Global Events
The fallout of the conflict between Russia and Ukraine continued to weigh on the international oil market this week, as Russia threatened to turn off its gas taps to Europe today if the payment for Russian gas is not made in Rubles, while the U.S. turned to its Strategic Petroleum Reserves to help alleviate the supply shortage that the war exacerbated. The major drawdown for oil this week was the announcement by the White House that 1mbpd of oil will be released from the Strategic Petroleum Reserve for the next six months (the largest ever Strategic Petroleum Reserve release), which would help cool oil and gas prices.
Elsewhere, the OPEC+ bloc shrugged off the growing clamour for an accelerated increase in oil supply, with the bloc agreeing to raise its output target by 432,000 bpd in May 2022, which is merely 32,000 bpd higher than its existing output plan. While it does not appear probable that Russia would halt oil exports to Europe today, the Kremlin’s policy actions, such as capital controls and a massive rate hike, have helped salvage the Ruble from the losses suffered since the start of the invasion.
On the U.S. labour market front, March’s non-farm payroll fell slightly behind a 490,000 estimate, with 431,000 jobs added in the review month, while the total job gains for the quarter settled at 1.7 million. Interestingly, the unemployment rate stood at 3.60% in March, falling below an expected rate of 3.70%. Decoupling the jobs data, leisure and hospitality championed the non-farm payroll growth with a gain of 112,000, and the sector was trailed by professional and business services, retail, and manufacturing, which recorded job gains of 102,000, 49,000 and 38,000, respectively. On the policy end, it is likely that the decent job numbers will give the green light to the Federal Reserve to tackle inflation more aggressively, even with an unorthodox 50 basis points rate hike.
For the U.S. market, all eyes were on the bond yield curve, given the recessionary signals it was sending. Particularly, the spread between the 2-year and 10-year Treasury notes narrowed at the start of the week, after which we saw the Treasury yields invert multiple times during the week; hence, sending a distress signal of a possible recession in the U.S.
Money Markets
Interbank rates stayed depressed for most of the week, but the retail FX auction funding lowered the liquidity level in the system today, causing interbank rates to soar to double digits. The Open Buy Back (OBB) and Overnight (O/N) rates each rose by 4.50% to 10.17% and 10.67%, respectively.
We expect interbank rates to remain at double digits, as the liquidity level should remain depressed.
Treasury Bills
The treasury bills market started the week on a quiet note, but activities improved at the mid-week PMA. In line with the outcome of the PMA, yields at the long end of the curve expanded in the secondary market. Average benchmark yield rose by 6bps to 3.29%.
The DMO sold N174.19 billion worth of notes against N143.29 billion offered at its NTB auction this week. The 91-day, 182-day & 364-day notes were allotted at 1.75%, 3.00%, and 4.45%, respectively. Compared to the previous auction, the rate on the 182-day note remained unchanged, while rates on the 91-day and 364-day notes rose by 1bps and 45bps, respectively. We saw relatively lower interests at the PMA, as the bid to cover closed at 1.73x, compared to the previous auction at 5.14x
We expect the market to trade tepidly next week.
Bond Market
The local bond market traded sideways for most of the week, with the interests concentrated at the short to mid-end of the curve. Average benchmark yield fell by 2bps to 10.67%.
We anticipate a similar trend next week.
Eurobond Market
The Eurobond market enjoyed some respite this week, on the back of the progress made in talks between Russia and Ukraine. Average benchmark yield declined by 41bp to 7.67%, week on week.
We expect profit taking to temper the bullish bias next week.
FX Market
The Naira depreciated against the US Dollar by 7bps to $1/N416.63 at the Investors and Exporters FX Window this week.
Equities Market
The equity market closed bearish this week, as the benchmark All Share Index declined by 26bps to close at 46,842.86 points, while Year to Date return and Market Capitalisation settled at 9.66% and N25.25 trillion, respectively. Similarly, market breadth closed negative at 0.40x, as we recorded 19 advancers as against 48 decliners.
Volume traded advanced by 12.43%, while value traded fell by 16.67% week-on-week, respectively. The most traded stocks by volume were FIDELITYBK (184.58 million units), TRANSCORP (137.77 million units) and ZENITHBANK (80.08 million units), while ZENITHBANK (N1.83 billion), GTCO (N976.76 million) and ETI (N834.51 million) topped the value chart.
