Economy

Zock Capital & Investment Market Update As Of July 29, 2021

MACROECONOMIC INDICES
Inflation
: 17.75%
MPR: 11.50%
Brent Crude: $75.47bp
External Reserves: $33.17bn
GDP: -13.50%
Foreign Exchange: N410.16

FOREIGN EXCHANGE MARKET
Tenor Current Rate
($/N) Previous Rate ($/N)
CBN Official 410.16 410.15
CBN SMIS Window 380.69 380.69
I&E FX Window 411.67 411.60
Black Market(cash) 520.00 N525.00

FOREIGN EXCHANGE MARKET
The CBN has started an immediate refund of the capital deposits and licensing fees (where applicable) to promoters who have pending BDC license applications with the CBN. Furthermore, all Deposit Money Banks have been directed to stop accepting instructions from customers to transfer the capital deposit of N35.00 million to the designated CBN account for applying for the BDC license in the future.
At the I&E FX market, Naira depreciated by 0.02 % as the dollar was quoted at N411.67 against the last close of N411.60. Most participants maintained bids between N400.00 and N413.00 per dollar.
AN IMPLICATION OF THIS COULD BE ON THE EXCHANGE RATE.
Apparently, this is not the first time the central bank is banning Bureau De Change operators in Nigeria. In January 2016, the Godwin Emefiele led central bank also banned the BDCs for similar acts. On July 27th, 2021, CBN banned BDCs when the exchange rate was N500/$1.
If it depreciates by 46% as it did in 2016 then we could be looking at a whopping exchange rate of N925/$1 by December 2021.
This will be unprecedented in the history of Nigeria and will surely increase the prices of goods and services across the country. Interesting to note that the exchange rate has now depreciated by 16.3% from N360/$1 to N430/$1. Or the dollar has gained 19% against the naira.
In conclusion, CBN will need to ensure there is the availability of forex at all markets especially the I&E window. The reason for the challenge we have in the country still remains the lack of dollar supply in the economy. Foreign investors no longer import dollars into the country and oil revenue is still as bad as it was towards the end of last year. This is probably the best time for the central bank to float the naira or adopt a more market-driven approach that allows traders to determine the exchange rate at which they want to buy and sell dollars. The CBN can continue to play its interventionist role by stepping in with supply when the price moves away from its guidance. Anything short of this could well lead Nigerians into a repeat of 2016.

DAILY FOREIGN EXCHANGE RATES (DOLLAR / POUNDS / EURO )

Source: Zock Capital Research

CBN/ INTERBANK RATES

Source: Zock Capital Research

SECONDARY MARKET

The treasury bills secondary market saw a mixed sentiment with average yield across the curve decreasing by 6 bps to close at 6.26 % from 6.32 % on the previous day. Average yields across short-term and mid-term maturities declined by 27 bps and 12 bps, respectively.
However, the average yield across the long-term maturities increased by 7bps.

OMO BILLS
For the OMO bills treasury instrument, yields on the 4-Jan-22 maturity bill recorded the highest yield increase of 31 bps. However, investors’ mood remained bearish across short, Mid, and long-term maturities with the average yields increasing by 2 bps, 20 bps, and 8 bps, respectively. The average yield across the curve increased by 10 bps to close at 8.71 % as against the last close of 8.61 %.

TREASURY BILLS PRIMARY MARKET AUCTIONS (PMA).
Today, CBN held its scheduled Primary Market Auction on July 28, 2021, selling treasury Bills worth N265.24 billion for the 91-day, 182- day
, and 364-day tenors. Investors’ appetite remains robust at the long end of the curve and the stop rates for the 91-day,182-day remained unchanged at 2.50 % and 3.50 %, respectively. while the stop rate for the 364-day tenor cleared lower at 8.20%.

Source: Zock Capital Research
Source: Zock Capital Research

BENCHMARK SECONDARY MARKET TREASURY BILLS

Source: Zock Capital Research

MONEY MARKET
TheOpenBuyBack rate decreased by 4.75 % tocloseat10.75 % comparedto15.50 % while the
Overnight rate decreased by 5.00 % to close at 11.00 % as against the last close of 16.00 % of the previous day trading session.

