ThinkBusiness Today - June 29th

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Markets

• Oil prices rose about 2% on Wednesday as a bigger-than-expected drop in US crude stockpiles offset worries that further interest rate hikes could slow economic growth and reduce global oil demand. Brent futures were up US $1.67, or 2.31%, to US $73.93 while U.S. West Texas Intermediate (WTI) crude was up US $1.76, or 2.6%, to US $69.46.

• Natural gas futures slid about 2% to US $2.72 on Wednesday on technical selling and as the amount of gas flowing to liquefied natural gas export (LNG) remains low due to maintenance outages at several facilities. The price decline came despite a drop in output in recent weeks and forecasts for the weather to remain hotter-than-normal through mid-July, especially in Texas.

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National Headlines

• FG withdraws fiscal support for professional councils – Any opportunity I have, I will keep reminding us that our democracy is evolving, maturing, and can be enduring. With a letter dated 26^th of June, the DG budget office says that the federal government will no longer provide fiscal support to 89 professional bodies in the country. I am sure many people are not aware that the government provided such support. The support will cease from 2026, three years from now. This is another fiscal masterstroke from the government, and the three years gives enough time for the bodies to make fiscal adjustment to their future. Don’t be surprised if some of them fold up. It is not clear what is the federal government fiscal exposure to these professional bodies, but it could be upwards of N5 – N15 billion a year. The next set of fiscal adjustment should be to stop the funding of religious organizations.

• Currency in circulation is near pre-currency redesign levels – Latest data from the Central Bank of Nigeria (CBN) shows that currency in circulation is near back to levels last seen before the currency redesign. Currency in circulation in the country rose by 157.27 per cent at the end of March to N2.53tn as of the end of May. It was N982 billion in February, compared to N3.3 trillion in October 2022, before the currency redesign started.

• Price instability pushes four million Nigerians under poverty line – After the fuel subsidy removal, it was very clear that it was going to get worse before it gets better. The World Bank has projected that another 4 million Nigerians will be pushed under the poverty line, following rising inflation and falling purchasing power of the Naira. Another 7.1 million are vulnerable to extreme poverty if there are no measures to cushion the effects of the removal of fuel subsidies. Meanwhile, I thought that was the purpose of the US $800 million the Bank released to the Buhari administration before they left office? Latest projection means the number of poor Nigerians will rise to 100.9 million if the government fails to compensate vulnerable citizens for fuel subsidy removal, which represents about 45% of the total population

Global Headlines

• The US is importing less, plans to raise rates again – Latest trade data shows that imports fell in the largest economy in the world. It fell by 2.7% in May to US $254 billion, compared to April. It followed a large decline of 7.3% in consumer goods import. This shows that the US economy is softening. Meanwhile, with inflation at 4.05% and a tight labour market, the Fed Chairman has suggested there will be further monetary policy restrictions to bring inflation down to its 2% target.

• Asia’s currency palaver – As US continues to weigh rate rise, top Asian economies are experiencing weaker and weaker currencies, relative to the US dollar. Since the start of this year, the Japanese Yen, Chinese Yuan, and the Malaysian Ringgit have declined by 9%, 5%, and 6%, respectively relative to the US dollar. Authorities in the countries continue to support their currencies. Meanwhile, foreign reserves in the three economies was US $3.17 trillion for China as at May, US $1.14 trillion for Japan as at April, and US $100 billion for Malaysia.

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Graph of the Day

Rather than provide some sort of analysis that I do not think you have plenty time for, let me leave you with this graph, which shows a major reason why the economy is in serious trouble.

Nigeria’s Oil Production and OPEC Quota, and Oil Price January 2010 - 2023

• 7 out of 14 major oil production streams declined from Dec 2022 to May 2023

• Production declining faster below OPEC quota (1.83mbpd), 1.2 mbpd in May 2023.

• Nigeria loses 6.88million oil output in 22 months (Jan 2021-May 2023) which translated to a loss of US$40.75billion (N18.38trillion) – this does not take into consideration production sharing contracts.

This Week

• United State and the United Kingdom is expected to release their second quarter GDP growth rate today Thursday 29^th June 2023 and tomorrow Friday 30^th June 2023, respectively.