Financial market update

06 July 2012, Sweetcrude, Lagos – Local and international financial market update
NIGERIA: Investors in Nigeria may have been harvesting negative average returns on investment in the last ten years. This is because on the average, rate of return is lower than inflation which erodes asset values. This is in spite of the fact that in the last couple of months, rates in the money and bond markets have been on the uptrend, following restrictive monetary policies of the CBN. Data from Bloomberg and Renaissance Capital show that the (CPI) was 20.2% in 2000 while 91dy T-Bill rate was 12.8%.

EUROPE: European Central Bank President Mario Draghi said yesterday’s cut in interest rates to a record low may have only a limited impact on the euro-area economy as it slides toward recession. “It’s clear that when demand is weak the transmission of price signals to the aggregated economy is muted,” Draghi said at a press conference in Frankfurt after lowering the benchmark and deposit rates by 25 basis points to 0.75 percent and zero respectively. The cuts will reduce the cost of central bank loans for struggling banks, Draghi said.

INDIA: India plans to cut a tax levied on interest income earned by overseas holders of foreign-currency debt sold by local companies to boost inflows and the rupee. The tax rate will be cut to 5 percent from 20 percent to encourage foreign lenders to extend loans to Indian companies and investors to buy bonds, a finance ministry official told reporters today in New Delhi, asking not to be identified pending a final decision.

CHINA: China cut benchmark interest rates for the second time in a month and allowed banks to offer bigger discounts on their borrowing costs, stepping up efforts to reverse a slowdown in the world’s second-biggest economy. The one-year lending rate will fall by 31 basis points and the one-year deposit rate will drop by 25 basis points effective today, the People’s Bank of China said on its website yesterday.

Bonds – Another turn in yield direction yesterday on bonds which sustains the volatility recorded so far this week, the buying interest in the bills market ignited some moves on the short-tenured bonds around the 2-3yr bonds which closed 14bps lower on the average, views of an ultimate upward shift in yields still maintained while market continues to ride this volatility in the short term.

Bills – Yields on the 300- 364dy bills touched profit taking levels in yesterday’s session and as expected corrected 25 – 40bps in a midday sell-off after an initial rally across board, volatility and increased trade volumes to be sustained into the coming week as supply of securities remain low with the 1yr t-bill to be offered once this month in the fourth week.

Money Market – OBB and O/N rates up 50bps 15.50% and 16.00% respectively. Tight liquidity condition persists in the cash market.

FX
                            Hi                Low        Close       Prev.Close
USD/NGN  162.88/98   161.95/05  162.00/10  162.85/95