A Review of the Nigerian Energy Industry

Financial market update

finance08 January 2014, Sweetcrude, Houston – Local and international financial market products and services update.
NIGERIA: The 2014 budget proposal that was submitted by the Federal Government to the two chambers of the National Assembly last month reveals that government has proposed the sum of N337, 755,120 to be used for utilities and materials in five commissions. Of this sum, N230,053,912 has been proposed for materials & supplies – general, while the balance sum of N107,701,208 has been proposed for utilities – general. The five commissions include the National Population Commission (NPC), National Planning Commission (NPC), Federal Civil Service Commission (FCSC), Federal Character Commission (FCC) and National Salaries, Income and Wages Commission.

FX: High demand in the market yesterday as demand spilled over from failed RDAS bids to the interbank market, depreciating the currency by about 47 points from previous close. The pair opened to a bullish run and traded a high of 160.02/12 before it retraced to the 159 level after a few LHS flow hit the market. Expectation is for the pair to depreciate further if no oil inflow comes in this week.

BONDS: Relatively quiet in the bond space yesterday, with some mixed sentiments across the curve as market appears to be moving in no clear direction. The mid to long end of the curve was offered although seeing only a few trades saw yields move higher by about 3-6bps. The shorter end however, as seen in the 3 year bond dropped by 10bps to 12.95%.

BILLS: The Upcoming primary auction took the centre stage in driving yields as focus was on the 91 day bills in the market today. Market players pushed bids that would have otherwise been placed at the auction in the secondary market in search better yields (as expectation for cut-off remains lower than secondary market level). On the back of this, the 91d bill traded lower to 11.15% (- 45bps) also taking other maturities around this tenor on a 25-40bps dive. The move in the short end (around and below the 91day) was undisturbed by the N86Billion sale at the OMO auction today, as expectations are for the Central Bank to focus its subsequent OMO offerings in maturities above 4 months on the back of the amount of huge amount of OMO bills (N 2.4Trillion) maturing in Q1 this year.

MONEY MARKET: OBB and ON rates both at 10.25%.

COMMODITIES: West Texas Intermediate rose for a second day on speculation government data will show crude stockpiles declined a sixth week in the U.S., the world’s biggest oil consumer. WTI for February delivery advanced as much as 40 cents to $94.07 a barrel in electronic trading on the New York Mercantile Exchange, and was at $93.97

US: A strengthening U.S. economy likely encouraged employers to maintain a strong pace of hiring in December, further supporting the Federal Reserve’s decision last month to start curtailing its massive monetary stimulus. Nonfarm payrolls are expected to have increased by 196,000 last month, according to reports, slightly below November’s 203,000 count. Hiring would, however, be above the monthly average of 188,545 jobs over the first 11 months of 2013.

EU: A surprise drop in euro zone inflation will concern European Central Bank policymakers but they will likely do no more on Thursday than warn of their readiness to act in future. The policymaking Governing Council meets after data showed annual euro zone inflation dipped to 0.8 percent in December from 0.9 in November. The ECB targets inflation of just below 2 percent. .Core inflation, which strips out volatile costs like food and energy, hit a record low of 0.7 percent.

CHINA: China’s central bank looks set to risk another cash crunch at the end of January, barely a month after the last market squeeze, as policymakers press ahead with a crackdown on shadow financing and other risky bank lending. The People’s Bank of China (PBOC) is attempting a delicate balancing act to keep economic growth on track while avoiding a debt-induced financial crisis.

Macro economic Indicators
Inflation rate (yoy) for Nov. 2013           7.9%
Monetary Policy Rate current                  12%
FX Reserves (Bn $) as at Jan. 6            43.308

Money Market Highlights

O/N                                      10.5833
7 Day                                    10.9167
30 Day                                 11.4583
60 Day                                 11.7083
90 Day                                 11.9585
USD 1 Month                      0.1615
USD 2 Months                    0.2082
USD 3 Months                    0.2421
USD 6 Months                    0.3447
USD 12 Months                  0.5866

Benchmark Yields
Tenor               Maturity             Yield (%)
91 days               10-Apr-14               11.03
182 days             05-Jun-14              11.57
364 days            04-Dec-14               12.46
2 years                23-Apr-15               12.58
4 years                31-Aug-17               12.45
5 years                30-May-18             12.50

Indicative Currency exchange Rates
                       Bid             Offer
EURUSD      1.3625          1.3675
GBPUSD      1.6409          1.6459
USDJPY        104.91          105.31
USDCHF      0.9081          0.9111
GBPEUR      1.2043          1.2053
USDZAR     10.6181         10.7681
USDNGN     159.28           159.58
JPYNGN       1.5183           1.5683
CHFNGN      175.40          179.40
EURNGN      217.02          221.02
GBPNGN      261.36          265.36
ZARNGN       15.00            17.00

                                Hi              Low           Close         Prev.Close
USD/NGN     160.02/12    159.25/35    159.70/80    159.33/43

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