ZOCK CAPITAL AND INVESTMENT MARKET UPDATE AS AT 27th JULY 2021
FOREIGN EXCHANGE MARKET
At the I & E Fx market, Naira dipped by 0.04% as the dollar closed at N411.67 against N411.50 previous day . Most participants maintained bids between N400.00 and N412.20 per dollar.
The CBN earlier today concluded its fourth Monetary Policy Committee (MPC) meeting for the current year. The committee voted unanimously to retain Monetary Policy Rate (MPR) at 11.50 percent, with the asymmetric corridor retained at +100/-700 bps around the MPR. Furthermore, the Cash Reserve Ratio (CRR) and Liquidity ratio were left unchanged at 27.5 percent and 30 percent, respectively.
WHAT CBN’S BAN ON SALE OF FOREX TO BDCS MEANS FOR THE NAIRA
The 137th monetary policy meeting which was held on 27th July 2021 concluded with the Central Bank of Nigeria taking an aggressive stance to discontinue the supply of FX to Bureau De Change operators (BDCs) in order to clampdown on what Godwin Emefiele (CBN Governor) termed illegal activities being perpetrated by BDCs when foreign exchange is supplied to them.
Reason for the ban
The CBN governor outlined that the main angst with the BDC operators was that the BDCs continued to create artificial FX scarcity in a bid to seek “abnormal” profits thus introducing risks to the Nigerian financial system.
He further noted several behaviours which were unhelpful to CBN’s price stability objectives such as rent-seeking BDC operators only interested in large margins, dollarization of the Nigerian economy, subversion of the cashless policy, common ownership of several BDC by the same owners to obtain multiple FX, and ‘regrettably’ international organization and embassy patronage of illegal FX dealers.
FIXED INCOME SECURITIES AND MONEY MARKET UPDATE
The treasury bills secondary market experienced mixed sentiment across maturities as players repositioned their respective portfolios ahead of the auction. The average yield across the curve decreasing by 41 bps to close at 6.32 % from 6.73 % the previous day. Average yields across short-term, mid term, and longterm maturities declined by 79 bps, 7 bps, and 33 bps, respectively. Maximum buying interest was seen in the NTB 26-Aug-21, NTB 9-Sep-21, NTB 16-Sep-21, and NTB 14-Oct-21 maturity bills with a yield decline of 83 bps each. However, NTB 13-Jan-22 maturity bill witnessed selling pressure with a yield increase of 78 bps.
The average yield across the curve decreased by 2 bps to close at 8.59 % as against the last close of 8.61 %.We saw mild buying activities across short-term and long-term maturities with the average yields compressing by 2 bps and 4 bps, respectively. However, the average yield across the medium-term maturities closed flat at 8.55 percent. Yields on 14 bills decreased with the 28-Sep-21 maturity bill recording the highest yield declined of 16 bps, while yields on 8 bills remained unchanged.
TREASURY BILLS PRIMARY MARKET AUCTION (PMA).
Today, the CBN is scheduled to conduct a Primary Market Auction to roll over Treasury bills maturities worth N216.19 billion across 91-day (N7.19 billion), 182-day (N47.48 billion), and 364-day (N161.52 billion) tenors.
As of July 27, the Overnight rate increased by 0.50 % to close at 16.25 % as against the last close of 15.75 percent, and the Open Buy Back (OBB) rate increased by 0.75 percent to close at 15.75 percent compared to 15.00 percent on the previous day.
FGN bonds secondary market closed on a positive note , as the average bond yield across the curve cleared lower by 33 bps to close at 9.43 percent from 9.76% on the previous day. The FGNSB 15-AUG-2021 and FGNSB 16-AUG-2021 were the best performers with a decline in yield of 89 bps each, while the 27-MAR-2050 maturity bond was the worst performer with an increase in yield of 20 bps Average yields across short tenor and medium tenor of the curve declined by 44 bps and 2 bps, respectively. However, the average yield across the long tenor of the curve increased by 5 bps.
FGN BOND MARKET YIELD CURVE
MARKET NEWS HEADLINES
Nigeria Suddenly Bars Sale Of $5.7 Billion To Money Traders
Nigeria’s central bank halted the sale of foreign exchange to money changers to ease pressure on the nation’s currency, Governor Godwin Emefiele .The decision will halt the supply of $5.72 billion annually by the central bank to the West African nation’s bureaus de change — a key source of foreign exchange for Nigerians traveling abroad and local businesses. The central bank will also stop issuing new licenses to currency-trading companies, whose number more than doubled to almost 5,500 over the past five years, Emefiele said at a briefing Tuesday in the capital, AbuJA. The measure may lead to an initial depreciation in the naira’s value as the sudden withdrawal of supply from the central bank causes the price of dollars to increase.“Hoarding of dollars is expected to accompany and exacerbate the kneejerk reaction in the market, as participants gear up for a tighter foreign-exchange market,” Lagos-based investment bank Comercio Partners Ltd. said in an emailed note.
