United States – US Labor Market – A Tale of Resilience and Buoyancy

During the week, the US Bureau of Labor and Statistics released the employment situation report for November 2023. As culled from the report, unemployment rate growth was tepid as it rose to 3.7% YoY (vs 3.9% in October 2023). Nonfarm payroll employment increased by 199,000 compared to 150,000 in October 2023 depicting higher job creation. The total number of unemployed people dropped marginally to 6.3mn. The labor force participation rate, a key metric for resolving a sharp divide between worker demand and supply grew marginally to 62.8% (vs 62.7% in October). On a similar note, the employment-population ratio advanced slightly to 60.25% from 60.2% in October 2023.

Source: BLS, Zedcrest Wealth

Industries such as Health Care (+77,000), Government (+49,000), and leisure and hospitality (+40,000)) witnessed the highest employment gains. The average hourly earnings for all employees on private nonfarm payrolls rose by 12 cents, or 0.4% MoM and 4.0% YoY to $34.10.

Source: BLS, Zedcrest Wealth

Although the significant uptick in non-farm payrolls can be partially ascribed to the return of over 50,000 workers from a strike, we maintain the viewpoint that the US labor market demonstrates robustness and resilience. This is evident in the noteworthy growth in household employment and the month-on-month average hourly earnings. We anticipate that the inflation report, coupled with this job data, will influence the trajectory of the Fed’s decision at the upcoming FOMC meeting and subsequently guide their decisions for 2024. Nevertheless, we do not anticipate additional interest rate hikes from the Fed this year or the following year.

Bank Of Canada – The Wait and See Approach

During the week, the Bank of Canada opted to maintain rates at 5.00%, citing prevailing macroeconomic trends. The BoC underscored the impact of preceding rate hikes on the economy, with lingering disinflationary trends (inflation at 3.1% YoY as of October 2023, down from 8.1% YoY in July 2022) and a 1.1% YoY contraction in the economy during Q3:2023. Despite acknowledging the potential necessity for additional rate hikes, the BoC’s statement is viewed by some analysts as a strategic measure to prevent premature expectations of rate cuts. Contrary to this perspective, we anticipate the BoC to maintain rate stability and project potential rate cuts in the middle of 2024.

 

Domestic Economy

Foreign Trade – Galvanized By Currency Devaluation

During the week, the National Bureau of Statistics released the Foreign Trade in Goods statistics for Q3 2023. As culled from the report, Total Trade grew notably by 54.62% QoQ and 53.16% YoY to print at NGN18.80trn compared to NGN12.16trn in Q2:2023. Similarly, Total Exports soared 60.78% QoQ and 74.36% YoY to NGN10.35trn in Q3:2023 (vs NGN6.43trn in Q2:2023). Also, Total Imports surged 47.70% QoQ and 33.33% YoY to NGN8.46trn in Q3:2023 (vs NGN5.73trn in Q2:2023). Overall, the Balance of Trade remained in the surplus zone for the fourth consecutive quarter at NGN1.88trn in Q3:2023 (vs. NGN708.88bn in Q2:2023)

 

Total Export: Oil Exports Takes the Shine

We believe that the increase in Total Exports can be attributed to 3 main factors

1. Increased oil production.

2. Elevated oil prices during the period as OPEC and its allies implemented oil supply cuts, along with Russia’s decision to ban gas and oil exports to the West.

3. Naira Devaluation.

For context, the average oil production in Nigeria increased to 1.43 million barrels per day (mbpd) in Q3 2023, up from 1.39 mbpd in Q2 2023. Concurrently, the price of Brent Crude saw an uptick, averaging USD85.56 per barrel in Q3:2023 compared to USD78.07 in Q2:2023. This surge was driven by oil market volatility, influenced by geopolitical tensions and decisions by OPEC and its allies to curtail oil production. Additionally, FX volatility/scarcity and Naira devaluation contributed to a notable upswing in oil proceeds. Consequently, the percentage of crude oil exports to total exports rose to 82.50% from 77.79%.

For context, the average oil production in Nigeria increased to 1.43 million barrels per day (mbpd) in Q3 2023, up from 1.39 mbpd in Q2 2023. Concurrently, the price of Brent Crude saw an uptick, averaging USD85.56 per barrel in Q3:2023 compared to USD78.07 in Q2:2023. This surge was driven by oil market volatility, influenced by geopolitical tensions and decisions by OPEC and its allies to curtail oil production. Additionally, FX volatility/scarcity and Naira devaluation contributed to a notable upswing in oil proceeds. Consequently, the percentage of crude oil exports to total exports rose to 82.50% from 77.79%.

Total Import: Bolstered by Import Dependency Syndrome

Total Imports for the third quarter surged 47.70% QoQ and 33.33% YoY to NGN8.46bn from NGN5.73bn in Q2:2023. On a sectoral basis, Manufactured Goods (NGN3.96bn), Other Petroleum Oil Products (NGN2.85bn), and Raw Materials Goods (NGN950.93mn) accounted for the most imported products. This underscores the worsening condition of the manufacturing sector in the country and highlights the excessive dependence on imported products, resulting in the closure and withdrawal of operations by some companies.

Source: NBS, Zedcrest Wealth

Outlook

Looking forward, we anticipate a sustained improvement in the overall trade figures of the country.

In the realm of Oil Exports, we expect continued enhancement driven by elevated oil prices and increased oil production. Additionally, the devaluation of the Naira amidst FX scarcity/volatility is poised to maintain oil proceeds at elevated levels.

Contrarily, our optimism is tempered for non-oil exports, given the challenging economic conditions. The PMI figure for November declined to 48 points from 49.1 points in October 2023, indicating a less favorable outlook for the sector.

Regarding Imports, we maintain the view that the economy’s reliance on importation, driven by its large population and the inadequacy to meet local demands, will keep import figures relatively high.

 

The Nigerian Equities Market – Let the Santa Rally Begin

The Nigerian equities market closed the week on a positive note for the 5th consecutive, as the NGX All-Share Index (ASI) advanced 17bps WoW to settle at 71,541.74 points. The Year-to-date (YTD) returns settled at 39.59%.

Leading the gainers chart are MULTIVERSE (+57.02% to NGN9.39), THOMASWY (+32.80% WoW to NGN3.32) and INFINITY (+32.09% WoW to NGN1.77). The top losers for the week were CONHALLPLC (-12.70% WoW to NGN1.10), OANDO (-12.29% WoW to NGN10.35) and ABBEYBDS (-10.47% WoW to NGN1.54). We expect a sustained bullish run on the bourse.

The Nigerian Fixed Income Market – A Bullish Close for the Fixed Income Market

The Nigerian Secondary Treasury Bills market closed bearish as the average yield advanced 51bps to close at 11.01%. On the flip side, the secondary bond market closed bullish as average shed 84bps WoW to settle at 14.86%. For the most part, the Naira Fixed income market closed the week on a bullish note as the average yield declined 16bps WoW to settle at 12.93%