Weekly Market Review: Vol. 95
Prologue
In the previous week, the NAFEM rate closed at $/₦1,400.40. Last week, it closed at ₦1466.31. As it stands, it looks as though the CBN is comfortable with having the naira against the dollar anywhere around ₦1,200 and ₦1,500. Speculatively, the Naira may trend as high as this level before the end of the week.
Market’s liquidity closed long despite CBN issuing OMO and the NTBs Primary Market issue. The liquidity for last week can be seen below (in millions of naira):
Monday – 06-05-2024: 296,333.66 — Long.
Tuesday – 07-05-2024: -173,450.84 — Short.
Wednesday – 08-05-2024: -46,394.52 — Short.
Thursday – 09-05-2024: 294,266.50 — Long.
Friday – 10-05-2024: 81,102.54 — Long.
Nigerian Financial Market
Two (2) weeks ago, Friday was the only day of the week when liquidity was long. While the just concluded week started with a long liquidity, the CBN announced the OMO auction scheduled for that same day. We believe this was in a bid to mop out the amount in circulation and possibly curb the rising inflation in the country. With a total of ₦500 billion on offer, at the end of the auction, there was just a total of ₦260.65 billion sold. Although the previous auction saw a total of ₦676.65 billion sold, this reflects a difference of exactly ₦416 billion.
Even though it is not quite surprising, the 99-day and 183-day tenors had the same values of subscriptions and sales – which was widely different from the original amounts that were offered for each tenor. For the 365-day paper, the bids and sales maintained a slight difference of ₦26 billion, and still recorded the highest sale among the three (3) tenors.
The OMO auction result:
For quite some time now, the NTBs auctions have been closed at almost the same levels as the previous stop rates. Most particularly, the last three (3) auctions have now closed at the same levels for the three (3) tenors – the 91-day, 182-day, and 365-day. Market bid has continued to be reduced despite the liquidity, is the market saturated with securities?
In the just concluded tenor, the lowest tenor surprisingly had an offer matching half of the offer amount for the 365-day tenor. While there may be a few factors responsible for this, analysts at Marina Times believe that it is the CBN’s way of managing cost – seeing that they are planning to adjust their issuance strategy and probably focusing more on meeting short term financing needs.
Alternative Assets
Bitcoin fluctuated around the $63,000 mark in the early hours of Friday, retreating slightly from its peak of $64,400 late Thursday, having rebounded from its dip below $57,000 two weeks ago. As of the latest update, bitcoin is trading just under $63,000, reflecting a 3.1% increase over the past 24 hours.
The surge in trading volume witnessed earlier this year, particularly with the introduction of US exchange-traded funds investing in Bitcoin was a result of tightening financial conditions in the US. The Federal Reserve has been faced with the challenge of addressing persistent inflationary pressures. The anticipation surrounding the Bitcoin halving on April 19, which saw a halving in the supply of new coins minted on the network, had fueled market enthusiasm beforehand.
Spot trading activity on major centralized exchanges like Binance and Kraken experienced a significant decline last month, falling by 32.6% to $2 trillion. Simultaneously, derivatives trading volume also saw a downturn for the first time in seven months, decreasing by 26.1% to $4.57 trillion.
As trading volumes dwindled, the spot market share of the world’s largest crypto exchange, Binance, declined for the first time since September 2023. The exchange’s share dipped by nearly 4% to 33.8%, marking its lowest spot market share since January.
Commodities
In the Middle East, Israel affirmed its commitment to combatting Hamas in the Gaza Strip independently, even in the absence of assistance from the US. This came after President Joe Biden’s stance on halting additional shipments of offensive weapons to Israel.
The previous week recorded an increase beyond the $84 per barrel mark for Brent oil following a steady two-day rise, marking a gain of approximately 1% and maintaining its position above the 100-day moving average. Meanwhile, West Texas Intermediate (WTI) approached the $80 threshold. Concurrently, initial filings for US unemployment benefits saw an uptick, reaching their highest level since August, and contributing to a more relaxed monetary policy. The decline in the dollar on Thursday rendered commodities more appealing to many buyers.
Despite crude oil’s recent gains, the price action has been relatively subdued, with futures poised to record their narrowest weekly trading range since March. Nonetheless, prices continue to remain elevated this year, supported by supply cuts enforced by OPEC+ along with robust global demand and ongoing tensions in the Middle East.
What Lies Ahead
The Bond auction takes place today, it is expected yields will come lower than previous auction. However, with market liquidity in long position, OMO auctions are also expected during the week.
With the MPC meeting coming up next week, the market is expecting no movement on rate policy. We can anticipate yields trading slightly lower than previous week. We will see if the MPC Community has a different idea at the meeting
