A Review of the Nigerian Energy Industry

Financial market products & services update

Financial markets20 November 2014, Sweetcrude, Lagos – Local and international financial market products and services update.
NIGERIA: Nigeria President Goodluck Jonathan proposed to cut fuel subsidies in half in a bid to reduce spending after a retreat in global crude prices. The government of Africa’s biggest oil producer plans to reduce subsidies next year to N458.6bln from N971.1bln.

EUROPE: Federal Reserve officials are weighing whether they should communicate more of their views about the probable pace of interest-rate increases after they lift off zero next year. “A number of participants thought that it could soon be helpful to clarify the committee’s likely approach” to the pace of increases, according to minutes of the Oct. 28-29 Federal Open Market Committee meeting released yesterday in Washington. The discussion last month underscored how much officials will rely on forward guidance in the future. After bond purchases ended last month, language may be the most practical option left to assure investors that policy won’t become overly restrictive if officials decide to take a stand against inflation seen as too low.

CHINA: China may further ease the way it calculates banks’ loan-to-deposit ratios by including some interbank deposits, boosting financial institutions’ lending power as the economy falters. The government will make the ratio more flexible and improve loan management, Premier Li Keqiang said yesterday at a meeting of the State Council. As part of the shift, the central bank may add 7 trillion yuan ($1.1 trillion) of interbank deposits to the calculations, according to China International Capital Corp., which didn’t speculate on the likely timing.

FX: We had another big hike in RDAS marginal rate yesterday by almost N2 to 158.41 from 156.69 which ensured just $114 mio of the $300 mio offered was sold. This is likely to invite further pressure on the pair at open tomorrow as concerns on FX reserve level persist. Market had traded relatively calm yesterday, seeing the least volatility in the last 2 weeks (traded range 172.80-174.20). We saw the now customary CBN intervention which gave some support to the naira.

FIXED INCOME: Market was in a different tune yesterday, both bills and bonds were well bided. On the bonds 12.1493% JUL 2034 was very much in demand as it dropped over 50bps. Feelers are that traders were covering some short position on the bond. 3rd Sept 2015 bill was also well bid dropping 30bps across the curve. We expect this move to be short lived as CBN devalued the currency further, 1 year bills closed at 14.25% yield at the auction and the expectation of MPC decision next week

COMMODITIES: West Texas Intermediate traded below $75 a barrel as U.S. crude inventories increased and investors weighed the likelihood of OPEC reducing production Oil slumped into a bear market as the U.S. pumps at the fastest rate in more than three decades. Leading OPEC members are resisting calls to reduce output. Brent remained steady in London around $78.

Macro economic Indicators
Inflation rate (YoY) for Oct. 2014                       8.10%
Monetary Policy Rate current                             12.00%
FX Reserves (Bn $) as at November 13 2014   37.549

Money Market Highlights

O/N                                15.7950
30 Day                           14.3228
90 Day                           14.8625
180 Day                         15.6026
USD 1 Month               0.1550
USD 2 Months            0.2039
USD 3 Months            0.2311
USD 6 Months            0.3247
USD 12 Months          0.5628

Benchmark yields
Tenor        Maturity      Yield (%)

91d               12-Feb-15        12.00
182d             07-May-15      12.93
364d            03-Sep-15        12.89
2y                 16-Aug-16        13.81
3y                 27-Apr-17        13.79
5y                 29-Jun-19        13.49

Indicative Currency Exchange Rates
Bid        Offer

USDNGN      174.95       175.65
EURUSD       1.2463      1.2665
GBPUSD       1.5561       1.5763
USDJPY        118.43      118.46
USDCHF       0.95105   0.9612
GBPEUR       1.2363      1.2567
USDZAR       10.9564    11.1598
JPYNGN       148.7197   148.8203
CHFNGN      183.37       185.06
EURNGN      217.39       218.75
GBPNGN      272.66       274.06
ZARNGN        15.03         16.95

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