Market Watch: The CBN, CBN Bonds, & Inflation
Prologue
In this volume, we explore recent developments in the Nigerian financial market, focusing on the Central Bank of Nigeria’s (CBN) efforts to stabilise the naira through its first dollar sale since September 2023. Additionally, amidst a pullback in equities, we examine the cautious market sentiment preceding FGN bonds market activity and the optimistic rally of the NGX All-Share Index. However, these bright spots appear juxtaposed against inflationary trends, particularly in food prices and globally, economic dynamics range from the UK’s recession to Saudi Arabia’s robust treasury holdings. Amidst this backdrop, the forthcoming FGN bonds auction holds significance for shaping market trends and understanding the evolving economic narrative.
In the preceding two weeks, both WTI Crude Oil and Brent Oil displayed varying price movements. WTI Crude Oil demonstrated relatively consistent positive trends in price changes, whereas Brent Oil showed a mix of positive and negative fluctuations. Notably, last Friday witnessed significant increases in the prices of both WTI Crude Oil and Brent Oil, with WTI experiencing a substantial rise of +1.49%. Despite a slight decrease on Monday, Brent Oil rebounded with a positive change on Friday.
Market Watch: The CBN, CBN Bonds, & Inflation
To stabilise the naira, the Central Bank of Nigeria (CBN) sold approximately $90 million in the spot FX market on Tuesday, marking its first dollar sale in the market since September 2023. Market observers revealed that the CBN sold dollars at rates as low as N1490 per dollar, with over half of the 34 bidding banks securing between $2-5 million at the sale.
The sale aims to boost dollar liquidity in the market and rejuvenate the nation’s currency. Recall that the CBN had halted dollar sales in the spot market to address a backlog of foreign exchange demand, a move which was reportedly undermining investor confidence in the apex bank’s currency reforms. The CBN’s intervention in the spot market, although long-awaited since its indication in October 2023, is seen as a commendable move to enhance trading liquidity.
In other news, while the domestic equities market witnessed a pullback, the NGX All-Share Index (NGXASI) reflected optimism, bouncing back from earlier declines to end at 105,284.12 points in the early hours of Friday.
During the week, the DMO announced that it was issuing N1.25 trillion each of a new 7-year and 10-year bond. While there is no surprise about the tenor of the bonds offered, considering the high-interest rate environment, the announcement of the issuance of N2.5 trillion is, however, unprecedented in the bond market. This announcement has led to a slowdown in the market, with traders puzzled and questioning how new bonds will affect the pricing of the longer end of the market.
In a surprising turn of events, on Thursday, the National Bureau of Statistics (NBS) reported that Nigeria’s inflation rate was reported to have surged to 29.90% in January 2024, up from the previous month’s 28.92%, indicating growing inflationary pressures on the economy. The report from the NBS further highlights a notable uptick in the headline inflation rate. Year-on-year, January 2023 saw an inflation rate of 21.82%, indicating an alarming leap of 8.08% in January 2024. Moving forward, food inflation hit a staggering year-on-year high of 35.41% in January 2024, marking an alarming 11.10% increase from the same period in 2023. This sharp rise is attributed to significant price hikes across essential food items such as bread, cereals, potatoes, oils, fruits, as well as coffee, tea, and cocoa.
Market Highlight: Vol. 92
- Nigeria’s FX reserves dip by over $2 billion in less than one month, hitting the lowest level in over six years.
- BDCs now buying dollars at ₦980/$, naira appreciating faster than expected – ABCON President.
- Customs’ revenue at Tincan Port increases by 139% in Q1 2024.
- UBA seeks shareholders’ approval to issue 10.8 billion shares.
- Nigeria records ₦234 trillion e-payment transactions in Q1 2024.
- NGX urges FG to drive listings to deepen the capital market and boost tax revenue.
- Transcorp Power reports N28.772 billion pre-tax profit in Q1 2024.
- Egypt, Ghana, Nigeria, and others emerge as African countries with the highest T-bill yields in Africa.
- Pension Fund Administrators (PFAs) channelled 72% of investments in fixed-income assets in 2023
Local News
FGN requires N2.9trn to subsidise electricity in 2024 — Adelabu.
The Nigerian House of Representatives will investigate the utilisation of N6.57 trillion allocation received by states and LGAs in 2023.
FGN and World Bank are to raise $3 billion for Nigeria’s broadband infrastructure.
Kaduna Distribution Company increases staff salary amid N110bn debt
Global Developments
Recession hits the UK’s economy as GDP declines by 0.3% in Q4 2023.
Saudi treasury holdings hit the highest level in nearly three years.
Biden warns Netanyahu on attack without civilian protections.
UNICEF steps up the fight against cholera in Eastern and Southern Africa.
Nike will cut 2% of its workforce as sportswear giant seeks savings.
The US January Producer Price Index (PPI) rises by 0.3% M/M and 0.9% Y/Y.
