Global Economy
United States – The US Labor Market remains unscathed
During the week, the US Bureau of Labor Statistics published the employment situation report for September 2023. According to the report, the US labor market remained resilient as the unemployment rate remained at 3.8% YoY in September 2023. Nonfarm payroll employment increased by 336,000 (the strongest since January) and the total number of unemployed individuals was 6.40 million. The labor force participation rate and the employment-population ratio remained steady at 62.8% and 60.4% respectively (same as the previous month). In our view, we opine that the resilience of the US labor market may pave the way for another interest rate hike.
Source: BLS, Zedcrest Wealth
Industries such as Leisure and hospitality (+96,000), Government Employment (+73,000), and Health Care (+47,000) witnessed the highest employment gains. Also, average hourly earnings (wages) rose 0.2% MoM and 4.2% YoY in September 2023 (below 0.4% MoM and 4.4% YoY in August 2023).
We opine that the lower wage growth might send a positive signal to the Fed to keep rates unchanged.
Source: BLS, Zedcrest Wealth
Still in the United States, the S&P Global US Manufacturing PMI for September 2023 was revised higher to 49.8pts surpassing the preliminary estimate of 48.9pts and exceeding August’s final reading of 47.9pts. This figure depicts the fifth consecutive month of contraction in the sector’s health following the aggressive interest rate hikes. We expect the PMI figures to remain in the contractionary region in the coming month.
United Kingdom – Weaker PMI Figures Herald September
During the week, the S&P Global/CIPS UK Manufacturing PMI for September 2023 came in at 44.3 points (marginally higher than 43. o pts in from August’s 39-month low). This marks one of the weakest PMI readings in the past 14 years. Output dropped for the seventh month due to ongoing market uncertainty, a cost-of-living crisis, and weak overseas conditions. Employment declined for the twelfth month in a row, with the second-steepest rate of decline in that period, and backlogs of work contracted at the fastest pace since April 2020.
Domestic Economy – Capital Importation Downtrend Remain Unabated
During the week, the National Bureau of Statistics released the Capital Importation data for Q2:2023. Total Capital imported into the economy declined 32.90% YoY to USD1.03bn (vs USD1.13bn in Q1:2023). We saw declines in Foreign Portfolio Investment (contracted by 85.89% YoY to USD106.85mn) and Foreign Direct Investment (dipped -41.54% YoY to USD86.03mn). However, Other Investment rose 32.73% YoY to settle at USD 837.34mn.
To provide additional context, Total Capital Imported witnessed a sharp decline of 99.04% every quarter and a 32.90% drop year-on-year. This decline is primarily attributed to a significant decrease in Total Foreign Portfolio Investment, reflecting the cautious approach of investors in the Nigerian market. A more in-depth analysis reveals an 80.71% quarterly increase in Foreign Direct Investment, despite the year-on-year decline. To elaborate further, here is a brief explanation of the key subsectors of Capital Importation:
Foreign Direct Investment (FDI): FDI typically indicates the willingness of foreign investors to establish a stable and long-term presence in the economy.
Foreign Portfolio Investment (FPI): FPI encompasses investing funds by foreign individuals, institutions, or entities into various financial assets within Nigeria.
Other Investment: This category includes a wide range of investment inflows that do not fall within the classifications of Foreign Direct Investment (FDI) or Foreign Portfolio Investment (FPI).
Sectoral performance shows little variation, with Production (59%), Banking (19%), Shares (7%), Financing (6%), and Trading (5%) retaining their positions as the sectors with the highest capital inflow.
Source: NBS, Zedcrest Wealth.
During Q2:2023, banks including Rand Merchant Bank (12.2%), First Bank Of Nigeria Plc (31.4%), and Citibank Nigeria Limited (18.2%) held the largest shares of the imported capital portfolio. However, it is anticipated that portfolio participation will remain subdued as we approach September 2023.
Source: NBS, Zedcrest Wealth.
We opine that domestic factors, such as unfavorable monetary and fiscal policies by the CBN, frequent policy changes by the new administration, security concerns, challenging business conditions, and FX liquidity constraints, continue to contribute to negative sentiments among foreign investors regarding the Nigerian Market.
In the coming quarter, we anticipate that Capital Importation Figures will remain below their potential. We expect that the aforementioned issues will persist and continue to exert a negative influence on capital inflows in the economy.
The Nigerian Equities Market – The Nigerian Equities Market Witness a Bullish Close.
The Nigerian Equities Market overturned the previous bearish momentum in the past weeks as it closed bullish this week. The NGX All Share Index added 11bps WoW to 66,454.57 pts. As a result, the year-to-date returns printed at 29.66% (vs 29.52% last week). Despite the bullish close, sectoral performance was bearish as the Banking (-2.80% WoW), Industrial (-4.38% WoW), Oil and Gas (-1.24% WoW) and Insurance (-0.42% WoW) sectors all closed bearish. Leading the top gainers FTNCOCOA (+19.21% to NGN1.80), RTBRISCOE (+16.33% to NGN0.57), and OANDO (+14.65% to NGN9.00). On the flip side, CHIPLC (-19.05% to NGN1.02), ABCTRANS (-17.72% to NGN0.65), and UPDCREIT (-10.26% to NGN3.50). We are less optimistic that the equities market will sustain the bullish momentum following the sustained profit-taking activities by investors.
The Nigerian Fixed Income Market – Mixed Sentiments Trail the Bond Market
The Treasury Bills market closed the week bearish as the average yield advanced 6bps WoW to settle at 8.00%. On the flip side, the secondary bond market ended the week on a positive note as the average yield shed 3bps WoW to print at 14.41%. This is following buying interest in the MAR-2024(yield down 99bps) instrument. For the most part, the Naira Fixed income market closed the week in the negative territory as average yield advanced by 2bps WoW to settle at 11.21%
