Oil prices have sustained a positive momentum this week, up 3.8 per cent week-on-week to $32.2 per barrel . The uptick in prices was due to demand recovery as economies reopened, US production forecasts for 2020 to 2021 were cut and Saudi Arabia’s proposed additional 1mb/d output cut in June. Domestically, the external reserves rose 2.5 per cent w/w to $35 billion reflecting the impact of Nigeria’s borrowing from the International Monetary Fund (IMF).
In the FX market, the CBN spot rate traded flat all week at N361.00/$1.00 while the rate at the parallel market depreciated N10.00 to N455.00/$1.00. At the Investors’ & Exporters’ (I&E) Window, the NAFEX rate appreciated 94 kobo to close at N386.00/US$1. However, activity level in the I&E Window moderated this week as total turnover declined three per cent to $163.3 million from $168.3 million recorded in the previous week.
At the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts settled at $15.4 billion, one per cent (US$149.5 million) higher than the prior week. The Apr 2021 instrument (contract price: N393.92) had the most buying interest in the week with additional subscription of $53.1 million which took total value to $435.3 million. Meanwhile the Feb 2021 instrument (contract price: N392.97) received sell-offs worth $1.3 million putting the total value to $1.5 billion. In the coming week, we expect exchange rate to be pressured due to more forex demand.
In the treasury bills secondary market, performance was bullish as average yield across benchmark tenors trended lower, down 40bps w/w to close at 2.4 per cent. The 91 and 182-day instruments enjoyed the most buying interest as yields declined 60bps apiece to 1.9 per cent and 2.2 per cent respectively while the 364-day instrument dipped 10bps to 3.1 per cent. In the coming week, we expect inflows from OMO maturities worth N10 billion and we envisage that system liquidity will remain elevated, driving rate lower in the secondary T-Bills market.
This week, there was a bearish sentiment in the domestic bonds market as average yield rose 32 basis point wee-on-week to 10.4 per cent. Although five instruments gained, market performance largely tilted towards the bears as 14 bonds saw an increase in their respective yields. The FGN 2027 bond led the gainers with a 0.2 per cent drop in its yields to 11 per cent while the FGN 2023 and 2024 instruments led the laggards following 0.9% and 1.2 per cent jump in their respective yields to 9.2 per cent and 9.6 per cent.
The week started on a bearish note, as yields climbed on Monday (+2bps) and Tuesday (+28bps). Conversely, the market maintained a bullish streak on Wednesday (-4bps) and Thursday (-3bps) as buying interest crept into the market. However, bearish sentiment resurfaced on Friday as average yield jumped 8bps.
