Naira may reverse loss this week, say experts – Punch

Economic and financial experts have said the naira may reverse this week the loss it recorded against the United States dollar last week.

Owing to increased scarcity of the dollar, the naira fell from 490/dollar to 497/dollar during the past week.

Currency and financial experts, however, linked the loss recorded by the local unit to acute shortage of foreign exchange occasioned by the absence of the Central Bank of Nigeria in the forex markets in the past three weeks.

 

The Managing Director, Cowry Asset Management Limited, Mr. Johnson Chukwu, said, “The CBN is still the major supplier of forex. The central bank has stopped selling forex at the interbank forex market and the Bureau De Change segment in the last three weeks.

“When the CBN resumes forex sales to the BDCs and begins interventions at the interbank market this week, the naira will reverse the loss it recorded last week.”

A senior associate in investment banking at Afrinvest, a local research and investment firm, Mr. Ayodeji Ebo, also  said the naira should appreciate this week but noted that this might not be sustainable throughout the first quarter of this year.

He said there was a need to address the underlying factors fuelling the volatility in the naira-dollar exchange rate.

Ebo said, “The CBN needs to embrace the full implementation of the FX policy published in June 2016. A proper implementation will engender confidence, improve inflows which will invariably reduce the gap between the FX’s interbank and parallel market rates.

“We expect the pressure in the interbank market to persist as long as the spread remains wide. Consequently, this has continued to incentivise a lot of unethical unpractices. Inflows from Nigerians in Diaspora should improve liquidity in the interbank FX market if the spread with the parallel market is curtailed.”

Economic and currency experts have expressed divergent views over the outlook of the naira this year.

While some said the naira would experience further decline at the parallel market this year, others said the volatility noticed in the exchange rate last year could not continue this year.

“We will continue to see reasonable volatility of the naira during the first half of this year,” a currency analyst at Ecobank Nigeria, Mr. Kunle Ezun, said.

According to Ezun, the naira will continue to depreciate at the parallel market while the Central Bank of Nigeria will keep managing the official rate around 305/dollar.

 

External reserves rise by $1bn in two weeks – Punch

Oyetunji Abioye

The country’s external reserves have hit $26.968bn, nearing the $27bn mark, the latest statistics posted on the Central Bank of Nigeria website have shown.

 

The reserves rose to $26.968bn on January 13 from $26.765bn on January 11, having hit $26.658bn and $26.552bn on January and 10 and January 11, respectively.

 

Between December 30, 2016 and January 12, 2017, the foreign exchange reserves rose from $25.8bn to $26.8bn, indicating an accretion of $1bn in two weeks, the CBN data showed.

The foreign exchange reserves have been rising significantly in recent weeks following the gradual increase in crude oil price and production output.

Experts said the slowdown in foreign exchange allocation to forex markets by the CBN might have contributed to the reserves accretion.

Within the space of three days, the reserves rose by $300m from $26.2bn on January 6 to $26.5bn on January 9.

The foreign exchange reserves had hit $26.0bn on January 3, 2017, up from $25.8bn on December 30, 2017, the CBN statistics revealed.

The reserves ended last year with $25.84bn on December 30, 2016.

The foreign exchange reserves had risen to over four-month high of $25.7bn on December 28, up from $25.4bn on December 23.

However, currency and economic experts are not sure if the current accretion in the external reserves’ is sustainable amid a falling naira and acute shortage of dollar in the foreign exchange markets and the economy.

The CBN had spent $4bn from the nation’s external reserves to defend the local currency in the last 12 months, despite the staggering fall in the value of the naira against the United States dollar and other major foreign currencies last year

The controversial defence of the naira by the CBN has come under severe criticism from economists, who believe that the forces of demand and supply should be allowed to determine the exchange rate of the naira, at least to a considerable level.

The country’s reserves had recorded $23.89bn low on October 19.  The reserves dropped by 15.9 per cent between 2015 and 2016

African Markets – Factors to watch on Jan 17 – Reuters

NAIROBI, Jan 17 (Reuters) - The following company announcements, scheduled economic
indicators, debt and currency market moves and political events may affect African markets on
Tuesday.
    - - - - -
 EVENTS:
 *SOUTH AFRICA - Treasury to auction 2.35 billion rand worth
 of bonds maturing in 2035, 2040 and 2044.
 
 GLOBAL MARKETS
 Asian stocks and the pound sagged on Tuesday as investors
 waited for British Prime Minister Theresa May to lay out
 plans to exit the European Union, which traders fear will
 see Britain lose access to the bloc's single market.
                               
 
 WORLD OIL PRICES
 Oil markets were mixed on Tuesday, supported by Saudi Arabia
 saying it would strictly adhere to a commitment to cut
 output, but held back by scepticism in financial markets
 that oversupply would be curbed.                     
 
