Weekly Economic and Market Report

Weekly Economic and Market Report

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According to the Chinese National Bureau of Statistics (NBS), China’s Manufacturing PMI slowed to 50.6 points in February (January: 51.3 points). Although the February print remains above the 50-point threshold, we highlight that this represents the slowest rise since May 2020 and the third consecutive month of moderation in the index. We believe the moderation was due to (1) the Lunar New Year holidays as factory workers took some time off and (2) the impact of COVID-19 restrictions put in place to combat the renewed spread of the virus. Consequently, the production (51.9 points vs January: 53.5 points) and new orders (51.5 points vs January: 52.3 points) sub-indices moderated during the period. Meanwhile, the Non-Manufacturing PMI moderated to an 11-month low of 51.4 points (January: 52.4 points). In March, we look for improved factory activities as factory workers return fully to work. Additionally, we expect an increase in domestic demand supported by government stimulus packages to provide a tailwind for activities.

The United States’ Manufacturing PMI indicated substantial expansion in manufacturing activities in February amid a drop in new COVID-19 cases. According to the Institute for Supply Management (ISM), the Manufacturing PMI expanded to 60.8 points in February (January: 58.7 points) – the highest reading since February 2018 (60.8 points). Save for the Inventories (-1.1 points to 49.7 points) sub-index; we note that the remaining four sub-indices that make up the PMI remained in the growth territory and recorded higher readings than January. Pertinently, the New Orders (+3.7 points to 64.8 points), Production (+2.5 points to 63.2 points), Supplier Deliveries (+3.8 points to 72.0 points), and Employment (+1.8 points to 54.4 points) sub-indices recorded growth during the period. However, the Non-Manufacturing PMI slowed to 55.3 points from the January print of 58.7 points, primarily due to the winter storms. Looking ahead, we expect the drop in new COVID-19 cases, supported by an increased level of vaccinations, to continue to bolster factory activities as operations in contact-facing industries gradually return to normalcy.

Global Markets

Global stocks posted mixed performances as some calmness returned to the international bonds market, albeit short-lived. At the same time, investors’ sentiments hung on a balance between vaccination/stimulus-induced optimism and concerns about the Fed’s low-interest sustenance rates. In the U.S, the DJIA (0.0%) was on course to end the week flat while the S&P (-1.1%) declined on the back of the Fed Chief’s muted comments on rising treasury yields. In Europe, the STOXX Europe (+0.8%) and FTSE 100 (+1.5%) were on course to close the week in the green despite bearish sentiments late in the week following rising U.S bond yields. In Asia, the Nikkei 225: (-0.4%) and SSE: (-0.2%) extended losses from the prior week as investors reacted negatively to the ascent in U.S. 10-year treasury yield late in the week. Emerging markets (MSCI EM: -0.6%) stocks also mirrored the downbeat mood across global equities consequent on the losses in China (-0.2%), while Frontier (MSCI FM: -0.2%) market stocks declined, following weakness in Nigeria (-1.2%).

Nigerian Economy

Activities on the local bourse declined in January following sustained FX liquidity challenges and an uptick in fixed income yields. According to the Domestic and FPI report of the Nigerian Stock Exchange (NSE) for January 2021, the total value of transactions traded at the local bourse declined by 13.7% m/m to NGN232.46 billion in January 2021 (December 2020: NGN269.24billion) – the lowest since October 2020 (NGN244.90 billion). The value of transactions executed by domestic investors (79.6% of total transactions) declined by 7.2% m/m, while that of foreign investors (20.4% of overall transactions) fell by 32.0% m/m. We note that the share of foreign investors of 20.4% in January 2021 remains below the pre-pandemic level of 48.0% in February 2020. We expect domestic and foreign investors’ participation to remain weak in the near term, given the uptick in yields in the fixed income environment and lingering illiquidity in the FX market.

In a circular directed to all banks and Other Financial Institutions (OFIs), the Central Bank of Nigeria (CBN) approved the extension of the discounted interest rate on the CBN facilities by another 12 months. Recall that the CBN had reduced the interest rates on its intervention facilities to 5% per annum from 9% in March 2020. The reduction was part of the measures to limit the negative impact of the COVID-19 pandemic on the domestic economy. Similarly, the CBN also approved the roll-over of the moratorium on the intervention facilities availed through participating banks and OFIs – to be considered on a case-by-case basis. We think this is a positive step as it consolidates the regulatory forbearance’s impact in stimulating businesses. Beyond regulatory forbearance such as this, we believe it is imperative for policymakers to also address the structural impediments in the business environment to enhance the multiplier effects of direct interventions in the economy.

