A Review of the Nigerian Energy Industry

Financial market products & services update

*Financial markets.

05 March 2018, Sweetcrude, Lagos — The local and international financial market products and services update.
NIGERIA: Nigeria’s long-awaited interest rate-cutting cycle risks being short-lived if it starts at all.

Governor Godwin Emefiele said last month the Central Bank of Nigeria may reduce its benchmark from a record-high 14% before July if inflation drops closer to single digits. But with fuel costs surging and government spending swelling before next year’s election, he may struggle to reach that threshold at a time when the pace of price growth is still just over 15%.

“With inflation remaining sticky, it is unlikely that the CBN would want to cut rates so soon,” Gaimin Nonyane, London-based economic-research head at Ecobank Transnational Inc., said by email.

FX: Week-on-week there was a 51% increase in the volume traded in the window – $1,381.85m. The range where most of the trades are closed remains stable between $/N 359.00 -361.00. In terms of interventions this week, $210m was offered by the Central Bank via the wholesale auction ($100m) and FX allocations for SME ($55m) and Invisible ($55m) transactions.

FIXED INCOME: Quiet day on Friday in the bond market but still tilted towards the buyers. In the absence of the OMO, firm tone in the bill market was supported by robust LCY liquidity.

Funding for Friday’s FX retail auction may be behind the pause in the OMOs however, we expect CBN to resume this week.

E.U: China stepped up its push to curb financial risk, cutting its budget deficit target for the first time since 2012 and setting a growth goal of around 6.5% that omitted last year’s aim for a faster pace if possible.

The deficit target — released Monday as Premier Li Keqiang delivered his annual report to the National People’s Congress in Beijing — was lowered to 2.6% of gross domestic product from 3% in the past two years. The 6.5% goal is consistent with President Xi Jinping’s promise to deliver a “moderately prosperous” society by 2020.

U.K: U.K. services activity grew more than expected in February, supporting economic growth and keeping alive the prospect of an interest-rate increase within months.

IHS Markit’s Purchasing Managers Index for the biggest part of the economy jumped to 54.5 — a four-month high — from 53 in January. That’s well above the 53.3 reading forecast by economists in a Bloomberg survey.

The report showed that new business picked up for a second month and the backlogs of business increased, which bodes well for the coming months.

While Markit’s manufacturing index for February declined, construction performed better, and it said the surveys show a “steady pace” of economic expansion is being maintained. It estimates growth of 0.4% this quarter, matching the rate of the final three months of 2017.

COMMODITIES: Oil climbed as geopolitical risk resurfaced, with a halt at Libya’s biggest crude field sparking speculation that supply will tighten and help reduce a global glut.

Futures in New York rose as much as 0.8% after a 3.6% decline last week. Production is said to have been halted at the Sharara oil field, the largest in the North African nation, on Sunday after protests disrupted output at another of the OPEC member’s deposits last month.

Macro Economic Indicators
Inflation rate (Y-o-Y) for January 2017             15.13%
Monetary Policy Rate current                            14.00%
FX Reserves (Moving Avg Bn $) as at February 27, 2018,   42,354

Money Market Highlights

O/N                        10.25
30 Day                   15.3479
90 Day                   16.2870
180 Day                 18.3454
USD 1 Month        1.67007
USD 2 Months      1.81399
USD 3 Months      2.01719
USD 6 Months      2.22375
USD 12 Months    1.72400

Benchmark Yields
Tenor      Maturity      Yield (%)

91d          07-Jun-18      14.90
182d        30-Aug-18     15.26
364d        14-Feb-19      15.04
2y            13-Feb-20      13.86
3y            15-Jul-21       13.68
5y            27-Jan-22      13.57

Indicative Currency Exchange Rates
Bid        Offer

USDNGN (I&E)    359.00      360.00
EURUSD               1.2216      1.2416
GBPUSD               1.3672      1.3874
USDJPY                105.67      105.70
GBPEUR               1.1120      1.1323
USDZAR               11.7410    11.9441
EURNGN              441.40      442.77
GBPNGN              495.46      501.50

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