 EMERGING MARKETS
 For the top emerging markets news, double click on
            
 
 AFRICA STOCKS
 For the latest news on African stocks, click on     
 
 SOUTH AFRICA MARKETS
 South African stocks gained for a fifth consecutive session
 on Monday, reaching a 4-month high as bullion producers
 advanced on global uncertainty and retailers rallied on a
 better than expected sales update.              
 
 NIGERIA TRANSPORTATION
 A new terminal at northern Nigeria's Kaduna airport is still
 under construction with cables hanging from ceilings less
 than two months before it is due to become an aviation hub
 when the capital's airport closes temporarily for runway
 repairs.             
 
 GHANA DEBT
 Ghana plans to issue 17.4 billion cedis' ($4.1 billion)
 worth of domestic instruments for government finances and
 debt restructuring in the first three months of this year,
 the central bank said on Monday.              
 
 KENYA MARKETS 
 The Kenyan shilling        was stable against the dollar on
 Monday but traders expected an uptick in demand from oil and
 retail goods importers that could put the local currency
 under depreciation pressure.              
 
 KENYA ECONOMY
 Kenya's economic growth rate will slow in 2017, from about 6
 percent last year, due to sluggish credit growth and as
 investors take a wait-and-see attitude before a presidential
 election in August, a senior IMF official said on Monday.  
                 
 
 TANZANIA DEBT
 Tanzania is seeking a loan of $200 million from the World
 Bank for debt-ridden state power supplier TANESCO, the
 country's energy ministry said on Monday, two weeks after
 the president refused to allow the utility to hike prices to
 cover costs.                
 
 GAMBIA POLITICS
 The top judge in Gambia's Supreme Court declined on Monday
 to rule on President Yahya Jammeh's petition to overturn his
 election defeat, as many Gambians wait nervously to see how
 the veteran leader will react to his rival's planned
 inauguration this week.               

Investors turn wary as Brexit, Trump uncertainty grows – Reuters

By Nigel Stephenson | LONDON

Investors sold sterling and stocks on Monday, seeking shelter in gold and the Japanese yen as uncertainty over Britain’s departure from the European Union and the policies of U.S. President-elect Donald Trump curbed appetite for risky assets.

U.S. markets were closed for the Martin Luther King Day holiday, crimping market activity and potentially exacerbating price moves.

The dollar .DXY rose, except against the yen, rebounding after suffering its worst week since November last week, when it was hit by a lack of clarity over what Trump, whose inauguration is on Friday, will do once he assumes office. 

The price of gold, a frequently sought haven for investors in uncertain times, hit its highest level since November.

“The market is taking a reality check from Trump euphoria, equity markets are moving sideways, the dollar has steadied and bond yields are down, allowing gold to recover,” Julius Baer commodities analyst Carsten Menke said.

Yields on low-risk German government bonds fell, but those on Italian equivalents edged up after rating agency DBRS cut Italy’s credit rating late on Friday, a move that could raise borrowing costs for the country’s banks.

But the eye-catching mover was Britain’s pound, a day before a speech by British Prime Minister Theresa May. Media reported that she would lay out an exit from the EU that would see Britain lose access to the bloc’s single market.

The pound GBP=D4 fell as low as $1.1983 in thin early Asian trade, which, barring a sudden “flash crash” in October, was its weakest against the dollar in 32 years.

Investors will scrutinize May’s speech for clues to whether she plans to prioritize immigration controls in a “hard Brexit” that some analysts say could hurt the economy.

The fall in sterling, which makes UK exports cheaper, has contributed to an unprecedented 14-day rally in the blue-chip FTSE 100 stock index .FTSE.

The index fell 0.2 percent on Monday but still outperformed continental European markets. The main STOXX 600 index fell 0.8 percent, as declines in autos and banks offset a rally in eyewear makers Luxottica (LUX.MI) and Essilor (ESSI.PA), who agreed a 46 billion-euro merger.

German carmakers BMW (BMWG.DE), Daimler DAIG.DE and VW (VOWG.DE) fell between 1.6 and 1.8 percent after Trump warned he would impose a 35 percent border tax on vehicles imported to the U.S. market.

MSCI’s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS eased 0.6 percent, Japan’s Nikkei .N225 lost 1 percent as the strong yen hit exporters.

Sterling last traded at $1.2055, down 1 percent on the day. The euro was up 0.6 percent at 87.97 pence EURGBP= while the yen was up 0.8 percent at 137.40 to the pound.

“Every time there’s hard Brexit headlines, that triggers a fresh bout of selling,” MUFG currency analyst Lee Hardman said.

