EUR 132.56 For Business Accounts Only

Breakfast Report - 18th July 2016

• The Central Bank Governor Godwin Emefiele and Deputy Governor Sarah Alade embarked on a roadshow to U.S. and U.K to entice bond investors to buy assets in Nigeria. However, investors expressed concerns over liquidity in the Nigerian foreign exchange market and pressured foreign reserves amidst sizeable outstanding obligations from FX sales at the futures market. Meanwhile, at the FX interbank spot market on Friday, the Naira depreciated N9.15 to a record low of NGN292.25/USD whilst the one year forward rate closed at NGN317.82/USD. Also, the Naira depreciated 4% w/w at the parallel market last week to close at NGN365/USD.

• According to the Consumer Price Index report published by the National Bureau of Statistics (NBS), headline inflation in June rose at a faster pace of 16.5% y/y (May: 15.6% y/y), the highest figure recorded in over a decade and above Bloomberg Consensus of 16.2% y/y. This was driven by a quickening in both core and food inflation, majorly reflecting the pass-through effects of the Naira devaluation – the currency fell steeply from NGN199/USD to about NGN282.67/USD in June. Following a 1.2% m/m increase, Core Inflation printed at a 9 year high of 16.2% y/y (May: 15.1% y/y), with the largest increases recorded in the Electricity, Liquid fuel (kerosene), Furniture and Furnishings subdivisions. Similarly, following a 20% y/y acceleration in imported food prices, Food inflation peaked at 15.3% y/y in June (May: 14.9% y/y). However, on a month on month basis, the Food index recorded a slower pace of increase of 1.44% compared to the 2.57% recorded in the previous month. The continuous rise in supply-driven inflation creates policy challenges for the MPC as Nigeria is at the brink of a recession.

• The Nigerian equity market wavered between green and red closes this past week as mixed sentiment persisted across key sectors even as earnings season got underway. Amongst major companies, Nigerian Breweries (NB) was first to report, with H1 net earnings down 11% y/y after reporting FX losses following the Naira devaluation. Overall, the NSE ASI declined by a marginal 17bps w/w to put year to date return at 0.57%.
• We expect mixed trading pattern with bearish bias in the coming sessions given expectations of a lackluster earnings season.