Macroeconomic Review
Heated Interest Rate Environment as Global Central Banks tackle Inflationary Pressures.

The start of H2 2022 has seen no respite in global macroeconomic conditions, as the world economy reels from the effect of the pandemic and Russia’s invasion of Ukraine. Interest rates have remained persistently high, as central banks across the globe try to tame the rising inflationary pressures, although questions persist on whether central banks are under- or over-reacting in pursuit of monetary normalization, not excluding the fact the estimates of the risk of recession or even stagflation continues to edge upward…

Fixed Income Market Review and Outlook

Activity in the local fixed income market was bearish overall, as tight system liquidity caused market players (especially banks) to sell-off their short-to-mid dated papers to raise liquidity to fund their obligations. The benchmark interest rate hike by Nigeria’s MPC and DMO’s decision at the auctions also steered the yield levels to an upward direction.

The SSA and other African sovereign Eurobonds, witnessed major sell-offs by market players due to global recession fears, lower oil prices, rising inflation, as well as the actions taken by major central banks on these matters…

Money Market Review and Outlook… System Liquidity Squeeze elevates Interbank Elevated Interbank Rates

Money market rates were elevated, staying at double digit levels on the back of tighter system liquidity which remained in a deficit for most of the month. In absolute terms, system liquidity in July averaged a negative balance of ₦143.17bn compared to ₦13.71bn in Jun’22, with Interbank rates closing higher, as the Overnight Policy Rate (OPR) and Overnight (ON) rates printed on average 14.32% and 14.45% in Jul’22 from 11.52% and 11.83% in Jun’22 respectively.

T-Bills Market Review and Outlook – Mixed to Bearish Market driven by tight System Liquidity and MPC decision

Mild demand was recorded on long dated papers earlier in the month, after the final auction in June saw the stop rate for the 1-year paper maintained at 6.07% against market’s expectation of an uptick in rate due to prevailing secondary market levels. Nonetheless, the buy interest waned after system liquidity slipped to the negative territory and most banks suffered a major squeeze.

Banks resorted to selling short-dated securities (CBN special bills, NTBs and OMOs) to raise liquidity to fund their obligations, consequently, rates moved from 5% to 9% levels on August to November 2022 bills within days due to the aggressive sell-off…

Bonds Market Review and Outlook

The expectation of a bullish market in July on the back of c.₦237bn in coupon credits, proved abortive due to the selling interests/improved offers witnessed across the curve.

At the start of the month, subtle buying interest was seen on 2042s and 2050s at 13.06% and 13.00%, with improved offers observed on 2025s and 2026s at 10.08% and 10.20% respectively…

Eurobond Market – Mixed sentiment amid lower oil prices, US CPI print and seemingly dovish Fed tone.

There was renewed buyside interest at the start of the month across the SSA and other African markets, especially in Ghana, following its President’s authorization of the finance minister to commence formal engagement with the IMF on a potential $1.5bn bailout program…

Foreign Exchange Market Review and Outlook… Naira Weakens at the NAFEX and Parallel Market

Nigerian foreign reserves started the month at $39.17bn and climbed steadily, reaching a high of $39.44bn as the Central bank slowed down on intervention, before declining to $39.18 billion at the end of July. At the FMDQ Nigerian Autonomous Foreign Exchange Fixing (NAFEX), the Naira weakened M-o-M to settle at ₦429.00/$1.00, from ₦425.00/$1.00 recorded the previous month…

Equities Market Review and Outlook

The bears took hold of the domestic bourse in July as sustained selling pressure in market bellwethers dragged the benchmark index southwards. This bearish trend in the market can be closely tied to the paucity of drivers to boost activities, hence investors opted to take profit on counters that had appreciated in the prior months…

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