Fifth Consecutive Nigeria’s Inflation Rate Contraction: How Sustainable Is It?
Global Stocks See Mixed Sentiment, Amid Positive Economic Data
This week, the bears sustained dominance, as eight (8) out of the fourteen global market indices under our coverage declined, while six (6) declined. The performance was due to continued concerns over the Delta variant of the Coronavirus pandemic, impacting a fledgling economic recovery.
However, the report from the U.S Labour Department on Wednesday shows that Consumer Price Index (CPI) declined slightly to 5.3%(Y-o-Y), from 5.4% in July, This could signify that the Federal Reserve might change the monetary policy rate sooner than expected. The Core Inflation (which excludes energy and food) rose by 0.1% last month, the smallest increase since February. Also, U.S Retail Sales unexpectedly increased in August, rising by 0.7% from the previous month despite the expectation of a fall.
Furthermore, the U.K Inflation soared to a 9-year high in August, with consumer prices rising to 3.2% from 2% in July, according to the Office for National Statistics. The 1.2% point increase was the sharpest since the record began in January 1997.
In Asia, China’s Retail Sales grew a disappointing 2.5% in August from a year ago as the country dealt with the worst outbreak of Covid-19 since its initial spread in early 2020. Also, China’s Unemployment rate remained unchanged from July at 5.1% in August, while that for workers aged 16-24 fell slightly to 15.3%.
Consequently, all the major U.S indices under our coverage, DJIA Index, Nasdaq Composite Index, and S&P 500 Index decreased by 0.07%w/w, 0.47%w/w, and 0.57%w/w.
Similarly, all the major indices under our coverage in Europe; the France CAC 40 and UK FTSE 100, and the German DAX Index declined by 1.40%w/w, 0.93%w/w, and 0.77%w/w respectively.
In the same vein, all the major indices under our coverage in Asia, the Japan Nikkie 225, Hong kong HANG SENG, China Shanghai Composite declined by 0.30%w/w, 4.90%w/w, 2.41%w/w respectively except India S&P BSE Index that grew by 1.22%w/w.
Furthermore, all the major indices in the emerging markets under our coverage, South Africa FTSE/JSE, Egypt EGX 30, and Brazil Bovespa Index decreased by 2.23%w/w, 0.54%w/w, and 2.49%w/w respectively, except Argentina Merval Index that gained 3.45% w/w.
In the coming week, we expect investors to react to the latest U.S Consumer Price Index report, which may signal that the Fed Reserve might change the monetary policy rate sooner than later, amid soaring cases of the Delta Variant Covid-19 around the globe.
Nigeria’s Inflation Rate Drops To 17.01%, representing the fifth consecutive decline
According to the official data released by the National Bureau of Statistics (NBS) on Wednesday, September 15th, 2021, the Headline inflation rate (a measure of the average change in the general price level of goods and services in the economy) for August stood at 17.01% year-on-year, from 17.38% in July 2021, which represent a decrease of 0.37% than the previous month. However, on a month-on-month basis, the headline increased by 1.02%, which is 9bps higher than July’s record of 0.93%.
The Headline inflation year-on-year decline was influenced by a further slackening in both the Food price and Core inflation. The Food inflation reduced to 20.30% y/y in August 2021 by 73 basis points from 21.03% in July 2021. Howbeit, the month-on-month food inflation rose by 20 basis points to 1.06% in August 2021 from 0.86% in July 2021.
Similarly, the core inflation contracted to 13.41% in August 2021 from 13.72% in July 2021, lower by 31 basis points. Also, a month-on-month comparison showed that the core inflation decreased by 51 basis points to 0.77% in August when compared to 1.31% in July 2021.
Furthermore, the urban inflation declined by 17.59%, which denotes 42bps lower than 18.01% computed for July 2021, while the rural inflation also stood at 16.43%, representing 32bps lower than the previous month.
Conclusively, despite the fifth consecutive tapering in Headline inflation rise due to Base Effect, prices of Food and non-food items continue to rise due to high exchange rates, worsening insecurity, poor infrastructure, and maintenance, banditry amongst other macro-economic factors. Hence, we project a minimum decline of 19bps in Headline inflation next month to 16.82%, backed by the base year effect and unstable exchange rate.
Local Bourse gains 0.06%w/w, to halt the two consecutive weeks of bearish sentiment
The Nigerian Bourse ended w/w trading on a positive note to halt the previous week’s bullish sentiment, as the NGX-ASI appreciated by 0.06% from 38,921.78 points to close at 38,943.87 points. Positive market performance was recorded in three of the five trading sessions.
Investors gained about N10 billion, as the Market Capitalisation grew from N20.28 trillion in the previous week to N20.29 trillion.
At the end of the week, all of the indices under our coverage recorded negative performances, They emerged as follows: Oil&Gas Index (-3.35%), Insurance (-1.07%), Banking Index (-0.79%), Industrial Goods (-0.58%), and Consumer Goods Index (-0.21%).