“It’s almost impossible to see Europe allowing the UK to remain a full member of the single market if it wants to regain control of the border and the laws and wants to strike its own agreement,” he added.

The dollar index .DXY, which measures the U.S. currency against six of its peers, rose 0.4 percent. The euro EUR= fell 0.4 percent to $1.0602 while the yen, another perceived safe haven investment, rose 0.5 percent to 113.99 per dollar.

 

ITALY DOWNGRADED

German 10-year bond yields fell 2 basis points to 0.25 percent DE10YT=TWEB. Italian 10-year yields, by contrast, rose marginally to 1.90 percent.

Italy’s downgrade will mean Italian banks will have to pay more to borrow money from the European Central Bank when they use the country’s sovereign bonds as collateral. It may also make Italian debt less attractive for foreign buyers.

Oil held steady, though doubts that large oil producers will cut output, as agreed by the Organization of the Oil Producing Countries and others, put prices under pressure

Brent, the international benchmark, last traded at $55.37 a barrel, down 8 cents on the day LCOc1.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets

(Additional reporting by Wayne Cole in Sydney, Nallur Sethuraman in Bengaluru, Jemima Kelly, Dhara Ranasnighe, Christopher Johnson and Julia Payne in London; Editing by Jeremy Gaunt)

Inflation is out of CBN’s control – The Guardian

Dr Olusegun Omisakin, the Head of Research, Nigerian Economic Summit Group (NESG), says rising inflation rate in the country has gone beyond the control of Central Bank of Nigeria (CBN).

Omisakin made the observation in an interview with the News Agency of Nigeria (NAN) on Monday in Lagos.

NAN reports that data released by the National Bureau of Statistics (NBS) on Jan.13 showed that December 2016 inflation rate stood at 18.55 per cent from 18.48 per cent in November.

Inflation targeting is a major economic policy objective of CBN and this has been the focus of its Monetary Policy Committee (MPC).

The apex bank, on July 26, 2016, increased the Monetary Policy Rate (MPR) by 200 basis points from 12 per cent to 14 per cent to check inflation.

The CBN retained all key indicators at its September and November MPC meetings to keep MPR at 14 per cent, Cash Reserve Ratio at 22.50 per cent and the Liquidity Ratio at 30 per cent, all aimed at controlling inflation.

Omisakin said that the rising inflation had defied CBN’s monetary policy measures, adding that policy tools adopted by the apex bank were only effective in taming inflation arising from demand-supply imbalances.

“In this case, inflation is cost-push. Production cost is high because producers who want to import intermediate goods for production do not have access to foreign exchange.

“Most of them go to the black market and definitely the product from this would be expensive, thereby increasing inflation.

“The CBN cannot do anything through the monetary policy rate to arrest this inflation even if CBN increases the MPR to 20 per cent. Inflation would not come down.

“The inflation we are experiencing now is out of the control of CBN. CBN can only address issues that have to do with availability and circulation of money and credit control.

“CBN cannot address cost-push inflation because it cannot provide energy, roads, transport. There are fiscal issues,” Omisakin said.

The economist urged the CBN to formulate policies that would boost industrial production and economic growth in view of the current economic recession.

Omisakin called for coordination of fiscal and monetary policies to check the rising inflationary trend in the country.

“The rising cost of food, transport and energy will reduce if the Federal Government creates concrete fiscal policies with effective implementation to address the situation through increased investment in infrastructure and agriculture,” he said.

The expert said that speedy passage and effective implementation of the 2017 budget would stimulate economic activities.

Naira stabilises at N497 to dollar – The Guardian

The Naira on Monday stabilised at N497 to a dollar at the open market just as stakeholders expressed hope in its imminent recovery, the News Agency of Nigeria (NAN), reports.

The Nigerian currency, however, strengthened against the Pounds Sterling, but weakened against the Euro at the open or parallel market as it closed at N595 and N517, respectively; from N597 and N515 posted on Friday.

At the Bureau De Change (BDC) window, the Naira traded at N399 to a dollar, a rate it would maintain for the rest of the week, while the Pound Sterling and the Euro traded at N604 and N522 respectively.

Trading at the interbank market saw the Naira weakened further at N305.25 to a dollar, from N305 posted on Friday.

Traders at the market said that while the scarcity of the greenback remained visible, there were strong indications that the Naira was on its way to imminent recovery.

NAN reports that since the closure in the sale of forex to BDCs last December, the spike in the Naira exchange rate had continued unabated.

Worried by the development, the Association of Bureau De Change Operators of Nigeria (ABCON) last week pushed for the adoption of a single rate at the market.

Alhaji Aminu Gwadabe, the President ABCON, argued that multiple rates were frustrating efforts at stabilising the Naira and fast tracking its recovery trajectory.

