I & E FX Window Records Increased Inflow

By Obinna Chima

Activity level in the investors and exporters’ (I & E) window improved last week as total turnover increased by 9.1 per cent to $1.2 billion, during the week, up from the $1.1 billion recorded the preceding week.

Also, at the FMDQ OTC futures market, total subscriptions rose 2.9 per cent week-on-week to $4.4 billion, up from $4.3 billion recorded the preceding week.

The highest increases were recorded in the MAR 2019, JAN 2019 and NOV 2018 instruments.
Afrinvest Securities Limited disclosed these in a report at the weekend.

But the nation’s currency depreciated marginally by six kobo to N363.83/US$1 at the I & E window.

It, however, remained stable across all segments of the foreign exchange market, trading within the N361 – N363.85/ US$1 band in both the parallel market and I & E window. But the naira closed the week flat at N361/US$1 at the parallel market.

“We expect the naira to remain stable across all segments of the market next week and in the near term, as the level of reserves can sustain Nigeria’s import bill for 20 months.

“Consequently, we believe the CBN will maintain a defensive stance for the naira even as the polity heats up and capital reversals intensify,” they stated.
Global oil prices continued an upward trend last week, on fears of oil supply shortages due to reduced US inventories and Iran sanctions, with the commodity reaching a 3-year high of about $86/barrel.

“Given that concerns around the impact of sanctions on Iran have heightened as commencement nears in November, we expect oil prices to remain supported around these levels over the near-term, even as we believe that reduced oil supplies will be partly offset by increasing exports from Saudi Arabia and Russia,” Afrinvest stated.

The Central Bank of Nigeria last week allayed worries over the fluctuation in Nigeria’s external reserves, assuring that with its current level, there was no cause for alarm.
During the week, the World Bank also reduced its growth projection on Nigeria in 2018 to 1.9 per cent, down from the 2.1 per cent it had estimated for the country in April. The Bank hinged its decision on the contraction in the agricultural sector as a result of the farmers and herders’ crisis recorded by the country most part of this year.
It explained: “In Nigeria, declining oil production and contraction in the agriculture sector partially offset a rebound in the services sector and dampened non-oil growth, all of which affected economic recovery.”

“Nigeria’s recovery faltered in the first half of the year. Oil production fell, partly due to pipeline closures.
“The agriculture sector contracted, as conflict over land between farmers and herders disrupted crop production, partially offsetting a rebound in the services sector and dampening non-oil growth.”

Bond Market

The activities in the Nigerian bond market were seemingly bullish during the week as yields pared across instruments, declining by nine basis points to 14.82 per cent.

The buying activities were concentrated at the short and long tenor bonds, with yields on mid-tenor bonds advancing by four basis points.

The development was attributed to the increased activities in the market to the level of liquidity, exacerbated by OMO repayments amounting to N539.2 billion over the past two weeks among other repayments. This has only started moderating given recent activities as the Central Bank of Nigeria (CBN) held primary market auction and an open market operation during the week, selling instruments worth N133.5 billion and N553 billion respectively.
In the Sub-Saharan Africa Sovereign Eurobond space, activities were bearish, as yields increased across instruments by two basis points. Similarly, the yields on Nigerian Sovereign bonds increased, breaking recent trend witnessed after the pressure resulting from weariness of emerging and frontier market contagion.

Consequently, the average yield on Nigeria Sovereign bonds increased by 22 basis points to settle to average bond yield at 6.9 per cent across instruments.

Analysts maintained that yields would pare further into the quarter, given expectations that demand should increase due to a combination of relative attractiveness compared to SSA peers and ‘flight to safety’ drive.
The direction of activities in the trading for corporate Eurobonds mirrored the sovereign, as the average yield declined by 10 basis points, with the largest decline witnessed on the Guaranty Trust Bank 2018 Eurobond which was down 62 basis points.

They anticipated that the trend would continue and be influenced by domestic flows, as investors seek stability prior to the general elections in 2019.

Interbank Market

Money market rates in the week responded to the dynamics in system liquidity as well as the successful primary market auction (PMA) and OMO auctions conducted last week to replace maturing equivalents.

Consequently, average treasury bills rates trended lower to settle at 12.7 per cent, down nine basis points week-on-week.

Last Wednesday, the CBN at the PMA issued; 91-day, 182-day and 364-day instruments at discount rates of 10.9 per cent, 12.1 per cent, and 13.3 per cent respectively, with the 182-day and 364-day instruments recording oversubscriptions of 1.8x and 3.7x.
Also, the CBN last Thursday issued OMO instruments worth N553 billion which mopped up system liquidity, offsetting the OMO maturities of N278.3 billion on the same day.

Significant subscription levels were observed on the longer tenor OMO instruments, with oversubscription recorded at 1.6times on the 364-day OMO instrument, compared with an undersubscription (0.8times) on the 182-day instrument.
Consequent on the above, system liquidity became tightened at close of the week.

Thus, the open buy back (OBB) and overnight rates trended higher. OBB and overnight rates opened the week at 4.8 per cent and 5.6 per cent- lower than the preceding Friday’s close of six per cent and 7.2 per cent- increasing further to 11.7 per cent and 12.6 per cent respectively by Thursday.  By Friday, the OBB and overnight further increased to 20.9 per cent and 22.5 per cent respectively.