SECOND QUARTER (Q2) 2021 OUTLOOK
Going into the second quarter, fundamentals appear to point towards rate increases. Inflation will likely accelerate towards 18-19% as the lean season drives food prices higher with additional support from a mix of higher energy costs (following hikes in fuel and electricity prices) and pass-through from Naira weakness.
Granted, economic growth remains on shaky ground in the light of adverse regulatory actions to telecoms operators even as OPEC+ compliance will likely result in a sharp drop in oil GDP, the base case is for GDP to scrape through with another positive print. Though improving oil prices and possible progress on external borrowings via the sale of Eurobond will strengthen CBN’s ability to drive convergence in FX markets, the apex bank’s near-term focus could be on FX reserve accretion which will support tightening.
Within debt markets, supply remains key and markets should expect a reprisal of the Q1 bond issuance trend where the DMO cleared well in excess of NGN637billion to put it in a strong position ahead of H2 2021. Given thin system maturities over Q2 2021 and likely liquidity tightening by the CBN, focus will be on staying liquid for banks (who will bear the brunt) which will likely underpin sell-offs in NTBs past the 10% on the 1yr.
For long end, it appears the key actors (pension funds) behind the Q1 sell-off have cleared out a significant portion of duration exposures in the trading portfolios in line with regulatory guidance. This development limits their desire to trade bonds and they are likely to be less active in the secondary market going forward with a focus on monthly auctions where rates could approach 13%.
RESUMPTION OF BRT FULL OPERATIONS ON IKORODU-TBS ROUTE
It can be recalled that Primero Transport Services Ltd., 4 days ago, announced the immediate suspension of operations of the Ikorodu to Tafawa Balewa Square (TBS) route due to operational challenges being encountered by the firm along that axis.
The Primero Transport Services Ltd., Operator of BRT in Lagos State, has thus announced the resumption of operations on the Ikorodu to Tafawa Balewa Square (TBS) route 48 hours after the suspension of services on that corridor over operational challenges. The resumption follows the resolution of all operational issues that caused the earlier suspension.
The resumption of BRT services to that route in the coming week comes as a huge relief to commuters who have gone through untold hardship because of the earlier suspension.
Read Also: Naira maintains gain as FX turnover declines by 26.20%
TRADING AT THE OFFICIAL NAFEX WINDOW
The naira appreciated against the US Dollar at the Investors and Exporters window on Wednesday to close at N408.67/$1. This represents a 33 kobo gain when compared to N409/$1 recorded on Tuesday, 30th March 2021.
The opening indicative rate closed at N409 to a dollar on Wednesday. This represents a 7 kobo gain when compared to the N409.07/$1 that was recorded on Tuesday.
Also, an exchange rate of N412 to a dollar was the highest rate recorded during intra-day trading before it closed at N408.67/$1. It also sold for as low as N381/$1 during intra-day trading.Forex turnover at the Investor and Exporters (I&E) window dropped by 26.2% on Wednesday, 31th March 2021. The coming week would be accompanied with the Naira hovering around the threshold of N408/$1 and N414/$1.
OIL PRICES SHOW CONTRASTING MOVEMENTS
Oil prices recorded contrasting trading result on Wednesday with a drop by Brent crude while WTI crude rose during the day’s trading.
Brent Crude as of Wednesday evening traded at $63.54 after France announced that it will start a month-long lockdown.
OPEC+ has also expressed its concern about the strength of oil demand ahead of its meeting on Thursday, where a decision on output is expected to be taken.
An OPEC+ panel advising the group has revised down its global oil demand forecast for 2021 by 300,000 barrels per day (BPD) due to the renewed lockdowns in Europe amid a third wave of the coronavirus pandemic.
Meanwhile, despite recent signs of weakening oil demand as Europe grapples with a new wave of Covid-19 cases, analysts have said that the crude oil futures market structure still points to demand beginning to outpace supply in the second half of 2021.
Brent crude dropped by 0.94% during intra-day trading on Wednesday while WTI Crude rose by 0.68% during the same period after it initially fell by $1.39 earlier in the morning. More of the same might be experienced in the coming week.
EXTERNAL RESERVES REBOUND CONTINUES
Nigeria’s external reserve increased by 0.09% on Tuesday 30th, March 2021 to stand at $34.79 billion. This represents the seventh consecutive day increase, gaining a total of $370 million from $34.42 billion recorded as of March 18, 2021, to $34.79 billion as of 30th March 2021. Nigeria’s reserve had lost about $860 million year-to-date before recording increases in the past seven days, which indicates that the recent oil price rally is beginning to reflect in the country’s external reserve.
It is important for Nigeria that the increase continues as it will help the Central Bank stabilise the exchange rate against other currencies and meet up with pent-up obligations due to the lockdown embarked on in 2020.
Its current trajectory indicates that this recent rebound may be sustained in the coming week.
