Global Economy
United States – Preliminary data: US economy grew by 4.9% annualized rate in Q3:2023, the highest since Q4:2021 (7.0% QoQ)
During the week, the US Bureau of Economic Analysis released the preliminary estimate of the GDP figures for Q3:2023. As culled from the report, the US economy expanded by 4.9% on an annualized basis. This marks the third quarter of growth this year and the strongest growth recorded since Q4:2021 (7.0% q/q). The economic expansion was bolstered by strong Personal Consumption Expenditure (4.0% QoQ), improved Government Spending (4.6% QoQ) and robust Gross Private Domestic Investment (8.4% QoQ).
Despite the positive GDP figures, analysts anticipate a potential slowdown in the upcoming quarter. This projection is based on factors like the decreasing savings rate and the resumption of student loan repayments in October, estimated at around USD70 billion, or approximately 0.3% of disposable personal income, which could impact spending. Additionally, experts predict that the surplus savings amassed during the Covid-19 pandemic have been gradually diminishing and may be depleted by Q1:2024. Nevertheless, we maintain the view that the US economy will continue its expansion in Q4:2023, supported by a robust labor market and increased government spending.
Source: BEA, Zedcrest Wealth
Euro Area– ECB holds key interest rates, first pause since July 2022 tightening
In its October meeting, the European Central Bank (ECB) chose to maintain the current interest rate, marking the conclusion of an extraordinary sequence of 10 consecutive rate hikes. The ECB has collectively increased rates by 4.5% since July 2022 in an effort to counter inflationary concerns. We believe the ECB will likely maintain this rate through the next year, given the persistent disinflationary tendencies and the euro area’s weakening economic condition.
Source: Eurostat, Zedcrest Wealth
Domestic Economy – Total Transactions on the Bourse Expands Amid Improved Domestic Participation
During the week, the Nigerian Exchange Limited released the Foreign Portfolio Investment report for September 2023. As culled from the report, total transactions on the bourse increased by 12.66% MoM to 295.80bn in September 2023 (vs 262.56bn in August 2023). For more clarity, Total Foreign Transactions shed 5.17% from NGN37.16bn in August 2023 to NGN35.24bn in September 2023. However, on a year-on-year basis, Total transactions on the bourse still soared 261.17% from NGN81.90bn in September 2022 to NGN295.80bn in September 2023. The decline in Foreign Participation was in line with our expectation. We had foreseen such following the scarcity of FX in the market an offshoot of the CBN’s inability to match FX demands.
Source: NGX, Zedcrest Wealth
While the resurgence of local participants contradicted our predictions, we anticipate that domestic investors will maintain their dominance in the stock market. This outlook is founded on the historical market trends where domestic investors have taken the lead, while foreign investors adopt a more cautious approach due to FX liquidity concerns in the Nigerian market. Furthermore, the recent technical downgrade of Nigeria’s MSCI indexes, shifting from Frontier Markets to Standalone Markets status, might contribute to foreign portfolio investors’ reluctance in the Nigerian market.
Source: NGX, Zedcrest Wealth
FAAC Allocation
In October, the Federation Accounts Allocation Committee (FAAC) distributed NGN903.48 billion to the three tiers of government from the prior month’s revenue. This reflects a 17.9% decrease compared to the previous month when NGN1.10 trillion was disbursed. The allocated amount constituted 56.7% of the total gross revenue for the month, which amounted to NGN1.59 trillion (compared to NGN1.48 trillion in August). The remaining balance was allocated to (1) NGN54.43 billion for collection costs, (2) NGN347.86 billion for transfers and refunds, and (3) NGN289.00 billion saved for future needs. The revenue boost was primarily attributed to increased inflows from the Petroleum Profit Tax (PPT) and Oil and Gas Royalties. While currency depreciation resulting from FX market liberalization is expected to continue supporting oil revenue in naira terms, lower crude oil production may keep overall oil revenue subdued compared to pre-pandemic levels.
The Nigerian Equities Market – The Bulls Revisit the Local Bourse
The Nigerian Equities market ended the week on a positive note as the NGX ASI added 33bps WoW to 67,136.58pts. Nonetheless, the market lost three (3) out of the five (5) trading days of the week. The bourse’s year-to-date (YtD) returns printed at 31.00% (vs. 30.56% previous week). Sectoral performance was mixed as the Banking (+1.04% WoW) and Oil and Gas (+2.07% WoW) sectors closed on a positive note, while the Industrial Goods (-0.15% WoW), Consumer Goods (-0,04% WoW) and Insurance (-1.12% WoW) closed on a negative note. Leading the gainers chart are CHAMS (+27.52% to NGN1.90), GEREGU (+20.63% WoW to NGN380.00) and MULTIVERSE (+19.85% WoW to NGN3.20). The top losers for the week were VFDGROUP (-18.98% WoW to NGN218.20), CHIPLC (-10.43% WoW to NGN1.03) and SUNUASSUR (-10.00% WoW to NGN0.99). We expect a bullish run in the coming week amid renewed buying interest on fundamentally sound tickers following the release of earnings result.
The Nigerian Fixed Income Market – Bearish Finish in the Fixed Income Market
At the recent primary NTB auction, the average stop rate rose sharply by 332bps to 9.33% (compared to 6.01% in the previous auction). However, there was a decrease in the average bid-to-cover rate, dropping by 288bps to 5.90x (compared to 8.78x in the previous auction), indicating reduced demand for the instruments. Notably, the 91-day bill saw increased demand, with its average bid-to-cover ratio rising by 100bps to 3.03x from 2.04x at the last auction. The Nigerian treasury bills market had a bearish week, resulting in a 23bps increase in the average yield to 7.15%. Similarly, the FGN bond market closed negatively, with the average yield rising by 43bps to 14.88% due to selloffs across the yield curve. Overall, the Naira Fixed income market had a bearish week, as the average yield increased by 33bps, settling at 11.01%. The view of elevated yields remains due to weak demand throughout the yield spectrum.
