Global Economy

United States – U.S. Fed Hold Rates Steady

At the September FOMC meeting, the US Federal Reserve maintained its policy rate at 5.25%-5.50% (22-year high). Although this decision aligns with the consensus forecast, analysts anticipate that the Fed may have reached the zenith of its rate hikes and are anticipating two rate reductions in 2024. Nevertheless, we hold the view that there remains a possibility of another rate hike within the current year. Our optimism is grounded in the projections unveiled in the dot-plot, which indicated the likelihood of one additional increase this year, as well as the recent spike in energy prices—an outcome of an impending oil supply constraint.

Source: BLS, Zedcrest Wealth

United Kingdom – Inflation sustains Downtrend as the Bank of England takes a Breather on Hawkish Monetary Policy

At the recently concluded September policy meeting, the Bank of England’s Monetary Policy Committee made the decision to maintain the interest rate at 5.25%. The committee’s vote resulted in a 5-4 split, with four members advocating for an additional 25bps increase. The committee thinks that Consumer Price Index (CPI) inflation will significantly decrease over time, primarily due to lower energy inflation compared to the same period last year. However, we hold the view that the recent surge in energy prices, stemming from OPEC and its allies’ decision to cut oil production, presents a potential challenge. Additionally, Russia’s announcement of an indefinite ban on gasoline and diesel exports may exacerbate inflationary pressures further.

Still in the UK, the latest data from the Office for National Statistics reveals that the United Kingdom’s Consumer Price Index (CPI) eased to 6.7% YoY in August 2023, down slightly from 6.8% in July 2023. Every month, CPI increased by 0.3% in August 2023, a contrast to the 0.4% MoM contraction observed in July. When considering the CPI that includes owner-occupiers’ housing costs (CPIH), it rose by 6.3% YoY in August 2023, a marginal dip from the 6.4% recorded in July 2023.

The decrease in prices for food and accommodation played a role in dampening the year-on-year inflation rate, while the ascent of energy prices accounted for the most significant contribution to the inflationary pressure. It is our opinion that the recent ban on diesel and fuel exports imposed by Russia may potentially trigger another upswing in inflation, as evidenced by the recent surge in energy prices (Brent Crude closed at USD93.27pb as of last Friday).

 

Domestic Economy – Debt Levels Soar Amid FX Devaluation and Securitization of CBN Ways and Means

During the week, the Debt Management Office (DMO) released Nigeria’s Public Debt Portfolio for 2023. According to the report, Nigeria’s Total Public Debt rose 69.26 % QoQ to NGN87.38trn from NGN44.37trn in Q1:2023. Total Domestic debt for the quarter stood at NGN54.13trn (vs 24.73trn in Q1:2023) while Total External Debt Stood at NGN33.25trn (vs19.64trn in the previous quarter). The notable increase in the debt statistics can be attributed to two key factors:

1. The incorporation of securitized Ways & Means Advances, totaling NGN 22.71 trillion, into the domestic debt figures. To clarify, this amount represents the securitization of Ways and Means Advances from the Central Bank of Nigeria (CBN), which was approved by the Senate. Consequently, this sum was added to the nation’s debt statistics.

2. The impact of foreign exchange (FX) devaluation on the foreign debt figures. Notably, the devaluation of the Nigerian currency played a significant role in the substantial increase observed in the Total External Debt, reaching 54.13 trillion NGN. This increase is primarily attributed to the fact that, when expressed in U.S. Dollars, the debt figure rose by 1.14% quarter-on-quarter, climbing from USD 43.16 billion in Q1:2023, compared to USD 42.67 billion.

It is our expectation that the country’s debt profile will continue to remain elevated due to persistent structural challenges such as low revenue, deficit budgets, declining foreign exchange reserves, and other ongoing issues that have affected the nation.

Source: ONS, Zedcrest Wealth

Oil Production / Oil Price – The Chronicle of Unwavering Opportunity Neglect

According to the report released by NUPRC, Nigeria’s crude oil production, which includes condensates, has resumed its upward trajectory, surging by 8.53% month-on-month to reach 1.42MBPD. We believe this increase can be attributed to the rise in oil production at the Forcados terminal. This surge follows the resumption of oil production activities that had been temporarily halted around July due to leakages at the terminal.

In the wake of Russia’s consequential choice to restrict the export of gasoline and diesel, there has been an observable upward trajectory in oil prices. However, despite the positive trend in oil production, we hold the perspective that Nigeria may struggle to fully capitalize on the forthcoming surge in energy prices. This is primarily due to the persistent challenges of oil theft, vandalism, and frequent operational disruptions, all of which persistently impede the nation’s prospects for bolstering its oil revenue.

Source: DMO, Zedcrest Wealth

The Nigerian Equities Market – Bearish Momentum Heralds the Local Bourse

The Nigerian Equities market closed on a bearish note for the second consecutive week as the NGX All Share Index (ASI) shed 11bps WoW to close at 67,324.59 pts. As a result, the bourse’s year-to-date (YtD) returns settled at 31.36% (vs 31.50% YtD last week) as the market gained two (2) out of the five (5) trading days of the week. Sectoral performance was mixed as the Industrial Goods (-5.06% WoW), Banking (-2.65% WoW), and Oil and Gas (-1.47% WoW) sectors closed in the red while the Insurance (+3.82% WoW) and Consumer Goods (+1.09% WoW) sector closed bullish. Leading the advancers are SUNUASSUR (+32.91% WoW to NGN1.05), ELLAHLAKES (+28.79% WoW to NGN4.25) and ETRANZACT (+28.57% WoW to NGN9.45). On the flip side TANTALIZER (-21.05% WoW to NGN0.30), GUINEANS (-20.69% WoW to NGN0.23), and MCNICHOLS (-13.33% WoW to NGN0.65) led the laggards.

The Nigerian Fixed Income Market – The Bears Revisit the Bond Market

The Nigerian Secondary Treasury Bills market closed the week on a bearish note as average NTBills yield surged by 48bps WoW to settle at 8.46%. In like manner, the secondary bond market ended the week bearish as the average yield rose by bps WoW to settle at 14.47%. This is following sell-offs in the MAR-2024 (+155bps) FEB-2028 (+22bps) and APR-2032 (+12bps) instruments. Overall, the Naira Fixed income market closed negative as the average yield advanced 28bps WoW to settle at 11.47%.