A Review of the Nigerian Energy Industry

Financial market update

Financial markets 111 April 2014, Sweetcrude, Lagos – Local and international financial market products and services update.
NIGERIA: Education, defence and the police top the 2014 Appropriation Bill passed by the Senate this week. The Senate jacked up the total budget to N4.695 trillion, from N4.642 trillion proposed by the executive, an increase of N53 billion. Statutory transfers also rose from the N399. 7 billion proposed by the executive to N408.7 billion. The Senate also retained the N712 billion proposed for debt service, but increased recurrent expenditure from N2.43 billion proposed by the executive to N2.45 billion. Contribution to the Development Fund for Capital Expenditure also increased from N1.10 billion proposed to N1.12 billion. It also jacked up the benchmark oil price from $74.00 per barrel proposed by the executive to $77.50.

EUROPE: Finance minister George Osborne held up Britain’s recent strong pace of economic growth as vindication of his austerity program that came under fire from the International Monetary Fund last year. Osborne, who is attending the IMF’s spring meetings in Washington this week, said healthier banks and a credible plan to fix public finances are essential to getting growth going again after the financial crisis.

CHINA: China’s credit growth remains steady but the central bank is mindful of possible risks from high debt levels in the corporate sector, Governor Zhou Xiaochuan said on Friday. The People’s Bank of China considers inflation, employment and economic growth when setting monetary policy, though inflation remains a more important factor, Zhou said.

FIXED INCOME: It was no surprise that the bulls returned to the fixed income market yesterday as yields headed south. This move was on the back of the renewed foreign investor’s interest in the both T-bills and bond papers. Yields compressed across all the T-bills maturities by an average of 49bps to 12.43%. Recording the greatest decline was the 91D paper (10th July’14) paper losing 106bps on its yield to close at 11.47%. After weeks of recording quiet sessions, the bond market wasn’t left out of yesterday’s rally as bond prices increased across the curve, compressing average yields by 28bps to 13.23% save for the 2030s bond which recorded no price movement. We expect the demand to persist, with continued focus on the one year paper. All eyes on the bond auction coming up on the 16th of April.

COMMODITIES: West Texas Intermediate headed for a weekly gain amid speculation that U.S. fuel demand will increase as employment recovers. WTI for May delivery was at $103.06 a barrel in electronic trading on the New York Mercantile Exchange, down 34 cents.

FX: Big moves for NGN yesterday, strengthening to its best level in almost 3 months as we continue to see a reversal in sentiments regarding the pair. With a significant USD liquidity boost from sales from offshore yield hunters and oil majors, the pair tanked about 3 big figures to trade the 160 level (having opened at 163.00/10) on a volatile day that saw a range of about 285 points traded. Market sentiment remains bullish on the local unit in the short term; buoyed by renewed interest in NGN assets.

Macro Economic Indicators
Inflation rate (yoy) for Feb. 2014      7.7%
Monetary Policy Rate current            12%
FX Reserves (Bn $) as at Apr. 9        37.976

Money Market Highlights

O/N                              10.8750
7 Day                            11.1667
30 Day                         11.4167
60 Day                         11.7917
90 Day                        12.0833
USD 1 Month             0.1525
USD 2 Months          0.1919
USD 3 Months          0.2271
USD 6 Months          0.3240
USD 12 Months        0.5485

Benchmark Yields
Tenor          Maturity          Yield

91d                 10-Jul-14            10.97
182d               04-Dec-14         12.34
364d              05-Mar-15         13.08
2y                   23-Apr-15          12.65
4y                   31-Aug-17          12.48
5y                   30-May-18        12.53

Indicative Currency Exchange Rates
Bid            Offer

EURUSD        1.3847          1.3948
GBPUSD         1.6728          1.6831
USDJPY         101.775         101.805
USDCHF        0.8707          0.8811
GBPEUR        1.1931            1.2033
USDZAR        10.3567         10.5628
USDNGN       160.30          161.00
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   163.05/15     160.20/30   160.60/70   162.84/94

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