Macro economy
The Purchasing Managers Index for the month maintained contractionary bandwidth, as both Manufacturing and Non-manufacturing PMI were 46.9 index points and 41.9 index points respectively. According to the 14 subsectors of the Manufacturing activities surveyed, 4 subsectors were within the expansionary corridor, whereas of the 5 activities level of the manufacturing sectors, only supplier’s delivery time maintained an expansionary strip, while other activities level were within the contractionary bandwidth, and as regards the Non-manufacturing PMI all its activities level recorded a contraction for the period.
The Monetary Policy Committee cut the benchmark interest rate by 100 basis points to 11.50%, which was induced by the intention of the committee members to spur the economy towards growth, as the economy became deeply entrenched with elevated inflationary pressure and the second quarter GDP readings that indicated a 6.10 % contraction. Also, the asymmetric corridor was amended to +100/-700 basis point around the MPR, while other monetary parameters were left unchanged.
The consumer price index for the month of September maintained its elevated pressure as the index for the month was 13.71%, which represents a 0.49 percentage change from the previous month Consumer Price Index of 13.22%.
Equity Market
Equity performance for the month maintained its positive momentum, as the market all share index increase by 5.87% on a month-on-month basis, while the Year to date growth as at month-end indicated a (0.04%) contraction. The top-performing indices followed for the month was the NSE Banking index, as it recorded a 6.37% month–on–month growth, while the least performed indices was the NSE Oil & Gas index that recorded a 2.12% growth, this ranking is based on the indices we monitor.
Fixed Income
The Treasury bill auction sold for the month summed up to N420.8bn at an average marginal yield of 1.09%-91days, 1.53%_182days, and 2.98% _364days respectively. The secondary market activities for Treasury bills witnessed a bullish trend for the month as average yield dipped by 45bps to 1.80%, as most of the yield decline were within the medium to long term structure.
The Bond auction sold for the month was to the tune of N 103.81bn at a marginal rate of 6.00%_10years, 8.52%_15years, 8.90%_25years, and 8.94%_30years. Bond activities at the secondary market were bullish as the average yield on a month on month basis dipped by 108bps to 7.73%.
Currency & Foreign Reserves
The Nation’s currency relative strength for the month weakened at the import & export exchange window, where Naira traded averagely to the dollar at N386.03 for the month as against the N385.03 that it traded for in the previous month, however at the parallel market Naira appreciate in value to N457.00 for the month as against the prior month, when it was traded for N475.29. The marginal devaluation of the country’s currency relates to the continued squeeze in foreign inflow by way of diaspora remittance and decline in government revenue from crude earnings, however, the breather at the parallel market was propelled by increased forex sell to BDC by the Apex Bank.
The country’s foreign reserves firmed up by an estimated sum of $7million, as the current month reserves stood at $35.74bn against the prior month reserves amount of $35.67bn, given the increased quota of crude production.
Commodities
The crude commodity for the month was bearish as crude benchmark across the West Texas Intermediate and Brent dipped by 5.61% and 9.56% to $40.22 and $40.95 respectively, this downward surge is traceable to the ripple effect of the additional crude coming from Libya refinery rigs, which added to the increased output from OPEC reduction of production cut, as the market still struggles with disrupted demand.
Outlook
- We anticipate the Manufacturing PMI to tilt towards the expansionary corridor by the end of the quarter, being the earliest estimated timing, this will be spurred by the eased lockdown measures, as the economy becomes fully opened.
- The possibility of expressing an eased elevated inflation is limited for the coming month.
- We anticipate that the Equity market to continually benefit from the benchmark rate cut, which will propel activities at a moderate level.
- Fixed income market is anticipated to further experience weaker yield, as investors set the ship for a risker asset class.
- The probability of currency strengthening and firming up of the reserves, is limited, based on the underlying risk factor, as well as the pending backlog of FX outflows.
- The crude price recent wins have receded in recent times and this is expected to persist, given the continued threat of the pandemic shock, whose second wave has been on the rise.
The above outlook represents our conservative views given that our domestic economy is not exposed to a second wave of the pandemic.
