September 2019 Macro & Markets Update

October 9, 2019/InvestmentOne Update

Please click to view the September 2019 Macro & Markets Update

·         In the outgone month, an attack on Saudi Arabia’s Oil facilities, suspected to have come from Yemen’s Houthli rebels or Iran,  caused oil price soars from US$60.22 to US$69.02 per barrel. However, largely in line with our expectation, oil price closed the month at US$60.78 per barrel as President Trump promised to   supply more oil to the market. 

·         In another development, the National Bureau of Statistics released the GDP report for Q2 2019  and the growth recorded in that quarter was not so decent. The report showed that the economy grew by 1.94% (y/y) in real terms compared to a growth of 2.10% y/y in Q1 2019 and a growth of 1.50% y/y in Q2 2018. 

·         Meanwhile, Federation Account Allocation Committee (FAAC) allocations to the three tiers of government rose to N740.88 billion; the sum was generated in August 2019 and shared in September 2019.

·         The National Bureau of Statistics (NBS) released the Inflation report for the month of August 2019, which showed that inflation rate decreased in August 2019 to 11.02% from 11.08% y/y in July 2019 despite the recent border closures and the pronouncements regarding restrictions on the import of some food items. 

·         In our opinion, we may not see the economy growing at 3.01% as targeted by the Federal Government. We only expect the economy to grow by 2.30% in line with the IMF’s forecast but above the World Bank’s estimate of 2.10% in 2019. 

·         Elsewhere, The Federation Account Allocation Committee (FAAC) allocations to the three tiers of government rose to N769.52 the sum was generated in July 2019 and shared in August 2019. The funds disbursed for the month reflected the rise in crude price witnessed in May 2019 as Brent was trading around US$70/barrel for much of the month. 

·         The National Bureau of Statistics (NBS) released the Inflation report for the month of June 2019, which showed a decrease in inflation rates against our expectations. The report showed an deceleration in headline inflation, following two consecutive months of acceleration, to 11.22% year-on-year (y/y) from 11.40% y/y in May 2019. 

·         Data from FMDQ revealed that FPI inflows recovered from its downward trajectory, rising by 194% month on month to US$595million (3 weeks comparison). Notably, in the outgone month FDI surged, coming in at US$654million, 30% of total I&E inflow. We highlight that this represents 34% of total FDI recorded YTD. 

·         In the near term, we expect the exchange market to remain stable due to strong FX reserves level (USD$41.85billion as at month end) which should enable the CBN defend the local currency. the recent increase in rates in the fixed income space may whet the appetite of foreign investors amidst falling interest rates globally, aiding the local Apex bank in defending the local currency in the near term. 

·         The local bourse The Equities market halted its bearish run in the outgone month gaining 0.38% in the month of September from a negative 0.69% in the month of August 2019. The market cap improved to 13.45trillion in September from 13.39trillion in August. 

·         Going into October 2019, we opine that the bourse would remain pressured, given global risk-off sentiments and persistently weak domestic participation. Notwithstanding, we foresee a neutral to negative performance for the local bourse, as investors continue to adopt a risk off approach to equities and a risk on to fixed income assets, largely due to the intensifying trade war between the two largest economies and its   sustained effect on oil prices

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