Anchoria FI Monitor: MSCI Express Concern on the Depreciation of Liquidity in the Nigerian FX Market

Word Forex on the background of one hundred dollar bills

Culled–Proshare

June 29, 2020

By Anchoria AM Research  

Money Market

Despite an absence of inflow into the system during the week, the average money market rate fell marginally by 0.27% to settle at 15.65% from 15.92% in the previous week.

The system was relatively illiquid forcing banks to access funding at the CBN SLF window. The OBB rose by 3bps to close at 15.20% while the Overnight Rate fell 57bps to close at 16.10%.

We expect the inflow from OMO maturities (N157.23 billion) to boost the system liquidity this week.

Proshare Nigeria Pvt. Ltd.

Forex: USD/NGN

The Naira/USD exchange rate rose marginally by 4bps during the week from N386.50/$ to N386.33/$ in the previous week. However, at the parallel market Naira to dollar rate appreciated by 2.22% from N450/$ to N460/$, while the official rate remained unchanged at N361/$. FX liquidity continues to dwindle due to supply deficit across markets. The demand for dollars continues to outweigh the supply for the currency thereby creating speculation and devaluation fears.

During the week, the MSCI placed Nigerian Equities on watchlist due to significant deterioration of liquidity in the Nigerian FX market.

We expect a continuous dwindling in the FX liquidity in all the window this week this week.

Proshare Nigeria Pvt. Ltd.

Bond: FGN

The secondary sovereign Bond market closed bullish last week as the average yield fell by 56bps to close at 8.80% compared to 9.36% in the previous week. Yields declined across all instrument with the highest yield decline witnessed in the MAR 2024 bond which fell by 151bps to close at 6.20% compared to 7.71% the previous week.

The Sovereign Eurobond market closed on a bullish note as the average yield fell by 5bps to close at 7.50% compared to 7.55% the previous week. The Corporate Eurobond market also closed bullish as the average yield fell by 66bps to close at 7.96% compared to 8.62% the previous week.            

We expect renewed interest this week as investors continue to take positions in the bond market.

Proshare Nigeria Pvt. Ltd.

Treasury Bills

The Treasury bills market closed bearish last week as the average yield rose by 14bps to close at 2.24% compared to 2.10% the previous week. In the same vein, OMO bills rose by 14bps to close at 5.02% compared to 4.88% the previous week. During the week, activities in the T-bills and OMO market were relatively calm as no auction took place in both markets.

We expect investors to take position in the Treasury bills auction expected during the week.

Proshare Nigeria Pvt. Ltd.

Commodities

The two-month oil rally has stalled, with WTI falling to $38 per barrel. The resurgence of Covid-19 across the U.S has halted the market’s positive momentum in the oil market.

Brent Oil declined by 2.77% to close at $41.02 per barrel compared to $42.19 per barrel the previous week. West Texas Intermediate also has the same narrative as the price declined by 3.17% to close $38.49 per barrel compared to $39.75 the previous week.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

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