Global Economy
United States – The US Openings Taper Despite Slight Decline in Unemployment Rate
According to the June 2023 State Job Openings and Labor Turnover Summary, released this week, the U.S. Bureau of Labor Statistics showed that job opening rates declined in 4 states and rose in 2 states on the final business day of June. Additionally, hiring rates decreased in 7 states but increased in 1 state. Furthermore, total separations rates saw a decrease in 11 states, while 1 state experienced an increase in this metric. On a national scale, the rates for job openings, hiring, and total separations remained relatively stable in June, showing little to no significant change.
Additionally, in July, unemployment rates decreased in 7 states, an increase in 3 states, and remained unchanged in 40 states as well as the District of Columbia, as reported in the State Employment and Unemployment Summary. Despite the Federal Reserve’s aggressive interest rate hikes, the U.S. labor market maintains its resilience. However, we believe that the Fed’s future decisions will be influenced by the trajectory of inflation in the upcoming months.
United Kingdom – Inflation Downtrend Sustained
According to the Office of National Statistics, United Kingdom, the Consumer Prices Index including owner occupiers’ housing costs (CPIH) recorded a YoY increase of 6.4% in July (compared to 7.3% in June), while the Consumer Prices Index (CPI) grew by 6.8% YoY (vs 7.9% in June 2023). We allude this to the declines in the prices of Gas and Electricity. Core CPI (excluding energy, food, alcohol, and tobacco) rose by 6.4% YoY (same as June 2023).
We hold the view that the sustained decrease in inflationary pressures will offer some respite to the UK economy, potentially allowing the Bank of England to reconsider its aggressive stance on interest rate hikes. However, it’s essential to note that wages, excluding bonuses, registered a substantial year-on-year increase of 7.7% in Q2 2023. Consequently, we anticipate that inflation will persistently hover above the 2.0% target over the next few months.
Domestic Economy – Inflation Soars to Record High Amid Subsidy Removal
Earlier this week, the National Bureau of Statistics released the July 2023 Consumer Price Index report. The report revealed a noteworthy year-on-year increase of 129bps, pushing headline inflation to a new high of 24.08%, surpassing any recorded rate in Nigeria since the reconstruction of the CPI basket in 2009. Food inflation also surged by 173bps, reaching 26.98%, while Core inflation saw a 41bps increase to 20.47%.
We attribute this recent inflationary surge to three key factors:
1. The removal of fuel subsidies, which has resulted in elevated transportation and logistics costs.
2. The streamlining of operations in the foreign exchange (FX) market, caused a devaluation of the Naira.
3. Reduced agricultural yields due to the planting season and variations in rainfall patterns.
To provide more context, the surge in food inflation (26.98% YoY) can be linked to increases in the prices of Oil and fat, Bread and cereals, Fish, Potatoes, Yam and other tubers, Fruits, Meat, Vegetable, Milk, Cheese, and Eggs.
Also, Core inflation was renamed “All items less farm produces and energy” (formerly “All items less farm produces”) and soared to 20.47% YoY following increases in prices of Passenger Transport by Air, Passenger Transport by Road, Vehicle Spare Parts, Medical Services, Maintenance, and repair of personal transport equipment, etc.
As we cast our gaze into the future, we envisage a continued upward trajectory in inflation. This expectation is rooted in our anticipation of sustained high fuel prices, a consequence of the subsidy removal. To provide a broader context, the recent resolution by OPEC+ to extend oil production cuts until 2024, along with Saudi Arabia and Russia’s independent decisions to reduce oil production by 1 million and 500,000 barrels per day respectively, has upheld elevated oil prices in recent times. Additionally, diminishing demand, a result of the adverse effects of significant rate hikes by major economies and a sluggish economic recovery in China, has failed to meet initial projections.
Domestically, I anticipate that the injection of the N5bn palliative, allocated across 36 states, combined with heightened government expenditures and substantial FAAC allocations, will contribute to the ongoing expansion of the money supply in the economy. This expansion has already reached historic levels in recent months. Narrow Money (N24.16trn) Money Supply 2 (N64.93trn) and Money Supply 3 (65.47trn).
The USD3bn NNPCL-AFREXIM Emergency Crude Repayment Loan
Earlier this week, on Wednesday, the Nigerian National Petroleum Company Limited (NNPCL) made an announcement regarding its successful acquisition of a $3 billion emergency crude repayment loan from the African Export-Import (AFREXIM) bank. The NNPCL clarified that this loan agreement should not be misconstrued as a crude-for-refined product exchange; rather, it represents an immediate cash loan obtained against anticipated proceeds from a defined quantity of forthcoming crude oil production. The loan will be disbursed in installments, contingent upon the specific needs and requirements of the Federal.
Government of Nigeria (FGN). Importantly, there are no sovereign guarantees attached to this loan, signifying that it will not be factored into the nation’s public debt profile. Instead, it will be recorded on the NNPCL’s balance sheet.
Looking ahead, we opine that while this may seem like a short-term medicine for a long-term injury, we opine that this might impact FAAC allocation significantly by the time the loan is repaid.
The Nigerian Equities Market – The Nigerian Equities Market Welcomes the Bears.
The Nigerian Equities Market closed the week on a bearish note as the NGX All Share Index dipped 93bps WoW to 64,721.09pts as the market gained one (1) out of the five (5) trading days in the week. As a result, the year-to-date returns printed at 27.46% (vs 27.21% last week). Sectoral performance was mixed as the Consumer Goods (+2.39%) and Industrial Goods (+0.37%) sectors closed positively while others closed in the red. Leading the top gainers CWG (+25.83% to NGN3.80), TIP (+23.40% to NGN1.16), and JOHN HOLT (+20.83% to NGN1.45). On the flip side, SUNUASSUR (-28.70% to NGN0.82), GUINEAINS (-25.64% to NGN0.29), and NEM (-10.00% to NGN5.40).
The Nigerian Fixed Income Market – Market Closes on Bearish Note
The Nigerian Treasury Bills market ended the week on a negative note as the average yield added 106bps WoW to settle at 8.39%. During the primary bond auction held in August 2023, the Debt Management Office (DMO) successfully sold NGN227.76 bn worth of bonds, distributed across the reopening of four distinct instruments: APR-2029 (NGN10.43bn), JUN-2033 (NGN4.07bn), JUN-2038 (NGN25.53bn), and JUN-2053 (NGN187.73bn). Notably, there was a notable decrease in demand for these instruments, as reflected in the average bid-to-cover ratio declining by 176bps to 0.87x compared to the previous auction, which stood at 2.63x. Consequently, the average stop rate experienced a significant increase of 135bps, rising from 13.63% at the previous auction to 14.98%. The stop rates for the APR-2029, JUN-2033, JUN-2038, and JUN-2053 instruments saw increases of 135bpss, 140bps, 110bps, and 155bps, respectively. This bearish sentiment observed during the auction extended to the secondary bond market, where the average yield recorded a week-on-week increase of 31bps, reaching 13.83%. This increase was primarily driven by sell-offs in the MAR-2024, which experienced a yield increase of 67 basis points, and the JAN-2026, which saw a 5bps uptick. In summary, the Naira Fixed income market closed the week with a bearish tone, resulting in an overall week-on-week increase in the average yield of 68bps, settling at 11.11%.
