A Review of the Nigerian Energy Industry

Financial market update

Finance 110 January 2014, Sweetcrude, Houston – Local and international financial market products and services update.

NIGERIA: The Central Bank of Nigeria (CBN) has introduced a new payment system called Real-Time Gross settlement (RTGS) system as part of efforts to implement Payment System Vision (PSV) 2020 strategy. Mr Tunde Lemo, CBN Deputy Governor (Operations), made this known while briefing newsmen on Thursday in Abuja. Lemo, who is expected to proceed on retirement on January 11, said that CBN put live operations to the new system on December 16, 2013.He said that the new RTGS was integrated with Scrip less Security Settlement System (SSSS) and would replace the old payment system in use since seven years ago.

BONDS: We opened yesterday morning to the Debt Management Office (DMO) announcement of the first quarter bond auction with plans to offer N 45 Billion each of the 3 year and 20 Year Bond. On the back this, yields moved higher swiftly across board with the exception of the April 2015 bond which was bid mainly due to a liquidity squeeze taking it lower to 12.41%. The rest of the curve moved higher by 4-15bps.

BILLS: Volatile session yesterday as the market opened with more buyers pushing yield lower in the short end of the curve. This was however short-lived as the sentiment reversed at mid day with sellers emerging to drive yield back (about 30-40 bps) higher than opening levels around these maturities (2 – 5 months). Along with this move, the 91day bill which closed at 10.90% at the auction was very offered at the market today closing at 11.75% discount (+45bps). The CBN sold about N 220Bio OMO bills yesterday mopping up liquidity to about 500Billion. The market is awaiting more OMO auctions or a policy change by the central bank to manage the liquidity. As such, anticipation builds around the first MPC meeting of the year scheduled to hold on the 20-21 January.

MONEY MARKET: OBB and ON rates at 10.25% and 10.50% respectively.

FX: Gains for the local unit yesterday on the back of huge USD sales by state owned Oil Company. The pair traded a range of 85 points and went bearish from opening as the inflow supplied enough greenback liquidity to push rates south and helped give Naira its best close so far this week. Expectation is for the pair to further trade the 158 levels as market is yet to fully absorb the inflow.

US: The number of Americans filing new claims for unemployment benefits last week fell and planned layoffs hit a 13-1/2 year low in December, adding to a range of data that have suggested the economy is gaining steam. Initial claims for state unemployment benefits dropped 15,000 to a seasonally adjusted 330,000 in the week ended January 4, the Labor Department said on Thursday. Economists had expected them to fall to just 335,000. Claims are typically volatile around this time of the year because of the weather and the difficulties adjusting the data for unusual and shifting layoff patterns around the holidays.

EU: The European Central Bank on Thursday forcefully underlined its determination to take action should euro zone inflation risk turning into deflation or rising money market rates threaten the bloc’s fragile recovery. After leaving interest rates at a record low on Thursday, the ECB toughened its pledge to keep its policy loose, “firmly reiterating” its expectation for rates to remain at current or lower levels for an extended period.

CHINA: China’s export growth slowed more than expected in December due to a higher comparison base a year earlier and a clamp-down on speculative activities disguised as export deals, missing the official target on foreign trade. But the outlook for 2014 is expected to be brighter as global demand picks up, giving more wiggle room for Chinese leaders to push through reforms to balance the world’s second-largest economy.

COMMODITIES: WTI crude fell to an eight-month low on surging output, ample supply and reduced fuel use in the U.S., the world’s biggest oil-consuming country. WTI for February delivery dropped 67 cents to settle at $91.66 a barrel on the New York Mercantile Exchange. It was the lowest settlement since May 1.

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

Money Market Highlights
O/N                                    10.5417
7 Day                                  10.8750
30 Day                               11.1250
60 Day                               11.4167
90 Day                               12.7083
USD 1 Month                    0.1603
USD 2 Months                  0.2083
USD 3 Months                  0.2417
USD 6 Months                  0.3439
USD 12 Months                0.5846

Benchmark Yields
Tenor                 Maturity             Yield (%)
91 days                 10-Apr-14              11.60
182 days              05-Jun-14              12.22
364 days             04-Dec-14               12.64
2 years                 23-Apr-15               12.13
4 years                 31-Aug-17                12.48
5 years                 30-May-18              12.49

Indicative Currency Exchange Rates
                              Bid            Offer
EURUSD              1.3607        1.3657
GBPUSD              1.6467         1.6517
USDJPY               104.96        105.36
USDCHF              0.9069       0.9099
GBPEUR              1.2102         1.2112
USDZAR              10.788        10.938
USDNGN             158.78         159.08
JPYNGN               1.5128         1.5628
CHFNGN              175.08        179.08
EURNGN             216.05         220.05
GBPNGN              261.46         265.46
ZARNGN               14.72           16.72

                             Hi               Low             Close        Prev.Close
USD/NGN   159.60/70    158.75/85    158.88/98    159.50/60

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