ThinkBusiness Today - June 19th

E kaaro o, Ututu Oma, Barka da Safiya - Good morning, and a warm welcome to ThinkBusiness Nigeria, your Monday – Friday dose of commentary, contexts, and insights on business and economic news that matter to you.

Hello and welcome to a new business week. But before we move to the business of the week, thought to say Happy Father’s Day to all amazing fathers out there. It is an honor and a privilege to be a father, but it is also a massive responsibility. May we not fail as fathers.

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Markets

• Market opens today after weekend. On Friday, NGX All-Share Index (ASI) shed 194.25 (-0.33%) points to close at 59,000.96, representing a 1-week gain of 5.44%, a 4-week gain of 12.21%, and an overall year-to-date gain of 15.12%. DANGOTE SUGAR (-4.17%), GTCO (-3.92%) and NEM (-9.87%) were some of the big changes.

• Market Expectations – UACN PLC AGM holds Wednesday 21^st June 2023, with plans for 22k dividends for every ordinary share to be paid Thursday 22^nd June 2023; Transnational Express PLC AGM Wednesday 21^st June, 2023, with the plan to pay 2k for every ordinary share to be paid on Monday 26^th June 2023. NPF Microfinance Bank PLC AGM Thursday 22^nd June 2023 and will pay 10k on the same day. Skyway Aviation PLC AGM Friday 23^rd June 2023 with the plan to pay 16.5k for every ordinary share to be paid on the same day.

• Oil market opens this week after a price net gain last week. On Friday, Brent crude gained 94 cents to settle at $76.61 a barrel, up by 2.4% in the week. U.S. West Texas Intermediate (WTI) crude rose $1.16 to $71.78, up by 2.3 % in the week.

• The Naira remains volatile at the I & E window, down 1.03% to N663.04, also, depreciated at the street market, down 0.13% to N756. This brings the difference between the two rates to 13%, or N92. The volatility will continue this week. JP Morgan, US largest bank in a commentary, expects the Naira exchange rate to the US dollar to stabilize in the months ahead.

• US natural gas futures rose above $2.6/MMBtu, the highest in four weeks. A projected heatwave from June 23-30 is expected to drive up demand for gas, particularly for power generation used in air conditioning.

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National Headlines

• New World Bank Report on Poverty and Pollution – A new World Bank report; Detox Development: Repurposing Environmentally Harmful subsidies showed that Nigeria, India, and the Democratic Republic of Congo top the list of countries with the highest poverty and pollution exposure. The three countries account for 50% of the global 716 million poor people, with less than US$1.90 per day that are in areas with unsafe levels of air pollution. The report aligns with the multidimensional poverty Index released by the NBS in 2022. In that report, 40.1% Nigerians are poor according to the 2018/19 national monetary poverty line, and 63% are multidimensionally poor.

• Gas line to Europe is back? - Nigeria, Morocco, Cote d’Ivoire, Liberia, Benin, and Guinea, on Friday, signed four Memoranda of Understanding for the construction of the $30bn Nigeria-Morocco Gas Pipeline Project at the Abuja headquarters of the Economic Community of West African States. Once completed, the project will enhance the monetization of the natural gas resources of the affected African countries and offer a new alternative export route to Europe. The pipeline design which spans 5,600km and passes through 13 African countries from Nigeria to Morocco. The initial MoU between Nigeria and Morocco was signed on September 15, 2022, initiating the pipeline project.

Global Headlines

• The Bank of England to raise rates – The Bank of England meets this week, and markets expect that the Bank will raise rates by another 25 basis points. If it does, as it continues to fight sticky inflation, the 4.75% rate will be a 15 year high and its 13th straight rate rise. According to reports monitored on Reuters, investors expect the Bank might hike rates as high as 6% this year, well above where the U.S. Federal Reserve or the European Central Bank are expected to go, and a level not seen in Britain since 2000.

• China growth outlook weakens – Goldman Sachs is the latest to join a chorus of market expectation of a lower growth rate in China than earlier expected. The second largest economy in the world is now expected to grow less by an average of 0.5% – 0.6% than earlier expected. The consensus is for a growth of less than 6%. Notwithstanding, it is in line with estimates by the Chinese authorities at the start of the year.

News Analysis - Equity Markets, Bond Yields Responding to Tinubu’s Reforms

President Bola Ahmed Tinubu has carried out two major economic reforms in two weeks. The first was to remove the 50-year-old fuel subsidies. The second was the aggregation of all foreign exchange transactions into the I & E window. The immediate fiscal impact is huge. By removing fuel subsidies, the Federal and State government finances will improve. The same impact after the aggregation of the exchange rate windows.

The immediate impact in the markets was huge as well. Equity benchmark ASI rose 5.2% the day after announcing the removal of subsidies and rose 3.99% after the removal of the Central Bank Governor Godwin Emefiele.

In addition, we thought to show that Nigeria’s 10. Year bond yields have falling by almost 0.5% point since the President’s inauguration, a sign that the markets see improvements in government finances and a shift to equities – See graph below.

NGX ASI and Nigeria’s 10 Year Bond Yields

Indeed, since he assumed office, average yield across all instruments fell by 10 basis points to 13.9%. As shown, the bond yield declined from 14.551% May 31^st , 2023 to 14.23% in June 16, 2023.

This Week

• This morning, the Debt Management Office (DMO) will sell between N320 billion and N400 billion worth of FGN bonds. The Bonds are 14.55% FGN APRIL 2029, FGN JUNE 2033, FGN JUNE 2038 and FGN JUNE 2053.

• On Wednesday 21^st June 2023, The United Kingdom is expected to release the inflation report for the month of May. The Bank of England Monetary Policy Committee meets on Thursday 22 June 2023. In its last meeting, it raised interest rates for the 12th meeting in a row by 0.25 percentage points to 4.5%.