A Review of the Nigerian Energy Industry

Financial market update

Financial-market18 September 2013, Sweetcrude, Lagos – Local and international financial market products and services update.
NIGERIA: Nigeria’s inflation rate dropped to 8.2 in August, the lowest level since April 2008, according to the National Bureau of Statistics. Inflation in Africa’s top oil producer slowed from 8.7 percent in July, the Abuja-based statistics agency said today in an e-mailed statement. The median estimate of nine economists surveyed by Bloomberg was 8.8 percent. Prices rose 0.3 percent in the month, the statistics bureau said. The inflation rate has stayed within the Central Bank of Nigeria’s target of less than 10 percent this year, as the effect of higher fuel prices in 2012 fell out of the calculation and the central bank regularly sold dollars to support the naira.

BONDS: The local market like the rest of the world awaits the outcome of the FOMC meeting today and our local MPC meeting on 23/24 September for direction. As a result market volumes were thin with overall sentiment cautious but bearish. Yields went up about 10bps on average across the curve, also due to some light reaction to funding rates continuing to spike. Thursday’s session likely to be more upbeat in the aftermath and the more likely bet is that rates trade lower unless we see a surprise.

BILLS: Due to the spike in interest rates in the money markets to 45% yesterday, the bill markets sold off again. Rates went up about 20bps across most maturities. Inflows expected in on Thursday and this should bring back some demand to the markets.

MONEY MARKET: OBB and unsecured O/N rates soared yesterday to close at 45% as the system opened down N93billion. Banks are not allowed to access the CBN window on settlement days for both WDAS and Intervention funds and this contributed to the acceleration of rates in a very illiquid market. OMO maturity of approximately N100billion expected on Thursday and this should help soften rates.

US: Federal Reserve policy makers, while considering today whether to taper $85 billion in monthly bond buying, confront a drop in demand for home loans that argues against a cut to their mortgage bond purchases. A surge in mortgage rates to two-year highs has undercut borrowing, pushing down refinancing by more than 70 percent since last September. The Fed today would limit the impact from tapering by reducing Treasury purchases rather than mortgage-backed securities, analysts suggested.

EUROPE: Spain’s budget deficit is slipping from its target, just as investors load up on its debt. The budget shortfall excluding town halls was 5.27 percent of gross domestic product in the first seven months, Budget Ministry data showed on Sept. 16. The target for the full year is 6.5 percent. The median forecast in a Bloomberg survey of 20 economists still shows Spain meeting the goal. Non-residents have been increasing purchases of Spanish debt as they pull funds from emerging markets and opt against German bunds yielding close to zero. As the increase in liquidity allows Prime Minister Mariano Rajoy to ease off on deficit cuts, he risks a reversal in investors’ appetite for higher-yielding assets focusing attention on Spain’s fifth consecutive budget overshoot.

CHINA: China, the largest foreign lender to America, increased its holdings of Treasuries in July as speculation the Federal Reserve will slow purchases pushed U.S. bond yields to the highest level in two years. China’s stake increased by $1.5 billion in July, or 0.1 percent, to $1.277 trillion, after declining the prior month, according to Treasury Department data released yesterday. The growth of China’s holdings comes as overseas holdings of Treasuries have grown $16.3 billion, or 0.3 percent, this year, the slowest pace since a 2 percent decline in the first seven months of 2006.

COMMODITIES: WTI swung between gains and losses as Libya moved to restore its oil production and before U.S. government data that may show crude inventories shrank to the lowest level in more than a year. WTI for October delivery was at $105.62 a barrel in electronic trading on the New York Mercantile Exchange, up 20 cents. The contract declined $1.17, or 1.1 percent, to $105.42 yesterday. The lowest close since August 22.

Indicative Currency Exchange Rates
                            Bid         Offer
EURUSD         1.3359       1.3409
GBPUSD         1.5914        1.5964
USDJPY          99.22         99.62
USDCHF        0.9259       0.9289
GBPEUR        1.1913         1.1923
USDZAR         9.8044      9.9544
USDNGN         161.80       162.55
JPYNGN         1.6307       1.6807
CHFNGN        174.75       178.75
EURNGN        216.15       220.15
GBPNGN        257.49       261.49
ZARNGN         16.50         18.50

Commodities
WTI swung between gains and losses as Libya moved to restore its oil production and before U.S. government data that may show crude inventories shrank to the lowest level in more than a year. WTI for October delivery was at $105.62 a barrel in electronic trading on the New York Mercantile Exchange, up
20 cents. The contract declined $1.17, or 1.1 percent, to $105.42 yesterday. The lowest close since August 22.

Interest rates
NIBOR (%)                          LIBOR (%)

O/N              44.6667             USD 1 month          0.1805
7 Day            43.1250             USD 2 month          0.2205
30 Day         36.9583             USD 3 month          0.2520
60 Day         37.7917              USD 6 month          0.3764
90 Day         38.9583            USD 12 month         0.6516
Y/Y Consumer Inflation August 2013 :            8.2%
FX Reserves: 13 September 2013 (USD bn)   46.341
MPR                                                                        12.00%
Source: Reuters, Bloomberg, Central Bank of Nigeria, Financial Market Dealers Association Standard Chartered Bank Nigeria.

Fx
                                Hi                   Low           Close        Prev.Close
USD/NGN      162.30/40      161.80/90    162.30/40    161.90/00

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