A Review of the Nigerian Energy Industry

Financial market update

Financial markets 109 April 2014, Sweetcrude, Lagos – Local and international financial market products and services update.
NIGERIA: The House of Representatives is set to pass the 2014 budget of N4.6tn. President Goodluck Jonathan had presented the budget estimates to the National Assembly on Dec 18, 2013. A disagreement over crude oil benchmark between the two chambers and between the President and the legislature over poor budget performance, had delayed the presentation of the estimates. While the President proposed $74 as the oil benchmark, the Senate had passed $76.50. However, the House passed $79. The two chambers later reconciled at $77.50.

FIXED INCOME: Despite liquidity levels still being in excess of NGN400billion, there was no OMO auction yesterday as the CRR debit is expected to put a strain on liquidity in the coming days. It was a relatively quiet session in both the tbill and bond markets. Though all eyes are fixed on the t-bill primary market auction today, the 30DTM bill (08 May) and the 37DTM bill (15 May) came under the most pressure in yesterday’s trading session with both yields closing 36bps lower to 11.97% and 11.89% respectively. In the weeks building up to this auction, there has been offshore participation in the t-bill space particularly in the 1-year bucket. The auction provides a good opportunity to lock in yields, so we expect to see offshore interest at the auction, mainly in the one year space. Repayment fully matches the amount on offer.

COMMODITIES: West Texas Intermediate crude rose to a one-month high on speculation that inventories at Cushing, Oklahoma, the delivery point for the contract, dropped for a 10th week. WTI for May delivery climbed $2.12 to $102.56 a barrel on the New York Mercantile Exchange.

FX: The pair maintained recent trade yesterday; traded within a 40 points band, but we saw a slight dip towards closing with NGN gaining about 20 points from previous close. Impending Left Hand Side flows in the market – chief among which is by the state owned oil company – should further help NGN strengthen in the short term, riding on the recent calm seen in the market, especially as we continue to see a significant drop in demand.

US: The Federal Reserve needs to be more specific about what economic conditions would prompt it to raise interest rates from current rock-bottom levels, a pair of top Fed officials normally at loggerheads on policy said on Tuesday. A third, meanwhile, warned that the Fed should be sure not to withdraw monetary policy accommodation before the economy is ready. The call for more clarity on rate-hike plans comes just weeks after the Fed jettisoned a very specific promise to keep rates low until unemployment falls below 6.5 percent, and instead said rates would stay low for a considerable time beyond the end of its massive bond-buying program, which should wind down later this year.

EUROPE: British retailers slashed prices in March at the fastest rate since 2006, industry figures showed on Wednesday, a reflection of the squeeze in consumers’ incomes that has persisted even as the economy recovers. The British Retail Consortium said shop prices in early March were 1.7 percent lower than at the same time in 2013, the biggest annual decline in any month since the series began in December 2006.

Macro Economic Indicators
Inflation rate (yoy) for Feb. 2014    7.7%
Monetary Policy Rate current          12%
FX Reserves (Bn $) as at Apr. 7    37.972

Money Market Highlights

O/N                                10.8750
7 Day                              11.1667
30 Day                           11.5000
60 Day                           11.8333
90 Day                           12.0833
USD 1 Month               0.1504
USD 2 Months             0.1903
USD 3 Months             0.2273
USD 6 Months             0.3265
USD 12 Months           0.5530

Benchmark Yields
Tenor            Maturity          Yield

91d                   03-Jul-14            12.70
182d                 04-Dec-14          13.24
364d                 05-Mar-15         13.85
2y                      23-Apr-15          13.38
4y                      31-Aug-17          12.94
5y                      30-May-18        12.98

Indicative Currency Exchange Rates
Bid         Offer

EURUSD           1.3747       1.3849
GBPUSD           1.6692       1.6795
USDJPY            101.975     102.005
USDCHF           0.8782      0.8886
GBPEUR           1.1931        1.2033
USDZAR          10.3572      10.5633
USDNGN         163.40       164.10
JPYNGN          1.5707        1.7207
CHFNGN         187.26        192.86
EURNGN         227.56        232.76
GBPNGN         273.06        278.26
ZARNGN          14.32           18.12

                             Hi                   Low               Close       Prev.Close
USD/NGN   163.95/05       163.58/68         163.70/80   163.90/00

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