A Review of the Nigerian Energy Industry

Financial market products & services update

Financial markets 117 July 2014, Sweetcrude, Lagos – Local and international financial market products and services update.
NIGERIA: Nigeria’s consumer price index (CPI) which measures inflation rose to 8.2 per cent in June compared to the eight per cent recorded in the previous month, the National Bureau of Statistics (NBS) has revealed. The NBS attributed the 0.2 per cent rise in headline index to marginal increase in food prices which went up to 9.8 per cent in June, up from 9.7 per cent previously. Core inflation also increased 0.4 per cent to 8.1 per cent in the period under review. Urban prices increased 0.2 per cent to 8.4 per cent in June while its rural component also increased by 0.2 per cent to 8.0 per cent in June.

FIXED INCOME: Overall no move in terms of yield in the secondary market (both tbills and bonds). Papers were mostly unchanged in Nigeria credit yesterday. Bond auction results with cut offs at 11%, 12.194%, 12.1493% respectively on the 3year, 10 year and 20 year papers. The 3 year paper (AUG 2016) had the most demand because of the small size on offer (NGN15bn) with bid cover at 2.89, followed by the new 20 year bond (JUL 2034) with bid cover at 2.75. Additionally, with the offer size significantly more on the 10 year paper (MAR 2024 – NGN 50bn), it was no surprise that it had the lowest bid cover of 1.55. We expect NGN114.86 billion of 17 July bills maturing today to support the liquidity in the system, easing O/N rates to about 10.50%.

COMMODITIES: West Texas Intermediate rose to a four-day high after U.S. crude stockpiles fell as refiners in the world’s biggest oil consumer boosted processing to the highest level since 2005. WTI for August delivery rose as much as $1.00 to $102.20 a barrel in electronic trading on the New York Mercantile Exchange and was at $102.03.

FX: The pair initially sustained Tuesday’s downward momentum at open yesterday, recording a 161.70 low few minutes from a 162.00/10 open, but a host of USD purchases prevented further strengthening of the local unit as we saw a retracement at 161.65/75. Rates gradually inched up towards the opening level, but we subsequently failed a break of 162.00 as we settled within the 161.75-162.00 band. Flows were quietly matched at these levels and NGN closed at about previous level – 161.80/90.

CBN RDAS AUCTION: CBN sold $290.93 million of the $300 million offered at yesterday’s RDAS, with marginal rate maintained at 155.73 (1% commission excluded) from the previous auction. 19 banks participated at the auction.

US: Federal Reserve Chair Janet Yellen defended the central bank’s independence on Wednesday at a U.S. congressional hearing, handling tough questions from Republican lawmakers who want to rein in the Fed’s authority. Yellen’s prepared remarks on the economy and Fed policy were identical to those from her appearance on Tuesday before the Senate Banking Committee, where she stood by her view that an accommodative monetary policy is still needed even though the economy is recovering. On Wednesday, Yellen told the House of Representatives Financial Services Committee that she saw sufficient growth to support gains in the labor market and that credit growth and leverage were at moderate levels.

EUROPE: Euro zone inflation stayed low as expected in what the European Central Bank calls the “danger zone” in June as falling prices of food and phone calls offset more expensive tobacco and restaurants, data showed on Thursday. Consumer prices in the 18 countries using the euro rose 0.1 percent on the month in June for a 0.5 percent year-on-year gain — the same annual inflation rate as in May, data from the European Union’s statistics office Eurostat showed. The annual rate is well below the ECB’s inflation target of close to, but below 2 percent. The central bank believes that price growth slower than 1 percent is a “danger zone” because of the risk of deflation. Price growth has been below 1 percent since last in October.

Macro economic Indicators
Inflation rate (YoY) for June. 2014               8.20%
Monetary Policy Rate current                       12.00%
FX Reserves (Bn $) as at July 15th 2014    38.316

Money Market Highlights

O/N                              10.9583
30 Day                          12.5783
90 Day                          13.4040
180 Day                        14.4336
USD 1 Month                0.1555
USD 2 Months              0.1960
USD 3 Months              0.2336
USD 6 Months              0.3266
USD 12 Months            0.5549

Benchmark yields
Tenor         Maturity         Yield

91d                02-Oct-14          10.70
182d              08-Jan-15          10.74
364d              07-May-15        10.61
2y                   16-Aug-16         11.06
4y                   31-Aug-17         11.14
5y                   29-Jun-19         11.34

Indicative Currency Exchange Rates
Bid         Offer

EURUSD        1.3436       1.3638
GBPUSD         1.7015       1.7217
USDJPY          101.48      101.51
USDCHF        0.8922     0.9023
GBPEUR         1.2542      1.2746
USDZAR       10.5795    10.7822
USDNGN       161.40      162.10
JPYNGN        1.5434      1.6441
CHFNGN       179.43      181.12
EURNGN       218.28     219.64
GBPNGN        276.15     277.55
ZARNGN         14.24       16.05

Hi               Low           Close          Prev.Close
      162.00/10    161.65/75    161.78/88      161.80/90

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