The interbank money market had a liquidity deficit throughout the week as OPR and O/N closed at 31.61% and 32.45% respectively. The position opening Friday was a little over ₦663 billion short.
As NAFEM closed at $/₦1,563.80 and the street market closed at $/₦1,600, the exchange rate appeared to be skewed in favour of the greenback throughout last week The markets are struggling to come to terms with the FG’s announcement of a six-month duty-free import window with a plan to import 250,000 tons each of wheat and corn. Although the plan as disclosed is expected to cut down on or curb food inflation, which has risen this year at its fastest pace in almost three decades, many analysts have criticised the approach as being counterproductive.
Also, the recommendations by lawmakers for the Central Bank to fight inflation with gold have been considered very progressive across the markets. Without a doubt, Nigeria as an entity is exploring innovative solutions to revive its economy.
Food Inflation in Nigeria
Food inflation is a critical issue in Nigeria, affecting millions of households. According to reports, food inflation appears to be accelerating to over 40%, but for many Nigerians, the impact of the increase feels like it could be well over 100%. This discrepancy can be attributed to several factors, including data collection, where the methods used to collect and analyse the rate of inflation may not fully capture the reality, especially in the informal sector (which accounts for a significant proportion of the population). Another factor could be supply-chain disruptions which can be attributed to insecurity and poor infrastructure. Nigeria, being a largely import-dependent economy is vulnerable to external shocks. Fluctuations in exchange rates and global food prices directly impact local prices, often worsening inflation. Other agricultural challenges like low productivity, lack of access to modern farming techniques, and the effects of climate change have hindered domestic food production.
Although most analysts have written off this measure based on its potential to build up avoidable demand for FX and the tendency to import even more inflation, we think it is imperative for the FG to regulate retail prices further to importation and ensure strict compliance with the desired objectives upon implementation.
Fixed Income Markets
There was a lot of uncertainty at the close of last week as the FGN Bond auction initially scheduled for today was moved forward to July 22nd, 2024 “…due to unforeseen recent developments.” While some interpret the auction postponement to indicate the DMO’s significantly reduced appetite for borrowing at current yields, some have suggested the possibility of a shift in borrowing focus from the local markets.
The T-Bills auction on Wednesday marked the first auction in Q3 2024 and settled the following day. With a total of over ₦166 billion on offer, the CBN allotted a sum of over ₦207 billion at the end of the auction when compared to the subscription of over ₦308 billion. Again, the stop rates for the 91-day and 182-day tenors were maintained – 16.30% and 17.44%, respectively. However, investors continue to be aggressive in their bids for the 364-day tenor, as there was a 56bps increase in the stop rate.
Contrary to the trend from the previous week for Brent and WTI Crude Oil where there were gains of 285bps and 101bps, respectively, last week, there was a decline of 171bps for Brent and 117bps for WTI Crude Oil.
According to reports from Reuters, an oil tanker seized by Iran’s Navy in 2023 on the Gulf of Oman is now moving into international waters. Earlier this year, Iran unloaded the tanker’s oil, stating it would sell the oil to fund medicine imports for a severe skin disease. This decision followed a lawsuit against the US Government by patients with the disease, alleging that US sanctions hindered their treatment. An Iranian court recently ruled that the US must pay $6.8 billion in compensation to affected patients. At the time, the value of the oil was estimated at $50 million.
The Marshall Islands-flagged oil tanker, Advantage Sweet, was seized by Iran in May 2023 while en route from Kuwait to Houston, commissioned by Chevron. The US Navy demanded its release, while Iran claimed it was investigating the vessel. Iran later unloaded the tanker’s oil, reportedly in retaliation for the US unloading the cargo of an Iran-affiliated tanker seized in 2023. Reuters noted that the US State Department welcomed reports of the Advantage Sweet’s movement.
Pulse Chain
Pulse Chain, a blockchain project spearheaded by Richard Heart, founder of HEX, alongside a team of developers and a burgeoning community, aims to revolutionise the crypto landscape. Initially conceived as a fork from Ethereum, Pulse Chain underwent significant modifications to slash transaction fees (gas fees) and bolster scalability without compromising on critical upgrades.
The project’s roadmap includes implementing enhanced tokenomics and a proof-of-stake consensus mechanism. At its core, Pulse Chain’s main net launch seeks to mirror Ethereum’s state while offering reduced transaction costs and accelerated transaction times. An endeavour considered ambitious and which has generated substantial momentum within development circles and community spaces, underscoring its potential as a formidable alternative blockchain platform.
Trading under the ticker symbol PLS, Pulse Chain aspires to innovate upon existing blockchain frameworks, particularly Ethereum, by introducing cutting-edge functionalities and addressing scalability challenges prevalent in the current ecosystem.
Richard Heart, the prominent figure behind Pulse Chain, gained recognition for his creation of HEX, a token that catapulted early adopters to financial success. Known for his active involvement in various blockchain communities and the decentralised finance (DeFi) sector, Heart’s leadership has been pivotal in shaping Pulse Chain’s trajectory.
However, amidst its promising developments, Pulse Chain and Richard Heart have faced legal challenges. On July 31, 2023, the Securities and Exchange Commission (SEC) filed a lawsuit against Heart, also known as Richard Schueler, and entities under his control — Hex, PulseChain, and PulseX. The SEC alleges that these entities conducted unregistered offerings of crypto asset securities, amassing more than $1 billion from their investors. Heart and PulseChain are accused of fraudulent activities, including the misappropriation of approximately $12 million from their offerings. Allegedly, these funds were used to purchase luxury items like sports cars, watches, and ‘The Enigma,’ a massive 555-carat black diamond, purportedly the largest of its kind globally.
This legal action underscores the challenges and controversies surrounding Pulse Chain and Richard Heart, in contrast to the project’s noble technological aspirations.
Worthy of note is the fact that the HEX and Pulse Chain have operated flawlessly for years and have never been hacked or compromised. Pulse Chain has also delivered on its promise of low gas fees and superior scalability. The cost of transactions on Pulse Chain is extremely low for a blockchain compared to Ethereum, Solana, and Binance, to name a few.
The technology is worthy of emulation and should be embraced for smoother and more secure transactions. This is another prime illustration of the fact that governments all over the world will fight crypto as long as they have no control over it. Ultimately, we hope it will be a win for all crypto users.
Nigeria’s CPI and Inflation Report is due for publication today, and in many regards is likely to influence the MPC decision next week. The markets are entering a liquidity recovery phase this week as coupons are expected to be credited from Thursday barring any OMO action by the CBN. As liquidity creeps into the system, short-dated (T-Bills) yields may remain elevated to reflect the net liquidity deficit (as credits will not fill the void). Long-term yields, however, may not necessarily trend higher going forward following the DMO’s posture, first to reduce the amount offered at each auction and more recently the perceived reluctance to borrow at exorbitant yields. In any case, it is not impossible that interest rates may have peaked at the long end of the curve if the CBN Governor’s statements in the last few days about the interest rate outlook are anything to go by.
The CBN took action to sell substantially to the interbank market last week. We expect such action to be sustained if the exchange rate exceeds a reasonable comfort threshold.
