A Review of the Nigerian Energy Industry

Financial market update

Financial markets 110 May 2014, Sweetcrude, Houston, Texas – Local and international financial market products and services update.
NIGERIA: Chinese Premier Li Keqiang has promised his country’s assistance in providing robust infrastructure transformation for Nigeria and other African states. To signal how seriously China, the world’s second-largest economy, takes its growing ties with Africa, Keqiang announced new funding commitments of $12 billion to Africa and Nigeria, the biggest economy on the continent. He stated at the World Economic Forum that his country will add $10 billion to their already committed credit lines to reach a total of $30 billion and put an extra $2 billion into the China-Africa Development Fund to reach $5 billion.

FIXED INCOME: Previous day’s auction results; whose print was on the lower side of expectations due to slightly more aggressive bidding, triggered another rally yesterday of about 20 – 40bps in the short end (tbills) and about 10 – 15bps in the middle of the curve (3 – 10 yrs bonds). This move was undisturbed by the OMO auction conducted by the Central bank yesterday offering N100bn of the 77d and 119d bills; however selling a total of N188bn at 11.40% yield on the 119d with no sale on the 77d paper; leaving the liquidity in the system to approx N600bn. With yields on bills below the 3 month tenor now trading below 10.50% yield, which has been the average overnight funding rate in a few weeks, we expect interest to be more skewed towards the mid – longer end of the tbill curve.

COMMODITIES: West Texas Intermediate headed for its first weekly advance since April as crude supplies shrank for the first time in more than a month in the U.S., the world’s biggest oil consumer. WTI for June delivery climbed as much as 42 cents to $100.68 a barrel in electronic trading on the New York Mercantile Exchange and was at $100.58.

FX: We had an initial rush of USD purchases at yesterday’s open taking us to a 162.25 high as the previous day’s sentiments were carried over. During the day however, the pair was buoyed by decent USD sales in the market from some international names funding winnings at the recent Treasury bill auction which settled yesterday. On the back of this, we traded a low of 160.85 and closed a tad higher at 160.90/00. We may see a slight retracement at today’s open with resistance at 162.00 – 20.

US: The U.S. Federal Reserve is in no rush to decide the appropriate size of its balance sheet, but if it ultimately shrinks it to a pre-crisis size, the process could take the better part of a decade, Fed Chair Janet Yellen said on Thursday. Yellen, in testimony to a Senate panel, said no decision had yet been made on the central bank’s portfolio of assets, which has swollen to $4.5 trillion from about $800 billion in 2007. Three rounds of asset purchases meant to stimulate the economy in the wake of the 2007-2009 financial crisis have boosted the balance sheet to this record level. Unsatisfied with the U.S. recovery, the Fed is still adding $45 billion in bonds each month, though the purchases should end later this year.

EUROPE: The European Central Bank is ready to take action next month to boost the euro zone economy if updated inflation forecasts merit it, its president said on Thursday, warning outsiders not to pressure the bank into action. Stressing that the euro’s strength was “a serious concern”, ECB chief Mario Draghi said the exchange rate would have to be addressed, adding that the bank’s policymakers held a discussion about “all instruments” at their meeting in Brussels. Euro zone inflation ticked up to 0.7 percent in April from March’s 0.5 percent, but remains far below the ECB’s target of just under 2 percent, and Draghi stated that there is consensus about being dissatisfied with the projected path of inflation.

Macro Economic Indicators
Inflation rate (yoy) for Mar. 2014            7.8%
Monetary Policy Rate current                  12%
FX Reserves (Bn $) as at May. 05           37.958

Money Market Highlights
O/N                                   10.6333
30 Day                              12.2694
90 Day                              13.0077
180 Day                            13.9106
USD 1 Month                  0.1503
USD 2 Months                0.1918
USD 3 Months                0.2234
USD 6 Months                0.3234
USD 12 Months              0.5421

Benchmark Yields
Tenor             Maturity           Yield

91d                   07-Aug-14             9.76
182d                 09-Oct-14            10.43
364d                 23-Apr-15            12.05
2y                      16-Aug-16            12.24
4y                      31-Aug-17            12.12
5y                      29-Jun-19           12.35

Indicative Currency Exchange Rates
                               Bid         Offer
EURUSD              1.3783       1.3885
GBPUSD               1.6879       1.6982
USDJPY               101.70        101.73
USDCHF              0.8757        0.8859
GBPEUR              1.1931         1.2033
USDZAR              10.2507     10.4568
USDNGN             160.60       161.30
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    162.15/25     160.85/95     160.90/00     161.80/90

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