Weekly Economic Update (June 3rd – 7th)

Key Economic Events

•      Nigeria’s trade balance widens by 79.12% to N6.52 trillion

In Q1 2024, Nigeria experienced a significant surge in total trade, soaring by 46.27% to N31.81 trillion from N21.75 trillion in Q4 2023. Notably, both export revenues and import bills saw substantial increases, with export earnings rising by 51.06% to N19.17 trillion and import bills skyrocketing by 39.67% to N12.64 trillion. This sharp rise in export revenues relative to import bills widened the trade surplus to N6.52 trillion, up from N3.64 trillion in Q4 2023.

During Q1 2024, Nigerian commodities were primarily exported to European countries, with France leading at 11.09%, followed by Spain (10.56%), The Netherlands (8.85%), India (8.41%), and the United States (6.84%), collectively accounting for 45.75% of total export earnings. Crude oil remained the dominant export commodity, representing 80.80% (N15.49 trillion) of total export earnings, followed by natural gas (8.75%, N1.68 trillion), and sesame seeds (N0.25 trillion, 1.29%).

The top five importing countries were China (23.18%), India (8.46%), the United States (7.98%), Belgium (7.56%), and the Netherlands (4.68%). These nations collectively accounted for 51.86% of total imports. The most imported commodities included Motor spirit ordinary (N2.63 trillion, 20.84%), gas oil (N1.20 trillion, 9.46%), and Durum wheat (N0.52 trillion, 4.11%).

Implications and outlook

The wider trade surplus bodes well for Nigeria's economy as it could bolster the gross external reserves and enhance the Central Bank's ability to defend the Naira. We expect the trade balance to remain in surplus over the next quarter as the Naira strengthens, reducing the country’s import bill. However, low agricultural output during the planting season might lessen the volume of non-oil exports, potentially reducing the surplus rate.

Market Update

• Oil market – Mixed market sentiment

During the review period, oil prices traded below the $80 per barrel mark for the first time since February. Brent crude prices reached a low of $77.52 per barrel, marking the lowest point in four months, before recovering to close the week at $79.62 per barrel. Investor sentiment was dampened by concerns about anticipated supply growth later in the year, along with cautious demand projections from major consumers in the U.S. Nonetheless, statements from energy ministers of Saudi Arabia, the United Arab Emirates, and Russia hinted at potential additional supply constraints by the cartel, prompting a rise in oil prices towards the end of the week. Additionally, interest rate cuts by the European Central Bank and the Bank of Canada ramped up optimism over the ease in monetary policy this year, lending further support to oil prices. Outlook

Oil prices are expected to trend upwards as the resumption of monetary policy easing in Canada and Europe raises expectations for a more accommodating monetary policy stance in 2024. Heightened demand would reinforce this sentiment as the summer season, known for increased travel activity, begins.

• Forex market

During the review period, the Naira traded within a band of N1,476.12/$ - N1,488.60/$ at the official market. It hit a three-week low of N1,488.60/$ on June 5 due to sustained forex demand surpassing supply but rebounded the next day following the disbursement of an additional $925 million loan by Afreximbank under the $3.3 billion crude oil-backed repayment facility, facilitated by the NNPC. In the parallel market, the Naira displayed volatile movements, initially appreciating for the first two days before declining to a weekly low of N1,510/$ by mid-week. Subsequently, it appreciated, closing the week at N1,470/$, aided by increased dollar liquidity from the Afreximbank loan. Week-on-week, the average daily forex turnover decreased by 22.53%, reaching $209.37 million from $270.27 million in the previous week.

The country's gross external reserves showed steady growth during this period, increasing by 0.34% ($110 million) to reach $32.8 billion by the week's end, up from $32.69 billion at the previous week's close.

Outlook

The Naira is expected to appreciate marginally at the start of the week but could weaken again as the effect of the Afreximbank loan wanes. Continuous appreciation in the currency would be largely dependent on sustained dollar inflows.

Money market System liquidity experienced fluctuations throughout the week. Despite a repayment of N10.17 billion in the primary market, it began the week in a short position. The following day, market liquidity improved significantly, opening at a long position of N345.29 billion, partly due to the repayment of N37.05 billion from OMO maturities. However, it reverted to negative territory the next day as funds were allocated for the settlement of the previous day's OMO auction sales, amounting to N513.95 billion. Notably, system liquidity began the subsequent day in a long position before ending the week in a short position, partly due to the effect of the primary market sales settlement. Overall, market liquidity was in a short position for three days and a long position for two days, bringing the average opening position to N23.93 billion from N1.92 billion last week. Consequently, average short-term interbank rates fell to 29.52% from 30.63% the preceding week. Outlook We expect interest rates to remain elevated as liquidity challenges persist.

• Fixed income market

Trading activity in the FGN bond market remained relatively quiet as attention shifted towards the OMO and NTB primary market auctions early in the week. Despite this, the average benchmark yield saw a slight weekly increase of 0.01% to 18.61%. Notably, market participants showed more interest in the short and mid-term bonds, with limited activity observed in the long-term bonds.

There was a primary market treasury bill auction during the week. The CBN offered a total of N223.13 billion across the three tenors. However, the auction was oversubscribed by 322.84%, with total subscriptions reaching N713.89 billion. Notably, the stop rate for the 91-day t/bills was unchanged at 16.5% while the 181-day bill increased slightly by 0.05% to 17.5% and the 364-day declined by 0.02% to 20.67%. This mixed trend is despite the CBN’s hike in the Monetary policy rate at the MPC meeting, suggesting that the government is becoming aware of the impact of the high cost of funds on government finance.

In the secondary market, the average benchmark yield throughout the Treasury Bills spectrum increased by 0.2% to 21.92% from 21.72% recorded at the end of the previous week. At the onset of the week, there was notable demand for longer-term bills as investors sought appealing yields in anticipation of the NTB primary market auction scheduled for Wednesday. Tuesday and Wednesday witnessed subdued activity as market participants focused on the OMO and NTB primary market auctions, respectively. However, by Friday, there was a notable improvement in the offering for the new 1-year bill post-auction.

Outlook We expect the current trend to persist as the market remains illiquid.

• Stock market  

The Nigerian equities market recorded a mixed performance during the review period as the market gained in two days and lost in three days. Week-on-week, the NGX ASI fell slightly by 0.08% to 99,221.14 points on June 7 from 99,300.38 on May 31. Market capitalization followed a similar pattern, losing 0.07% to close the week at N56.13 trillion from N56.17 trillion in the preceding week. This bearish sentiment can be largely attributed to liquidity constraints as investors continue to take advantage of the high yield in the fixed income market. The average traded volume fell by 22.21% to 340.59 million units from 437.85 million, while the average traded value declined by 2.56% to N6.10 billion from N6.26 billion.

Market breadth for the week was negative as 33 stocks gained, 34 lost, and 72 remained unchanged. RTBRISCOE topped the gainers' list with a 25.00% increase, closing at N0.6 per share. OANDO followed with a gain of 23.73% to close at N14.60 per share, while ETERNA rose by 22.45% to close at N15.00 per share. The laggards were led by UNITYBNK (-21.57%), SOVRENINS (-13.64%), TRANSCORP (-11.21%), SUNUASSUR (-10.85%) and PRESTIGE (-10.71%). Outlook We expect the bearish market sentiment to continue this week as there are no significant factors to stimulate investor interest.