Taiwo Adekeye, FMVA
Research Analyst
Oil futures dropped approximately 1.5% on Friday, ending the week on a lower note due to decreasing demand from China, after total fuel oil imports declined by 11% in the first half of 2024. This has expectedly raised concern about the wider demand outlook in the country.
Worse still, the economy is threatening to enter a deflationary cycle where prices will fall because of shrinking demand.
On the back of this, Brent crude fell by 1.5% closing at $81.13 per barrel, while West Texas Intermediate crude slipped by 1.4%, closing at $77.16 a barrel. For the week, Brent was trading down more than 1% while WTI fell beyond 3%.
US June Inflation Eases, Rate Cut Likely in September
In June, the Federal Reserve’s personal consumption expenditures (PCE) price index rose by 2.5% year-over-year, slightly down from May’s 2.6%, signaling easing inflation. Core inflation increased by 0.2% monthly and 2.6% annually. Personal income grew by 0.2%, missing the expected 0.4%, while spending rose by 0.3%, as anticipated. The personal savings rate dropped to 3.4%, the lowest since November 2022. The stock market reacted positively, with futures suggesting a strong open and Treasury yields falling. This data supports expectations for a possible rate cut by the Fed in September. The Fed is likely to stay cautious in its next meeting but may consider a rate cut if current trends continue.
Nigeria’s Debt Service Ratio Drops to 68%
Nigeria’s revenue to debt service ratio has declined from 97% in 2023 to 68% in 2024, indicating a reduction in the debt burden of the government. The country’s revenue condition has been revamped as it no longer depends on ways and means advances from the Central Bank to fund its fiscal obligations.Additionally, the federal government is targeting between 25 to 20% inflation rate before the end of the year, while incentives are being created in the agricultural sector as well as the oil and gas industry to drive economic growth and productivity.
Nigeria Raises Bank Windfall Levy To 70%
The Nigerian Senate has amended the 2023 Finance Act, increasing the windfall levy on banks’ foreign exchange revaluation gains from 50% to 70%, applicable from the start of the new forex policy until 2025. Banks that fail to comply by December 31, 2024, will be fined.
However, the Senate approved a N6.2tr supplementary budget for 2024, including funding for a new minimum wage and infrastructure projects. President Bola Tinubu’s initial 50% levy proposal aimed to generate revenue from banks’ 2023 forex profits.
FGN Set To Issue $500m US Dollar-Denominated Bonds
The federal government has announced plans to issue $500m in domestic foreign currency-denominated bonds in three to four weeks’ time. Nigerian financial system, the Securities and Exchange Commission (SEC), the banking system, the investment bankers would be used to issue $500m in the first instance that will be available and will attract foreign currency held by Nigerians abroad.
Money Market
Market liquidity opened the day at ₦276.47bn long. Week-on-week, the Open Buy Back (OBB) rate and the Overnight (OVN) rate slid by 526bps and 536bps to 26.13% and 26.66%, respectively.
Treasury Bills Market
At the 296th MPC meeting held last week, the members voted to increase the MPR by 50bps to 26.75%. Also, the asymmetric corridor was adjusted from -300/+100 bps to -500/+100 bps while other parameters were kept constant. The PMA was also held with the DMO offering and allotting ₦277.96bn across the standard tenors, with total subscriptions reaching ₦373.94bn across the three standard maturities. The stop rates were 18.50%, 19.50%, and 22.10%, up from the previous rates of 16.30%, 17.44%, and 21.24%. Sequel to the auction we saw a rally on the newly issued 364-day bill which traded as low as 21.20% due to scarce offers. Week-on-week, the average benchmark yield rose 36bps to close at 24.91%.
Currency Market
The value of the Naira to the dollar depreciated by 0.77% to print at ₦1609.29/$ this week at the Nigerian Autonomous Foreign Exchange Market Window (NAFEM).