Macroeconomic Review
CBN hikes benchmark interest rate to 15.50% as inflation accelerates to 20.52% in August
At the penultimate Monetary Policy Committee (MPC) meeting for 2022, the Committee voted unanimously to raise the Monetary Policy rate by 150bps to 15.50% and increase the Cash Reserve Ratio (CRR) to a minimum of 32.50%. The Committee considered the spillover effect that supply bottlenecks and global inflationary pressures, despite the aggressive rate hikes by several central banks, would have on advanced and particularly Emerging markets…
Fixed Income Market Review and Outlook
Activity in the local fixed income market (Treasury bills and bonds) was mixed overall, as the early buying interest was quelled by the bearish moves of Nigeria’s Monetary Policy Committee (MPC) and Debt Management Office (DMO). Monumental interest rate hike to 15.50% and higher stop rates/yields at the primary auctions drove the selloffs across the yield curves.
In the Eurobond space, the hawkish US Fed talks about taming the surging inflationary pressures spurred lower repricing of risk assets across the major African markets. Few investors however saw good value in some of the papers, especially the Ghana papers as it traded around 35% to 40% yield levels…
Money Market Review and Outlook… Coupon inflows bolstered market liquidity but higher interest rate stifled liquidity by close of month
System liquidity was relatively buoyant in September 2022, averaging c.₦129bn, a stark contrast from August’s c.₦27bn. This was buoyed by ample coupon inflow of c. ₦360bn and less frequent mop-ups by the CBN. The average Overnight Policy Rate (OPR) and Overnight (ON) rates printed at 11.71% and 12.17% from 13.34% and 13.75% in August respectively…
T-Bills Market Review and Outlook – Bullish activity dampened by MPC’s latest policy decision
The early trading periods of the month were muted, amid weak market sentiment and sustained illiquidity. However, CBN’s announcement of an OMO auction (the first since June 2022), where ₦50bn was sold, stirred mixed market reactions with mild activity observed across the long end of the curve…
Bonds Market Review and Outlook – Mixed to bearish bias amid MPC’s decision and higher stop rates
The final month in Q3’2022 started off on a mildly bullish note with specific interest witnessed on 2042s and 2050s at c.14.00% and 13.55% respectively but offers were weak to match the bids. The rally on 2042s was exacerbated following the DMO’s decision to replace 2042s with a reopening of 2037s in their revised September FGN bond offering.
Broadly speaking, coupon inflows of c.₦360bn drove buying interest across the curve save for the auction papers 2025s, 2032s and 2037s, where sideways interest were recorded amid expected supply. At the auction, the DMO closed the 2037s at 14.50% (50bps higher relative to 2042s closing rate at August’s auction) and increased the marginal rates of 2025s and 2032s by 100bps and 34.9bps to 13.50% and 13.849% respectively…
Eurobond Market – Markets remain jittery amid hawkish US Fed comments
The African Eurobonds space traded mixed tempo, with selling interest observed across Nigeria and Angola Eurobond papers, while few demand were recorded across the belly to long end of the Ghana curve, as some investors take advantage of the cheapness of the curve compared to other African markets…
Foreign Exchange Market Review and Outlook… FX reserves deplete further; Naira worsens against the dollar
Despite rising oil prices this year, the Nigerian foreign exchange reserves have continued to deplete by billions of dollars. In September, the Nigerian FX reserve decreased by c.$772 million M-o-M to close at $38.25 billion, amidst sustained intervention by the CBN…
Equities Market Review and Outlook– Selloff in the equity market, driven by benchmark rate hike
The domestic bourse reflected a bearish trend as the NGX All Share Index dipped 1.6% M-o-M to close September at 49,024.16 points, while YTD returns dropped to +14.8%. Market performance mirrored dampened sentiments from investors due to the aggressive move in inflation figures alongside the reaction of the Central Bank of Nigeria (CBN) to combat inflationary pressures which have allowed for an aggregated 400bps hike in the monetary policy rate (MPR) this year. Most of the local investors have been steered to the fixed income markets, to source more attractive rates. Consequently, the NGX All Share Index fell 1.6% M-o-M to close at 49,024.16 points, while YTD returns reduced to +14.8%.
