Macroeconomic Review:
Nigeria’s GDP expands 5.01% Y-o-Y in Q2:2021… Highest Rate since 2014
Nigeria’s Real gross domestic product (GDP) increased by 5.01% in Q2:2021, reflecting the third consecutive quarter of growth, supported by the gradual return of business and economic activity levels seen prior to the implementation of the lockdowns necessitated by the Covid-19 pandemic.
The Q2:2021 GDP figures clearly points to a rebound from the levels seen during the lockdown. Consequently, we expect to see a sustained positive trend in GDP, albeit lower than the level in Q2:2021 which was largely driven by a lower base from the prior year.
Fixed Income Market Overview
The month of August saw a bullish theme play out generally in the fixed income market, particularly on the long end NTBs and across the bond yield curve. Overall, the average rate declined by c.190bps M-o-M across the NTB and FGN bonds curve combined.
Money Market Review and Outlook
Inter-bank system liquidity was tighter in August, averaging ca ₦76.83bn in August, lower than ca ₦131.77bn recorded the previous month, due to reduced inflows from OMO maturities and bonds coupon payments. As a result, Interbank rates closed higher for the month, as the Open Buy Back (OBB) and Overnight (ON) rates closed at an average of 13.28% and 13.73% from 12.70% and 13.20% in July.
In August, we expect rates to trend downwards on the back of improved inflows worth ca N911.89bn from bonds coupon payment, OMO and NTB maturities.
T-Bills Market Review and Outlook
The downward trend in rates in the Treasury bills market was sustained from the close of July into August, as demand from market players filtered into the market, largely buoyed by maturities and late FAAC credits.
We expect the bearish theme to be short-lived, as traditional buy-side players will continue to deploy funds to available outlets. Subsequent auctions should experience oversubscriptions, with CBN/DMO taking advantage of the declining stop rates.
Bonds Market Review and Outlook
After a very slow start, there was a sustained bullish sentiment for a major part of the month, driven by the Finance Minister’s comment about the FGN’s impending Eurobonds’ issuance.
We expect sustained interests in the bonds market, with major interests skewed to the short end of the curve (2023s to 2028s), while the far mid and long end of the curve should be largely mixed.
Eurobond Market – Mixed Market Sentiment amid Oil Price Recovery and Covid-19 induced Risk-off
Activity in the Eurobond market improved at the start of the month, with pockets of demand across board albeit on a less aggressive note. The market however rebounded later in the month driven by oil price recovery which translated to attractive yield levels, hence mild buying interest was seen across the curve. Overall, it was a relatively weak market with average yields reducing by c.3bps M-o-M to close at 5.74%.
We expect the Eurobond market to continue to trade sideways as concerns around the Covid-19 delta strain continues to dampen market sentiment, despite the steady recovery in oil prices.
Foreign Exchange Market Review and Outlook
During the month, the Central Bank of Nigeria sustained its stance to regulate Foreign Exchange (FX) transactions in the country.
In the coming month, we expect to see increased volatility in the pricing of the Naira against the backdrop of increased speculative trading even as the CBN makes efforts to tackle the depreciation in the currency via a plethora of policy adjustments.
Equities Market Review and Outlook
The domestic bourse sustained the positive performance in August, largely due to increased buy interest from investors in anticipation of the release of H1:2021 earnings which presented an opportunity for interim dividend.
We expect the overhanging bearish sentiment in the market to be sustained till the end of the month, as investors exit short term positions following the payment of dividends, which is in line with historical market trend.
