Last week was interesting for the economy and markets, despite a shortened week due to the Easter break. Nairametrics tracked a few notable developments that might possibly have significant effects on your money.
OPEC+ April 1st meeting
For Nigerians, the April 1st meeting meant a lot especially those who regularly track the oil market. OPEC+ agreed to gradually ease supply cuts in May by 350K, June 350K and July 450K barrels. Nigerians will generally want high oil prices. It means higher foreign exchange earnings for the country. However, it has its effects on the price of refined petroleum products in Nigeria. So it seems Nigeria is caught in the middle, even for a commodity that accounts for 90% of our export earnings.
Although most analysts agree that Nigeria is better off with higher oil prices, it was no surprise that Nigeria, led by the Minister of State for Petroleum, Timipre Sylva voted to extend the production cuts. Nigeria currently produces 1.4 million BPD due to the OPEC cuts but we have the potential to produce 1.9 million BPD.
The Nigerian Stock Market ended the first quarter of the year in deep red as the All-Share index fell to a loss of 3.04%. Historically, March has always been a tough month for Nigerian stocks. The story remains the same. The rising government securities yield is a major factor for the decline. Other factors outlined are portfolio reallocation, profit-taking, and markdowns.
In the midst of the storm, a few stocks have performed impressively and had double-digit growth for the past month. The likes of Lasaco Assurance Plc, Champion Breweries Plc, Guinness Nigeria Plc and others. You can get the full list of the best-performing stocks for the month of March and also get expert advice and stock recommendations by subscribing to our premium stock select newsletter here.
The narrative is that Nigerian stocks are tanking because of the rising yield in the bond market, which is largely the case. However, the S&P Nigeria Sovereign Bond Index is currently -16.62% YTD. So what does this mean?
In simple terms, Bond yields have an inverse relationship with bond prices such that rising interest rates implies lower bond prices. After plunging to record lows in 2020 as the CBN sought to support the economy under the COVID-19 recession, interest rates have reversed in 2021 and are moving north. The development reflects the prospect of higher fiscal borrowings, rising inflation and external account imbalances.
The FGN plans to borrow a record NGN2.1 trillion in local debt markets to help finance a record NGN5trillion deficit brought about by the oil price drop. Higher borrowings are associated with an oversupply which means lower prices (i.e higher bond yields). Furthermore, inflation has accelerated to a 17.3% which suggests investors should short fixed income instruments which will drive more sellers and again lower prices (i.e higher bond yields).
A rising interest rate environment is bad for long-only bond traders as this means lower bond prices and mark-to-market losses. For more patient money, rising interest rates allow you improve the yield on your portfolio.
Why does this even matter? The answer depends on what side of the market you are.
Telcom giant, MTN and Nigerian banks have reached an agreement to resolve the dispute between the parties over commission and service charges. It was reported that MTN reduced the percentage it remits to the bank from 4.5% to 2.5%. In response, the banks removed MTN from their platforms on Friday.
It will be interesting to watch how this plays out because there are other alternative platforms subscribers can use for the activity. Many fintech optimists marked the disagreement as a watershed moment for challenger banks and other alternative payment systems.