Capital Markets

The bears continued to dictate proceedings in the local bourse as the market suffered its fifth consecutive weekly loss amid growing concerns about the direction of yields in the FI market. Accordingly, the All-Share Index declined by 1.2% w/w (the largest weekly loss in 2021 so far) to close at 39,331.61 points. Consequently, the YTD return dipped further into negative territory, settling at -2.3%. Activity levels were stronger this week as trading volume and value rose by 8.4% w/w and 44.0% w/w, respectively. Notably, sell-offs in bellwether stocks; NESTLE (-6.9%), FLOURMILL (-6.4%), NB (-4.8%) and MTNN (-2.3%), drove the weekly loss. The sectoral performance was broadly negative as the Industrial Goods index (+1.4%) emerged as the week’s sole gainer. The Consumer Goods (-6.3%) led the losers’ chart, followed by Insurance (-5.0%), Oil and Gas (-2.2%) and Banking (-1.9%) indices.

We expect investors to take advantage of the significant moderation in the share prices to make a re-entry in dividend-paying stocks in the week ahead. However, we believe investors will remain reluctant to leave gains in the market. As such, we expect intermittent profit-taking to continue due to uncertainties about the direction of yields in the FI market. As a result, we think the market will be choppy. Notwithstanding, we advise investors to take positions in only fundamentally justified stocks as the unimpressive macro story remains a significant headwind for corporate earnings.

Money Market and Fixed Income

In line with our expectations, the overnight (OVN) rate expanded by 10.00ppts w/w, to 16.3%, as debits for CRR and CBN’s weekly FX and OMO (NGN90.00 billion) auctions offset inflows for OMO maturities (NGN124.81 billion) and FX retail refunds.

We expect the OVN rate to remain elevated in the coming week, as expected outflows for CBN’s weekly auctions are likely to outweigh inflows from OMO maturities (NGN60.00 billion).

Treasury Bills

The Treasury bills secondary market ended the week on a bearish note, as the average yield across all instruments expanded by 4bps to 3.9%. We attribute the performance to the reduced liquidity in the system and the pre-existing weak sentiments in the T-bills market. Across the segments, the average yield fell by 8bps to 6.0% in the OMO secondary market and by 4bps to 1.5% in the NTB segment. At this week’s OMO auction, the CBN sold NGN90.00 billion worth of bills to market participants and maintained stop rates across the three tenors, as with previous auctions. The CBN, on Monday, rolled over maturing Special Bills (c. NGN4.20 trillion) for 91 days at 0.5%.

As we anticipate another liquidity dearth in the system, we expect yields to maintain their uptrend. Also, we expect quiet trading at the NTB market as participants position for next week’s PMA, with NGN84.50 billion worth of maturities on offer.


The Treasury bonds secondary market turned bearish, following market uncertainty about the direction of yields in the near term. Against this, the average yield in the space expanded by 14bps to 9.4%. Across the curve, the average yield was lower at the mid (-26bps) and long (-3bps) segments, as investors demanded the NOV-2029 (-41bps) and JUL-2045 (-37bps) bonds, respectively. Conversely, average yield expanded at the short (+87bps) end, as investors took profits off the MAR-2025 (+231bps) bond.

With the current happenings in the market, we expect the uptrend in yields to be maintained as the DMO seeks to securitize the Ways and Means balance. Overall, while pressure points remain that could pressure yields, we expect yields to touch double-digit on the average over the short term.

Foreign Exchange

Nigeria’s FX reserves dipped by USD184.58 million w/w to USD34.92 billion (3rd March 2021) as the CBN maintained its interventions across the FX markets. The naira weakened by 0.6% to NGN411.00/USD at the I&E window and appreciated by 0.4% to NGN480.00/USD in the parallel market. At the I&E window, total turnover (as of 4th March 2021) decreased by 52.9% WTD to USD221.52 million, with trades consummated within the NGN381.00 – 427.45/USD band. In the Forwards market, the rate appreciated across the 1-month (+0.3% to NGN413.76/USD), 3-month (+0.2% to NGN420.33/USD), 6-month (+0.2% to NGN428.77/USD) and 1-year (+0.8% to NGN440.01/USD) contracts.

Given the expected pressure on the external reserves amid weak portfolio inflows, we expect the naira to depreciate closer to its fair value implied by the long-run REER (NGN453.67) in the medium term. Our baseline expectation is that the CBN will devalue the naira by 5.3% to NGN400/USD in the interbank market and 5.1% to NGN415/USD at the IEW.




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