A Review of the Nigerian Energy Industry

Financial market products & services update

Coin on a financial graph.
Coin on a financial graph.

09 June 2015, Sweetcrude, Houston – Local and international financial market products and services update.
NIGERIA: The unemployment rate rose to 7.5% in January-March from 6.4% in the fourth quarter of 2014, but was lower than the 7.8% recorded in the first quarter of 2014, according to Nigeria Bureau of Statistics (NBS) data. Nigerian officials will be disappointed by the quarter-to-quarter rise in unemployment, but the country’s jobless rate is still moderate compared with other nations. The bigger problem in Nigeria is underemployment and low labour productivity, which means earnings tend to be low. The president, Muhammadu Buhari, has promised to prioritise tackling unemployment. But the NBS data suggest that the more critical challenge facing his new administration is to introduce reforms that can lift labour productivity. However, this will only be a longer-term process as it requires significant improvements to the business environment and also to educational standards.

FIXED INCOME: An almost quiet day in bonds from about midday yesterday. Yields closed average 8bps lower. Saw some profit takers / creating of shorts but flows were net buyers and mostly street driven. OMO saw discount rates another 3bps lower (13.70% vs 13.73% discount at last auction) – NGN118.22bn was mopped up. Tbill secondary trading felt mixed but overall tilted to the bulls (yields closed 5bps lower). O/N rates closed at 11% with money market long NGN190bn. Street awaits the Q3 bill auction calendar from the CBN.

FX: Nothing significant outside of the 5 point appreciation witnessed at the special auction window yesterday with special auction funds filled at 196.90 – bid/offer had been previously fixed at 195.95/196.95 since June 03 2013. Interbank markets still bid with very little done in bi-lateral trading. About $43m is estimated to have been filled via the CB special auction yesterday.
COMMODITIES: Oil gained for the second time in three days amid speculation the U.S. supply glut will ease as shale producers cut back. Brent for July settlement rose as much as 39 cents, or 0.6 percent, to $63.08 a barrel on the London-based ICE Futures Europe exchange.

US: Banks are set to face tougher international rules on the capital they must have on hand to cope with a change in interest rates after regulators raised concerns that current standards may be too flimsy to fully capture the risks. The Basel Committee on Banking Supervision, a group bringing together regulators such as the U.S. Federal Reserve and the European Central Bank, proposed overhauling its current rules for interest-rate risk, including possible binding standards on how banks should measure their resilience to shock rate changes, and on the capital they should have to cover potential losses. U.S. Fed Chair Janet Yellen said last month that she expects to raise interest rates this year if the economy meets her forecasts, with a gradual pace of tightening to follow.

CHINA: Consumer prices in China increased less than expected during May in a further sign that activity remains subdued in the world’s second biggest economy. The Consumer Price Index rose 1.2 per cent in May, compared to a year earlier. This was well below expectations of a 1.4 per cent rise, as the price of fruit, vegetables and pork declined. China has cut interest rates three times over the last seven months and reduced the amount of capital banks must keep in reserve, as it seeks to boost growth. It has also rolled out target stimulus measures, including increasing the pace of railway investment and construction of social housing.

Macro Economic Indicators
Inflation rate (YoY) for Nov., 2014                   8.70%
Monetary Policy Rate current                          13.00%
FX Reserve (Bn $) as at January 09 2015     29.306

Money Market Highlights
O/N                                  11.4333
30 Days                           14.8096
90 Days                           16.0004
180 Days                         17.3217

USD 1 Month                 0.1854
USD 2 Months               0.2350
USD 3 Months               0.2822
USD 6 Months               0.4334
USD 12 Months             0.7722

Benchmark Yields
Tenor     Maturity     Yield (%)
91d           03-Sep-15         11.54
182d         03-Dec-15        13.76
364d        02-Jun-16        14.64
2yr            27-Apr-17         13.81
3yr            29-Jun-19        13.88
5yr            13-Feb-20        13.85

Indicative Currency Exchange Rates
                          Bid        Offer
USDNG         196.00      199.40
EURUSD      1.1196        1.1398
GBPUSD       1.5203       1.5405
USDJPY        124.34       124.37
USDCHF       0.92085    0.9310
GBPEUR       1.3444       1.3648
USDZAR      12.3989      12.6023
JPYNGN      159.9197    160.0203
CHFNGN       212.59      214.28
EURNGN       221.59      222.95
GBPNGN        309.16     310.55
ZARNGN          15.90       17.83

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