May respectively

Analysis of FX turnover by product type showed that turnover in FX Spot and Derivatives increased MoM in line with the trend in total FX turnover, with both increasing by 29.82per cent and 46.60per cent respectively.

FX Spot remained the main driver of total FX turnover, with a MoM increase by $2.80billion (29.70 per cent), while FX Derivatives recorded a MoM increase of $2.25billion (41.59 per cent) driven mainly by FX Futures turnover which increased MoM by $2.39billion (292.68 per cent).

In June, the 24th naira-settled OTC FX Futures contract (NGUS JUN 27, 2018) with a contract size of $638.87million, matured and was settled, whilst a new $1.00billion 12-month contract (NGUS JUN 26, 2019) was offered by the CBN at $/N362.60.

Also, in June, the naira depreciated at the I&E FX Window, losing N0.35 to close at $/N361.32 (from $/N360.97 as at May 31, 2018). The depreciation of the naira at the I&E FX Window resulted in a lower spread of N0.68 between the $/N rate at the I&E FX Window and the parallel market, due to the appreciation of the Naira by N1.00 at the parallel market in June to close at $/N362.00 (from $/N363.00 as at May 31, 2018). The CBN Official Spot rate appreciated by N0.20 to close at $/N305.75 (from $/N305.95 as at May 31, 2018)

The total turnover in the fixed income market was N7.85trillion in June, representing a 19.73 per cent (N1.29trn) MoM increase in turnover. The increase in turnover was driven mainly by an 18.13per cent (N1.02trillion) MoM increase in T.bills turnover, as it remained the major driver of liquidity in the fixed income market, accounting for 84.95per cent of the total fixed income market turnover, albeit 1.15 percentage points lower than its contribution in May.

Total T.bills outstanding as at June 30, 2018 stood at N13.76trillion, representing a 1.75 per cent (N0.24trillion) MoM decline, driven by a net redemption of T.bills in the month of June. Conversely, total FGN Bonds outstanding increased marginally by 0.41 percent (N0.03trillion ) MoM to close at N7.83trillion, suggesting the FGN refinanced some of its short-term obligations with longer term FGN Bonds while increasing cash liquidity in the market

Trading intensity in the T.bills and FGN Bonds markets increased from 0.41 and 0.11 in May, to 0.48 and 0.15 in June respectively, while trading intensity for T.bills and FGN Bonds in first half of 2018 were 2.67 and 0.71, compared to 3.75 and 0.79 in H1 2017 respectively. T.bills within the 6-12 months maturity remained the most actively traded, accounting for 28.28 percent of the total fixed income market turnover in June, despite decreasing from the 37.42 percent contribution reported in May.

Turnover recorded in the secured money market (i.e. Repos/Buy-Backs) was N2.32trillion for June, representing a 4.70 per cent (N0.11trillion) MoM decrease from the value recorded in May (N2.44trillion), and a YoY decrease of 33.98 per cent in June, compared to the 6.98 per cent YoY decrease recorded in May.

Similarly, unsecured placements/takings closed the month with a turnover of N42.66billion, representing a 42.54 percent (N31.59billion) MoM decrease on the turnover recorded in May (N74.25billion), and a YoY decrease of 68.23per cent (N91.64billion).

Average O/N7 NIBOR8 decreased by 11.12ppts to close at 11.65 per cent in June from 22.77 per cent reported for May, suggesting an increase in liquidity in the inter-bank market, possibly driven by injection of cash in the market from the FGN’s activity in the fixed income market during the month.

Total number of executed trades reported on the E-Bond Trading System in June was 13,101, representing a MoM decline of 5,969 in the number of executed trades, as total executed trades in T.bills and FGN bonds declined by 5,162 (31.15 per cent) and 807 (32.32 per cent) respectively in June 2018.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Fed’s Decision to Hold Rates Stalls Oil Market, Brent Crude Slips to $82.17

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Crude Oil - Investors King

Oil prices faced a setback on Thursday as the U.S. Federal Reserve’s decision to maintain interest rates dampened investor sentiment.