The central bank took the step because some bureaus de change have become “greedy” chasing higher profits and their demand for foreign currency is bringing pressure to bear on the naira and the nation’s reserves, Emefiele said. The central bank will only supply dollars through commercial lenders from now on, he said.We have noted with disappointment and grave concern that our bureau de change operators have abandoned the original objective of their establishment, which was to serve retail users who need $5,000 or less,” Emefiele said. “Instead, they have become wholesale dealers” who trade in millions of dollars per transaction, he said.
Nigeria To Launch Digital Currency, “E-Naira.
Nigeria plans to launch its own crypto currency, called the “e-naira”, in October, its central bank governor said on Tuesday.Nigeria barred its banks and financial institutions from dealing in or facilitating transactions in cryptocurrencies in February.Central Bank Governor Godwin Emefiele said the “e-naira” would operate as a wallet against which customers can hold existing funds in their bank account.
NIGERIA’S CBN RETAINS KEY POLICY RATE
The Central Bank of Nigeria has retained the monetary policy rate at 11.5 per cent, with the assymetric corridor of +100/-700 basis points around the MPR.The CBN governor, Godwin Emefiele, announced this Tuesday after the Monetary Policy Committee meeting that began Monday.The bank also held other parameters.Addressing journalists at the end of the 2-day meeting of the Monetary Policy Committee (MPC) meeting in Abuja, Mr Emefiele said the committee voted to keep the Cash Reserve Ratio (CRR) at 27.5 per cent as well as the Liquidity Ratio at 30 per cent.
In May, the MPC had retained the monetary policy rate at 11.5 per cent, with the assymetric corridor of +100/-700 basis points around the MPR.The committee also voted to retain the Cash Reserve Ratio (CRR) at 27.5 per cent as well as the Liquidity Ratio at 30 per cent. The committee argued that the move was expected to allow further economic growth, despite four-year high inflation, after the country exited recession last year.On Tuesday, Mr Emefiele said the MPC noted that although headline inflation remained above the CBN’s target range of between six and nine per cent, the bank’s intervention in various sectors of the economy would help push inflation downward.It noted the gradual recovery in economic output growth, and hoped the second quarter growth will be better.The bank said it was delighted that inflation was beginning to trend downward, but that it needs to apply measures to further reduce inflation.The bank urged banks to use its discretionary measures to help check inflation by mopping excess money out of the system.
EXTERNAL RESERVES GAIN $76.5 BILLION IN SEVEN DAYS
In a curious twist of fate last week, there was a breather for the falling foreign exchange reserves. The figures gained an average of $76.5 million in seven days.The gross component gained $83.3 million between July 12 and July 19 to close at $33.17 billion while the liquid part climbed from 32.85 billion to 32.92 billion.The liquid reserve is the component available in cash/or equivalent while gross comprises liquid and blocked portion – part of the asset held in securities and other investments.As of July 19 when the most recent data were published, $251.46 million or 0.76 per cent of the total sum was blocked – the highest proportion since March 29.There is no sufficient data to establish whether the bullish trend of the reserve will continue in the coming week. The reserve had fallen consistently since April before the recent retracement.
While falling external reserves are seen as a falling knife for any economy, especially a highly import-dependent, the Chief Consultant of B. Adedipe Associates Limited, Biodun Adedipe, said Nigeria faces a major crisis any time its reserve falls below the estimated value of its six-month imports.The Guardian had earlier reported that Nigeria faced a tough challenge financing its huge import as the foreign reserve holdings continue to tumble. The falling reserves, experts warned, could leave the country’s battled economic outlook worse off as the confidence of foreign investors is partly influenced by the size of the reserve.
NAIRA STABLE AT OFFICIAL, BLACK MARKETS
Naira maintained stability against the U.S dollar at both the official and black market segments on Monday.Data posted on the FMDQ Security Exchange where forex is officially traded showed that the naira closed at N411.50 per $1 on Monday, the same rate it exchanged hands with the greenback currency on Friday last week.This occurred as forex turnover rose by 3.11 per cent, with $139.49 million posted at the end of the market session as against the $135.28 million recorded in the previous session on Friday last week.The currency experienced an intraday low of N412.20 and a high of N400.00 before settling again at N411.50 on Monday.Similarly, data published on abokiFX.com, a website that collates the parallel market rates in Lagos showed that the naira closed at N504.00 per $1 on Monday, the same rate it traded in the previous session on Friday last week.This leaves the spread between the official market and the parallel market segment rates at N92.50, again maintaining the same disparity of 18.40 per cent on Monday.
DISCLAIMER: This publication is strictly for information purposes only for Zock capital and invest LLC and its employees take no responsibility or liability as to the accuracy and completeness of the information.
For further ./enquiries/information on this publication, please contact Research and Economic Intelligence .
Analyst: Judith Idialu: Zock capital and Investment LLC,
0805 598 0595