A Review of the Nigerian Energy Industry

Financial market products and services update

Financial markets 116 May 2014, Sweetcrude, Houston, Texas – Local and international financial market products and services update.
NIGERIA: Nigeria could attain investment-grade status if it undertakes reforms to its power and oil sectors that would help boost economic growth and per capita income, credit rating agency Fitch said. With a review of the rating scheduled for publication on October 3, Fitch stated on Tuesday that analysts from the firm would visit Nigeria in early September. Fitch currently rates Africa’s biggest economy three notches below investment grade at BB-, in line with the BB- and Ba3 grades assigned by rivals Standard & Poor’s and Moody’s. Fox said structural issues weighed 40 percent on Fitch’s rating scale, suggesting that unless long-delayed reforms to key sectors are completed, the country will struggle to secure higher ratings that would attract a wider pool of investors.

FIXED INCOME: Yields gapped lower across the curve at open on the back of the previous days’ bond auction result. We saw some demand trickle-in from player’s who missed out of the auction, putting further downward pressure on bond yields, as the 3y and 10y bonds closed at 11.92% and 12.48% respectively, about 8bps lower than cut-off rates. Sentiments were extended to the t-bills market, which witnessed a 20-30bps rally in the far end and 10-15bps in the short end. The moves were undisturbed by the Central bank’s intervention in the market yesterday, offering N50billion of the 119day OMO bill and selling over N200billion at 11.37% yield (about 65bps higher than secondary market levels). Liquidity remained high at about N500 billion and expect to see more OMO auctions in the coming week to mop excess inflows from t-bill maturities and FAAC allocations.

COMMODITIES: West Texas Intermediate rose in New York. WTI for June delivery rose as much as 54 cents, or 0.5 percent, to $102.04 a barrel in electronic trading on the New York Mercantile Exchange.

FX: There was a lot of USD purchase as soon as market opened yesterday; trading 163.05/15 a few minutes after a 162.52/62 open, with rates eventually settling at the 162.80-163.00 band. We traded this range for a while, with 163.00 turning out to be a strong intraday resistance. A flush of USD sales however ensured we saw a gradual, consistent, dip in rates towards the day’s low and close of 162.35/45, with very limited buying interest seen after the USD buyers had dominated the early minutes of trading. We expect the 163.00 resistance level to hold in the short term.

US: New applications for U.S. unemployment benefits hit a seven-year low last week while consumer prices recorded their largest increase in 10 months in April, pointing to a firming economy. Factory activity in New York state expanded at its quickest pace in nearly four years in May, but the otherwise bright growth picture was dimmed by another report on Thursday showing a surprise slump in industrial output last month.

EUROPE: The Bank of England pushed back against expectations that it might raise interest rates in less than a year’s time, saying on Wednesday that Britain’s economic recovery is still in its early stages. The Central Bank acknowledged a strong bounce-back in the labour market since last year, lowering its forecast for unemployment for the next couple of years. But it left largely unchanged its assumptions on the timing of interest rate rises and its growth and inflation forecasts.

Macro economic Indicators
Inflation rate (yoy) for Apr. 2014        7.9%
Monetary Policy Rate current              12%
FX Reserves (Bn $) as at May. 14       37.543

Money Market Highlight

O/N                            10.5500
30 Day                       12.2360
90 Day                       13.0999
180 Day                     14.1730
USD 1 Month            0.1510
USD 2 Months          0.1903
USD 3 Months          0.2259
USD 6 Months          0.3239
USD 12 Months        0.5346

Benchmark Yields
Tenor         Maturity         Yield

91d               14-Aug-14          10.01
182d            04-Dec-14          10.79
364d            07-May-15         11.64
2y                 16-Aug-16          11.71
4y                 31-Aug-17          11.70
5y                 29-Jun-19          12.17

Indicative Currency Exchange Rates
Bid         Offer

EURUSD     1.3663       1.3765
GBPUSD      1.6741       1.6844
USDJPY       101.53       101.56
USDCHF      0.8852     0.8955
GBPEUR       1.1931      1.2033
USDZAR      10.2872   10.4933
USDNGN     162.05     162.75
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
  163.05/15   162.35/45   162.35/45    162.55/65

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