Source: Zock Capital Research

PREVIOUS FGN BOND PMA AUCTION RESULTS

Source: Zock Capital Research

FGN bonds secondary market recorded mild bullish sentiment as the average bond yield across the curve cleared lower by 4 bps to close at 9.38 % from 9.42 % on the previous day. Average yields across short tenor and long tenor of the curve declined by 5 bps and 3 bps, respectively. However, the average yield across the medium tenor of the curve increased by 2bps.
The 24-JUL-2045 maturity bond was the most active with a decline in yield of 55 bps, while the 18-MAR-2036 maturity bond was laggard with an increase in yield of 15 bps.

FGN BOND MARKET YIELD CURVE

Source: Zock Capital Research

FGN SECONDARY MARKET BENCHMARK BOND

Source: Zock Capital Research

CBN TO REFUND PENDING BDC LICENCE FEES
The Central Bank of Nigeria (CBN) has announced the repayment of capital deposit and licencing fees to promoters who have pending Bureau de change (BDC) licence applications. This disclosure is contained in a circular with reference number FPR/DIR/PUB/CIR/001/019, issued on Wednesday, July 28, 2021, and signed by CBN’s Director, Financial Policy and Regulation Department, Ibrahim S. Tukur.
The decision by the CBN is to further strengthen the directive to discontinue the sale of dollars to BDC operators and only sell directly to the deposit money banks. According to the circular, such BDC promotors should further their request in writing to the Director, Financial Policy and Regulation Department, Central Bank of Nigeria, Abuja.
The apex bank also instructed all deposit money banks to stop accepting instructions from customers to transfer capital deposits of N35 million to the CBN account for the proposal of BDC licences.
THE BANKERS COMMITTEE HAS ASSURED NIGERIANS THAT THE EXCHANGE RATE WILL DROP TO AROUND N423 TO A DOLLAR.
The Committee headed by Herbert Wigwe, Access Bank’s Chief Executive Officer addressed the media on Thursday following a directive to stop the sale of forex to Bureau De Change operators, by the Central Bank of Nigeria (CBN). According to sources close to the Committee, the Chief Executive Officer of Guarantee Holdco (GTCo), Segun Agbaje in a quest to answer the question on the rapid deprecation of the naira seen in the market Wednesday and Thursday, said, “The rate will come down. Very soon, you will buy at N423 or N425 at most.”There was support for the notion as the Access bank, CEO, Herbert Wigwe mentioned efforts made by the CBN to facilitate the transaction process of FX, saying that the CBN has sent out circulars asking banks to set up dedicated channels for all those requesting FX. IMF Retains 2.5% Growth Estimate For Nigeria
The International Monetary Fund (IMF) has retained Nigeria’s 2.5 percent economic growth forecast for 2021. The institution said this in its World Economic Outlook (WEO) for July titled “Fault Lines Widen in the Global Recovery” released on Tuesday in Washington DC.
According to it, the slow rollout of vaccines was the main factor weighing on the recovery for Low-Income Developing Countries (LIDCs) which Nigeria is part of. It also retained its 6% growth forecast for the global economy for 2021 and 4.9% in 2022, adding that though the global forecast was unchanged from the April 2021 WEO, there were offsetting revisions. The IMF had at its 2021 Virtual Spring Meetings in April, projected a 2.5% growth for Nigeria’s economy in 2021, up from 1.5% it projected in January. It said that in LIDCs, the overall fiscal deficit in 2021 was revised up by 0.3 percentage points from the April 2021 WEO, mainly because of the re-emergence of fuel subsidies as well as the additional COVID-19 and security related support in Nigeria.“Still, at 5.2% of Gross Domestic Product (GDP), the overall fiscal deficit remains well below that of advanced and emerging market economies, reflecting financing constraints, about 60% of LIDCs are assessed to be at high risk of or in debt distress. The public debt-to-GDP ratio for 2021 is projected at 48.5%.

DISCLAIMER: This publication is strictly for information purposes only for Zock capital and Invest LLC and its employees take no responsibility or liability as to the accuracy and completeness of the information.
For further ./enquiries/information on this publication, please contact Research and Economic Intelligence.

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