Weekly Economic Update (July 1st – 5th)

Market Update

Oil market

During the review period, Brent crude experienced volatile trading. It surpassed $87 per barrel on two occasions, a price not seen since the end of April, driven by a larger-than-expected drop in US crude inventories. However, it fell to end the week at $86.54 per barrel, influenced by optimism for a truce in the Israel-Hamas conflict and concerns about demand. On average, oil prices rose by 1.19%, reaching $86.83 per barrel, up from $85.81 per barrel the previous week.

Outlook

Oil prices are anticipated to stay above $80 per barrel in the short term due to rising summer demand and expectations of an upcoming easing cycle by the Federal Reserve. However, optimism for a truce in the Israel-Hamas conflict could help to moderate prices.

Forex Market

During the review period, the Naira remained above N1,500/$ at both the official and unofficial windows. In the parallel market, the currency depreciated to N1,535/$ on July 4 before appreciating to end the week at N1,530/$. A similar pattern was observed at the NAFEM window, where the Naira weakened to N1,520.24/$ on July 4 before recovering to close the week at N1,509.67/$. Notably, average daily forex turnover fell by 21.19% to $148.18 million from $188.03 million the previous week. Meanwhile, gross external reserves continued their upward trend, rising by 1.37% to $34.66 billion on July 4 from $34.19 billion at the end of June. Outlook

We expect forex demand pressure to persist in the near term as dollar supply continues to fall short of demand.

Money market

The banking system witnessed a significant liquidity squeeze during the review period as the opening position was negative all through the week. On average, banks’ opening position was N951.18 billion short compared to a long position of N698.1 billion in the preceding week. This led to a spike in the average short-term interbank interest rates to 30.73% from 23.98% in the prior week. Outlook

Without any major inflows this week, we anticipate that the liquidity squeeze will continue, keeping interbank rates elevated.

Fixed income market

Bond yields saw minimal changes, with the average benchmark yield remaining unchanged at 18.68%. Early in the week, there was a mix of sentiments at the shorter and mid-range segments of the bond curve, influenced by some profit-taking activities. Despite this, trading sessions for FGN bonds remained relatively calm amidst tightening liquidity conditions. Overall, trading was characterized by steady yields and moderate trading volumes.

On the flip side, sentiment was negative at the longer end of the Treasury bills curve due to tight liquidity conditions. As a result, the average benchmark yield for Treasury bills rose by 0.82% to 22.69% from 21.86% the previous week. The tightening liquidity situation exerted upward pressure on yields particularly in the mid to long tenors of the Treasury bills curve, as investors navigated liquidity constraints.

Outlook

We anticipate relatively calm trading in the secondary T-bills market at the start of the week as focus shifts to the NTB primary market auction scheduled for Wednesday. The auction's outcome is expected to influence the direction of yields in the following week.

Stock market - mixed market sentiment The Nigerian stock market showed a mixed performance with gains on two days and losses on three. The NGX All-Share Index (ASI) decreased by 0.04%, closing at 100,022.03 points on July 5, down slightly from 100,057.49 points on June 28. Similarly, market capitalization decreased by 0.04% to end the week at N56.58 trillion, compared to N56.60 trillion the previous week. This bearish sentiment is partly due to the flow of funds to the fixed-income investment space to take advantage of high yield. The average trading volume decreased by 14.79% to 451.75 million units from 530.13 million, and the average trading value declined by 37.7% to N6.23 billion from N10.00 billion.

Market breadth for the week was negative, with 33 stocks recording gains, 44 stocks experiencing losses, and 62 stocks remaining unchanged. VERITASKAP led the gainers with a 25.00% increase, closing at N1.15 per share. CONOIL followed with a gain of 20.48% to close at N126.5 per share, while JAIZBANK rose by 19.49% to close at N2.33 per share. The stocks that performed poorly included UPDCREIT (-17.43%), IKEJAHOTEL (-12.03%), LASACO (-9.80%), JBERGER (-9.59%), and MBENEFIT (-8.96%). Outlook

We expect market sentiment to remain mixed given the capital raise by banks amid liquidity constraints.