UPDC PLC emerged as the best performing stock for the week with a w/w gain of +11..80%, while SCOA emerged as the worst-performing stock with a w/w loss of -18.46%.
A total of 856.29 million shares worth N10.75 billion in 15,663 deals were traded this week by investors on the floor of the Nigerian Exchange Group (NGX), as against a total of 1.426 million shares worth N13.073 billion in 19,315 deals last week.
Twenty-one (21) equities appreciated at price during the week, lower than Twenty-five (25) equities in the previous week. Thirty-eight (38) equities depreciated in price, higher than Thirty-four (34) equities in the previous week, while ninety-six (96) equities remained unchanged, as against ninety-seven (97) equities recorded in the previous week.
In the coming week, we expect mixed sentiment, as bargain hunters take positions in recently depreciated stocks. However, some investors may take profit from the appreciated stock.
NASD Market Capitalisation decreases by 0.29%w/w to Close at N639.47bn
Transactions on the NASD OTC Security Exchange Market closed on a negative note to extend the previous week’s bearish sentiment to three consecutive weeks, as the NASD Security Index NSI declined by 0.29%, representing basis points to close at 735.72 points against 737.87 points in the previous week. Investors lost N1.87 billion for the week, as the NASD OTC Market Capitalisation closed at N639.47 billion for the week.
Total trading activity for the week was valued at N237.01 million in 165 deals, against N1.11 billion in 103 deals recorded in the previous week. The most traded stocks on the exchange for the week are; SDNGXGROUP, SDCSCSPLC, SDFCWAMCO, SDNDEP, SDNIPCOPLC, SDFOODCPT, SDAIRLIQ, SDACORN, and SDNASDPLC.
SDNASDPLC emerged top gainer for the week, with a maximum price appreciation of (+40.00% to N7.14), while SDACORN emerged top loser for the week with a price depreciation of (-20.74% to N12.84).
This week’s price depreciation resulted from investors’ sell-sentiment in medium and large capitalized stocks among which are; SDNGXGROUP (-20.74% to N12.84), and SDACORN (-11.76% to N0.15).
Consequently, the market breadth close negatively, recording 3 losers and 2 gainers.
We expect the NASD OTC Market to trade in a tight range in the coming week.
This week, the CBN held a Nigeria Treasury Bill (NTB) auction by offering N155.88bn across all tenors, to roll over matured bills. This could be driven by the need to mop up excess liquidity in the market.
At the Primary Market Auction (PMA), the CBN offered a total of N155.88bn across the 91-days, 182-days, and 364-days tenor, but the total bid settled at N155.88bn as bid-to-offer ratio on the three tenors settled at 1.18x, 0.75x, and 0.71x respectively.
Stop rates for the 91-days, 182-days, and 364-days remained the same at 2.50%, 3.50%, and 7.20% respectively.
Consequently, system liquidity indicators closed lower, as Overnight (O/N) and Open Buy Back (OBB) dropped to 17.75% and 16.50% respectively, from 14.50% and 14.00% in the previous week.
Furthermore, the average yield of the Treasury Bills closed on a bearish sentiment to 5.57%, as against 4.91% recorded last week, representing a 66bps increase.
Similarly, the average yield on the secondary Open Market Operation (OMO) closed to settle at 6.34%.
In the coming week, we expect the money market to trade in a tight range due to the absence of any maturing instrument.
This week’s activities on the Bond market were limited to the secondary market, as no new instrument was issued.
Furthermore, the average yield on the secondary bond market closed on a bearish sentiment to 8.60%, as against 8.26% recorded last week, representing an increase of 34bps.
We expect investors to oversubscribe to the bond offers (13.98 FGN FEB 2028, 12.40% FGN MAR 2036, and 12.98% FGN MAR 2050) scheduled for Wednesday 22/09/2021, as market watchers continue to support strong interest in risk-free assets.
Foreign Exchange Market
At the I&E FX window, the Naira depreciated by 0.21%(w/w) to close on Friday (17/09/2021) at ₦412.88/USD against ₦412.00/USD from last Friday’s position. However, at the BDC, Naira depreciated by 3.29%(w/w) to close on Friday (17/09/2021) at ₦565/USD against ₦547/USD from last Friday’s position.
The Foreign Reserve grew $35.37 billion to the level of $587 million (16/09/2021) from $34.78 billion (09/09/2021).
The Brent Crude price appreciated by $2.25/barrel (w/w) to $71.97/barrel this Friday(17/09/2021) as against $69.72/barrel last Friday (10/09/2021), representing an increase of 3.23% (w/w). Similarly, Nigeria’s Bonny Light also increased by $2.20 to $73.50/barrel on Friday(13709/2021) from $71.30/barrel (10/09/2021), representing a rise of 3.09% (w/w)
Source: GTI Research