Economic Update

 Key Highlights: -

Macroeconomic /Socio-Political Update

·         Following a meeting of the Federation Account Allocation Committee (FAAC), the Minister of state for Finance, Yerima Ngama, on Monday, November 28, 2011 revealed that N615.8bn (US$3.9bn) was distributed from the federation account to the three tiers of government for October. In addition, a total of US$2.0bn was also released from the Excess Crude Account (ECA) to the various arms of government for completion of various, albeit, unspecified projects.

·         While speaking at an industry conference on Monday, November 28, 2011, Chief Executive of Nigeria’s state Asset Management Company (AMCON), Mustapha Chike-Obi, said AMCON will recover 70.0% of the N3.1tn (US$19.6bn) in non-performing loans (NPLs) it took off the books of banks following the 2009 bailout.

Equity Market Review & Outlook

·         Globally, financial markets took a breather as the Euro zone attempts to find a way to stem its debt crisis. Central banks from the world’s leading developed economies agreed to take coordinated steps to  address the lack of liquidity in the global financial system.

·         The Nigerian equity market closed the week with a depreciation of 79bps in the benchmark index, as appetite for higher stable fixed income yields continue to weigh on market activities. We expect low levels of activities in the market this week as investor confidence remains low in spite of relatively attractive valuations.

Money Market Review & Outlook

·         Interbank rates soared in the money market last week, as elusive FAAC credits for the third week running ensured that the market remained illiquid.

·         We envisage the eventual release of FAAC credits for the month of October this week. An improvement in market liquidity should lead to a downward moderation of interbank rates in the near term.

Foreign Exchange Market Review & Outlook

·         Demand for the Dollar at the official market last week stood at US$515.6m, 37.9% less than the US$830.8bn demanded at both auctions in the previous week.

·         We expect Dollar demand to stay around current levels this week, with a minor depreciation at the official window.

Bond Market Review & Outlook

·         FAAC proceeds did not hit the market as expected last week, thus   reversing the bullish trend witnessed in the OTC bond market in the previous week. Yields subsequently rose across board, with significant increases on the 3yr, 5yr and 7yr bonds.

·         We expect inflows from FAAC to finally hit the system this week and this should shape the trading pattern of this market this week.