The Federal Reserve’s announcement on Wednesday indicated a reluctance to initiate an interest rate cut, pushing expectations for policy easing possibly as late as December. This unexpected stance rattled markets already grappling with inflationary pressures and economic uncertainty.

Brent crude, the international benchmark for Nigerian crude oil, saw a drop of 43 cents, or 0.5% to $82.17 a barrel, reflecting cautious investor response to the Fed’s cautious approach.

Similarly, West Texas Intermediate (WTI) crude oil also slipped by 46 cents, or 0.6% to settle at $78.04 per barrel.

Tamas Varga, an analyst at PVM Oil, commented on the Fed’s decision, stating, “In the Fed’s view, this is the price that needs to be paid to achieve a soft landing and avoid recession beyond doubt.”

The central bank’s move to hold rates steady is seen as a measure to balance economic growth and inflation containment.

The Energy Information Administration’s latest data release further exacerbated market concerns, revealing a significant increase in U.S. crude stockpiles, primarily driven by higher imports.

Fuel inventories also exceeded expectations, compounding worries about oversupply in the oil market.

Adding to the downward pressure on oil prices, the International Energy Agency (IEA) issued a bearish report highlighting concerns over potential excess supply in the near future.

The combination of these factors weighed heavily on investor sentiment, contributing to the decline in oil prices observed throughout the trading session.

Meanwhile, geopolitical tensions in the Middle East continued to influence market dynamics, with reports of Iran-allied Houthi militants claiming responsibility for recent attacks on international shipping near Yemen’s Red Sea port of Hodeidah.

These incidents underscored ongoing concerns about potential disruptions to oil supply routes in the region.

As markets digest the Fed’s cautious stance and monitor developments in global economic indicators and geopolitical tensions, oil prices are expected to remain volatile in the near term.

Analysts suggest that future price movements will hinge significantly on economic data releases, policy decisions by major central banks, and developments in geopolitical hotspots affecting oil supply routes.

 

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Crude Oil

Nigerian Oil Loses Ground to Cheaper US and Russian Crude

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Crude oil

Nigeria’s once-thriving oil industry is facing a significant challenge as traditional buyers increasingly turn to more affordable alternatives from the United States and Russia.

This shift has led to France emerging as the leading buyer of Nigerian crude, marking a significant change in the global oil market dynamics.

Top Nigerian crude grades like Bonny Light, Forcados, and Brass have long been favored by refineries in Europe and Asia due to their low sulfur content.

However, the country’s primary customers, including India and China, are now opting for cheaper US and Russian oil.

This trend poses a substantial risk to Nigeria, which relies on oil exports for more than half of its foreign exchange earnings.

Data from BusinessDay reveals a stark decline in India’s purchase of Nigerian crude. In the first quarter of 2024, India bought N1.3 trillion worth of Nigerian oil, a significant drop from the average of N2 trillion purchased between 2018 and 2021.

“Buyers are increasingly turning to cheaper alternatives, raising concerns for the country’s revenue stream,” said Aisha Mohammed, a senior energy analyst at the Lagos-based Centre for Development Studies.

The latest tanker-tracking data monitored by Bloomberg indicates that India is buying more American crude oil as Russian energy flows dwindle amid sanctions.

India’s state-owned oil refiners and leading private companies have increased their imports of US crude, reaching nearly seven million barrels of April-loading US oil. This shift is the largest monthly inflow since last May.

Russian crude flows to India surged following the invasion of Ukraine, making Russia the biggest supplier to the South Asian nation.

However, tighter US sanctions have stranded Russian cargoes, narrowing discounts, and prompting India to ramp up purchases from Saudi Arabia.

“Given the issues faced with importing Sokol in Russia, it’s no surprise that Indian refineries are turning toward US WTI Midland as their light-sweet alternative,” explained Dylan Sim, an analyst at industry consultant FGE.

As a result, France has overtaken the Netherlands to become the biggest buyer of Nigerian crude oil, purchasing products worth N2.5 trillion in the first quarter of 2024.

