Five things to know to start your Tuesday
Stock market opens week with N83bn loss
Nigeria’s equities market closed in the red zone on Monday, confirming some analysts’ expectations of a quiet start to new week.
The Nigerian Exchange Limited (NGX) All-Share Index (ASI) and Market Capitalisation decreased by 0.29percent or N83billion on Monday to 52,944.65points and N28.542trillion respectively, from preceding trading day high of 53,098.46points and N28.625trillion.
“Given the sustained buy-side activity seen throughout last week, coupled with the possibility of the CBN raising rates at this week’s MPC meeting, we anticipate a quiet start to the week, as investors remain on the sidelines in anticipation of the Monetary Policy Decision before committing further to equities,” said analysts at Vetiva in their May 16 note to investors.
In 6,854 deals, investors exchanged 374,183,929 shares valued at N4.963billion. Transcorp, Jaiz Bank, Access Holdings, International Breweries and Ikeja Hotel were most traded stocks on the Nigerian Exchange Limited.
“We expect the market to close up this week,” said analysts at Lagos-based Meristem.
Lafarge Africa led other stocks that contributed to the market’s negative close after its share price moved down from preceding day high of
N31.40 to N28.80, losing N2.60 or 8.28percent, followed by International Breweries which dropped from N8.80 to N8, down by 80kobo or 9.09 percent.
Other top laggards are Champion Breweries which dipped from N4.37 to N3.94, down by 43kobo or 9.84percent and GSK which also dropped from N7.90 to N7.15, losing 75kobo or 9.49percent.
Also, United Capital research analysts in their May 16 note anticipate continued market interest in the domestic equities space, “as money managers will continue to cheery pick stocks with solid fundamentals, following the relatively quiet fixed income space.”
The record dip on Monday’s trading pushed lower market’s positive return to 23.94percent year-to-date (YtD).
US dollar hits N600 at parallel market
The US dollar exchanged for N600 at the parallel market on Monday, the second time in less than two weeks the naira has suffered a beating following fears of a dollar shortage in the system.
With the nation’s external reserve falling much lower to $39.04 billion the impact on the Importers and Exporters Window led to a narrowing of gap between it and the parallel market rate as at exchanged for N421.50/$ on Monday which represented a 0.59 percent drop from its Friday figure.
The CBN interbank rate however stayed flat at N415.74 to a US dollar.
Aramco’s downstream earnings rise on refining capacity crunch
The downstream business of Saudi Arabia’s oil giant Aramco experienced a rise in earnings as it more than doubled following a global shortage of refining capacity as a result of the Russia-Ukraine war.
The downstream business, which is one of the most lucrative businesses of the company, reported a $10.2 billion profit before interest and taxes following increased demand in the domestic and international markets for fuel and diesel. The earnings represented a $4.4 billion rise from the previous year’s figure of $5.8 billion.
Even though the downstream business of the company fell way short of the upstream division that, according to Bloomberg, reported a $70 million profit, the unit growth still represented a significant turnaround in operations and result for a unit that was loss-making during the COVID-19 lockdown year of 2020. So important was the result that it helped drive the company’s profit for the first quarter by 82 percent.
With travel, tourism, and hospitality businesses experiencing an increase in patronage, refinery capacity followed suit, thereby driving income from refinery capacity. As a result, profit from the refinery of crude oil continues to grow with capacity doubled despite the increased cost of production.
According to Saudi Arabia’s Energy Minister, Prince Abdulaziz Bin Salman, who attributed the rising cost of fuel to a lack of refining capacity, said that sanctions and financial restrictions on Russia will continue to slow down supplies into Europe from the east.
He also linked the fall in refinery capacity to falling demand from China as the country focuses more on domestic supply.
Seeing how successful the downstream business has become, Aramco has decided to invest more into ventures that refine and produce goods like paint and plastics, Bloomberg said. In 2020, the company will purchase a 70% stake in Saudi Basic Industries Corp., valued at $69 billion.
Aramco has no plan to slow down, as greater profit margin is motivating the company enough to increase its refining capacity to 400,000 barrels-a-day at its Jazan facility, which, according to the company’s management, will allow it to ship diesel and fuel into Europe from the Red Sea plant.
Added to the increased refining capacity of its Jazan facility, Aramco will build a 4 million barrels per day capacity to process crude into chemicals, Prince Abdulaziz said in Bahrain.
Shareholders and prospective investors will be excited with the prospects of an increased return to investment as rising crude oil prices and increased demand for transportation and travel services will help ensure that Aramco stays very relevant in the scheme of things in the future.
Consumption, exports forces Israel’s economy to contract by 1.6 percent
The Russia-Ukraine war, which is having a terrible impact on many economies, has driven the economy of Israel to shrink by 1.6 percent in the first quarter, following a significant decline in private consumption and exports. This is according to Bloomberg.
The Israel Export Institute said that exports and spending on private consumption in the first three months of 2022 fell below economic analysts’ forecast of 2.3 percent.
This year’s first quarter result, which understandably fell below forecast, was influenced in no small measure by Russia’s invasion of Ukraine. A war that has brought about a rise in food and fuel prices
On the contrary, the economy of Israel bounced back in 2021 from the pandemic low of 2020 to register a growth of 8.1 percent, driven largely by increased demand for the country’s high-tech industries.
Unfortunately, as the global economy was gradually recovering from the devastating impact of COVID-19, the Russian invasion of Ukraine and western sanctions on Russia have resulted in a downgrade of the global economic forecast.
With many of Israel’s technology firms listed in the US tech-heavy Nasdaq index experiencing a dip in share price, analysts are downbeat over the future of the tech industry. They are, however, optimistic that once the Russia-Ukraine war is resolved, things can get back to the way they were.
An economic analyst who spoke with Bloomberg believes that the economy will pick up in due time. “We don’t think we are entering a period of a recession, but it is a sign that the economy is cooling down,” he said, adding the fall in private consumption was due to a combination of inflation and the return of foreign travel.
US futures flat after mixed Wall Street session
Following another mixed session on Wall Street, US stock futures flattened as concerns about an economic meltdown, high inflation, and high interest rates grew. Futures contracts tied to the three major indexes were near breakeven.
On Monday, a rise in the share prices of Chevron and United Health pushed the All-Share-Index (ASI) of the Dow Jones higher as it carved out a 0.1 percent gain at the close of trading.
Unfortunately, the S&P 500 gave up its earlier trading gains to close 0.39 percent lower, while the Nasdaq Composite underperformed falling 1.2 percent lower.
Many analysts admit that the market will continue to react somewhat differently as monetary authorities, especially the FED, tighten monetary policies to address rising food and energy prices, a sharp contrast from the interest rate loosening during the pandemic era.
Tradingeconomics agrees that “growth-oriented technology, consumer cyclical, and communication services stocks led the decline.”