A Review of the Nigerian Energy Industry

Financial markets products & services update

2Financial markets 11 May 2014, Sweetcrude, Houston, Tx – Local and international financial market products and services update.
NIGERIA: The Central Bank of Nigeria (CBN) kept key rates flat yesterday in what analysts said could be a deliberate move not to offset attained monetary policy stability ahead of resumption of the new Central Bank governor, Godwin Emefiele, next month. For the 16th straight time, the CBN held the Monetary Policy Rate (MPR) steady at 12 percent +/- 200 basis points, as it also retained the Cash Reserve Ratio (CRR) on public deposits at 75 percent and that for private sector deposits at 15 percent. Analysts stated that with increasing liquidity in the system occasioned by maturing instruments of the Asset Management Corporation of Nigeria (AMCON), allocations of the Federal Accounts Allocations Commission (FAAC), and anticipated election spend, there remained limited options for the incoming governor to effect necessary changes.

FIXED INCOME: The MPC meeting was delivered just in line with expectations with no changes to policies or stance of the Central bank. There was however a note of concern on the high level of liquidity in the market as well as the risk of rising core inflation. With liquidity at about NGN500 billion and still some inflows expected from maturing t-bills, we may see the Central bank’s hands in the market before the end of the week. It was a busy secondary market yesterday, as yields rallied aggressively in the short end. The 3m paper (up for auction today) witnessed a 100bps drop to close at 9.00% bid yield, much lower than the lower band of the MPR corridor (10%). The bond market shared similar sentiments with the 3y and 5y bond closing 15-20bps lower than open, while the 10y bond closed 5bps lower. Although this rally looks overdone, we may continue to see more compression while liquidity remains at its current levels.

COMMODITIES: West Texas Intermediate rose for the third time in four days after industry data showed crude inventories slid in the U.S., the world’s biggest oil consumer. WTI for July delivery gained as much as 65 cents to $102.98 a barrel in electronic trading on the New York Mercantile Exchange and was at $102.87.

FX: Market opened yesterday with a lot of USD purchases, breaking the 163.00 resistance level few minutes into trading from a 162.58/68 open. We had an initial resistance at the 163.00-163.10 range for a while with traders initially cautious of buying at the 163.00 level. The pair shot up eventually and we ended up trading the 163 level for the greater part of the day touching a high of 162.40/50 intraday. Some late USD selling ensured we retraced below 163 towards market close to 162.85/95, before eventually closing a tad higher at 163.05/15. Expected range today is 162.85-163.60 with NGN expected to remain under pressure prior to the resumption of the month-end USD sales by the oil companies.

US: The Federal Reserve should be able to raise interest rates slowly when it eventually tightens monetary policy given that slack in the U.S. economy is restraining inflation, a top official at the central bank said on Tuesday. New York Federal Reserve President William Dudley said the economy was poised for stronger growth and inflation should “drift upwards” towards the Fed’s 2 percent goal. He however stated that a swift climb in inflation was unlikely.

CHINA: Employment in China was basically stable in the first four months of this year, with some 4.7 million new jobs created in cities, the labour ministry said on Wednesday. The ministry said in a statement before a briefing by Vice Labour Minister Xin Changxing that its priority is to help new graduates find work. Beijing has repeatedly stressed that employment is the first priority for the government, and economists also say it is the top factor that may trigger big-scale stimulus measures if the economy continues to lose momentum.

Macro Economic Indicators

Inflation rate (yoy) for Apr. 2014      7.9%
Monetary Policy Rate current           12%
FX Reserves (Bn $) as at May. 19     37.452

Money Market Highlights

O/N                            10.5500
30 Day                       12.3068
90 Day                       13.1041
180 Day                     14.3666
USD 1 Month            0.1478
USD 2 Months          0.1910
USD 3 Months          0.2281
USD 6 Months          0.3253
USD 12 Months        0.5346

Benchmark yields
Tenor          Maturity         Yield

91d                21-Aug-14           8.75
182d             04-Dec-14          10.44
364d             07-May-15          11.12
2y                  16-Aug-16           11.58
4y                  31-Aug-17           11.60
5y                  29-Jun-19           12.01

Indicative Currency Exchange Rates
                         Bid           Offer
EURUSD       1.3661        1.3764
GBPUSD        1.6828       1.6931
USDJPY         100.91       100.94
USDCHF        0.8855      0.8957
GBPEUR        1.1931        1.2033
USDZAR        10.3487    10.5533
USDNGN       162.75       163.45
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    163.40/50   162.58/68   163.05/15   162.50/60

In this article

Join the Conversation