Spain and India occupied second and fourth positions, with imports valued at N1.72 trillion and N1.3 trillion respectively, as of March 2024.

The sluggish pace of sales for Nigeria’s May supplies highlights the market’s shifting dynamics. Findings show that about 10 cargoes of Nigerian crude for May loading were still available for purchase, indicating a reduced demand.

Rival suppliers such as Azeri Light and West Texas Intermediate have also seen price weaknesses, impacting Nigerian crude demand.

“We’ve got much weaker margins, so Nigeria’s crude demand is taking a hit,” noted James Davis, director of short-term oil market research at FGE.

Sellers seeking premiums over the Dated Brent benchmark have found the European market less receptive, according to Energy Aspects Ltd.

“May cargoes were at a premium that didn’t work that well into Europe, but lower offers have seen volumes move,” said Christopher Haines, EA global crude analyst. “Stronger forward diesel pricing is also helping.”

Some Nigerian grades are being priced more competitively, including Qua Iboe to Asia and Bonny Light to the Mediterranean or East, with the overhang slowly reducing, according to Sparta Commodities.

However, the overall reduced demand could lead to a decrease in revenue from oil exports, a major source of income for the Nigerian government.

“Reduced demand could lead to a decrease in revenue from oil exports, a major source of income for the Nigerian government,” warned Charles Ogbeide, an energy analyst with a Lagos-based investment bank.

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Commodities

Refiners Predict Petrol Prices to Fall to N300/Litre with Adequate Local Crude Supply

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Petrol - Investors King

The pump price of Premium Motor Spirit (PMS), commonly known as petrol, could drop to N300 per litre once local production ramps up significantly, according to operators of modular refineries.

This projection hinges on the provision of sufficient crude oil to domestic refiners, which they say would undercut the exorbitant costs currently imposed by foreign refineries.

Speaking under the aegis of the Crude Oil Refinery Owners Association of Nigeria (CORAN), the refiners stressed the urgency for the government to ensure a steady supply of crude oil to local processing plants.

They argue that the reliance on imported petroleum products has been economically disadvantageous for Nigeria.

Eche Idoko, Publicity Secretary of CORAN, emphasized that the current high costs could be mitigated by boosting local production.

“If we begin to produce PMS in large volumes and ensure adequate crude oil supply, the pump price could be reduced to N300 per litre. This would prevent Nigerians from paying nearly N700 per litre and stop foreign refiners from profiting excessively at our expense,” Idoko stated.

The potential price drop follows the model seen with diesel, which experienced a significant price reduction once the Dangote Petroleum Refinery began its production.

“Diesel prices dropped from N1,700-N1,800 per litre to N1,200 per litre after Dangote started producing. This is a clear indication that local production can drastically reduce costs,” Idoko explained.

In a previous statement, Africa’s richest man, Aliko Dangote, affirmed that Nigeria would cease importing petrol by June 2024 due to the Dangote Refinery’s capacity to meet local demand.

Dangote also expressed confidence in the refinery’s ability to cater to West Africa’s diesel and aviation fuel needs.

Challenges and Governmental Role

However, achieving this price reduction is contingent on several factors, including the provision of crude oil at the naira equivalent of its dollar rate.

CORAN has advocated for this approach, citing that it would bolster the naira and reduce the financial burden on refiners who currently buy crude in dollars.

The Nigerian government has shown some commitment towards this goal. Gbenga Komolafe, Chief Executive of the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), confirmed that a framework has been developed to ensure consistent supply of crude oil to domestic refineries.

“We have created a template for the Domestic Crude Oil Supply Obligation to foster seamless supply to local refineries,” Komolafe stated.

Industry Reactions

Oil marketers have welcomed the potential for reduced petrol prices. Abubakar Maigandi, President of the Independent Petroleum Marketers Association of Nigeria (IPMAN), expressed optimism about the Dangote Refinery’s impact on petrol prices.

“We expect the price of locally produced PMS to be below the current NNPC rate of N565.50 per litre. Ideally, we are looking at a price around N500 per litre,” Maigandi noted.

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