Gwadabe expressed optimism that the resumption in the sale of about N250 million dollars to members of the association this week would help in addressing liquidity challenges in the market.

IMF Attributes Nigeria’s Inflation To Forex Challenges – Channels TV

The International Monetary Fund, (IMF), has blamed the double digit inflation rate in Nigeria on the challenges around foreign exchange.

In a policy paper on Macro-economic developments and prospects in low-income developing countries released at the weekend, the IMF attributed Nigeria’s economic challenges to delayed policy adjustment.

The IMF believes efforts of the Central Bank to defend the Naira by forex rationing, have gradually crumbled, and Nigeria’s financial developments have affected neighboring countries like Chad, which has plunged into a recession, as well as Benin republic.

On the other hand, data from the National Bureau of Statistics, shows that Nigeria’s headline inflation has risen to 18.55 per cent.

That is its highest in more than 11 years.

Car dealers want reduced customs duties – Financial Watch

Some car dealers in Abuja have called on the Federal Government to reduce customs duties of imported cars and to formulate policies to encourage Nigerians to patronise locally assembled  vehicles.

The dealers told the News Agency of Nigeria (NAN) on Monday that high customs duties and the high exchange rate of the naira had affected their businesses negatively.

A female dealer at Galadima, who spoke on condition of anonymity, appealed to government to reduce the custom duties, saying “ we pay as high as N350,000 for duty on Lexus”.

 

“We are not against collection of custom duties because we pay in Cotonou where we import cars from and we also pay heavily here.

“You can see, our car stand is empty, custom officers came to pack all the cars that we have not paid the duties; we are begging them to reduce the payment,’’ she said.

Mr Emeka Ohaeri, a car dealer at Galadima, said that the new policy on the ban of imported cars through land borders had affected the business.

 

NAN reports that the prohibition order covers all new and used vehicles.

The ban was sequel to a presidential directive restricting all vehicle imports to sea ports. The order took effect from Jan. 1.

Ohaeri of Biggud Global Motors said the government should have encouraged local production of vehicles before the ban on the importation of cars through land borders.

“If you look around at our space, you will see that it is very dry; you can’t see many cars, all you are seeing now is old stock.

“We have not bought any car this year. We can’t even buy cars expect we depend on people that are importing from America.

“It is affecting us seriously. This is coupled with Beninois currency, the CFA Franc and the dollar, that are very costly because we import from Cotonou,’’ he said.

“A car that we sold for N6 million before now, buyers cannot even get it for N8 million again,’ Ohaeri said.

Nwabor Chris, a car dealer at Galadima, called on the government to suspend the policy.

“The policy has been affecting our business; we sell and we can’t go to the market.

“If they implement it, we will not be able to import cars again because we don’t travel abroad; we go to Cotonou to import.

“Most of us dealers import cars from Cotonou, while some import from the US and clear in Lagos,’’ he said.

Trump Era, Brexit May Spur Year of Greater Currency Volatility – Bloomberg

  • Investors could end up paying higher premiums for hedging
  • Brexit negotiations, euro area elections among risk events

Donald Trump is making volatility great again. If the reaction to the U.S.


President-elect’s first press conference is anything to go by, we are in for big swings in currency markets this year.

One-week implied volatility on the euro-dollar, a measure of the cost of options to protect against swings in the currency, surged the most in a month after Trump’s press conference last week. And that came on the back of no real policy news. A dollar index dropped as much as 2 percent in two days.

With Trump’s policy agenda still uncertain, the theme of greater fiscal stimulus and higher inflation that have driven up the dollar and U.S. treasury yields is not a one-way bet. Divided market positioning means surprises either way on Trump’s promises will add to price swings, causing an increase in hedging costs for investors.

Many investors from banks, pension and hedge funds are still looking to add long positions on the dollar, while a few are overweight, say traders in the U.S. and Europe, who asked not to be named as they are not authorized to speak publicly. Others have neutral positioning.

There’s room for realized volatilities, near 10-year averages, to steepen. JPMorgan’s index of Group-of-Seven volatility stands at 10.78 percent, compared to 12.79 percent on June 14 ahead of the U.K.’s vote on EU membership.

Uncertainty over Trump isn’t the only political risk factor on the horizon, with Brexit negotiations and European elections coming up this year.

Volatilities in pound crosses have risen to multi-month highs ahead of U.K. Prime Minister Theresa May’s speech on Tuesday, where she is expected to shed light on her Brexit vision. The market has been very sensitive to news suggesting the U.K. is willing to forgo single-market access to regain immigration control, with Goldman Sachs Group Inc. and Deutsche Bank AG expecting a drop toward the $1.10 level in the spot market. 

Even if negotiations through the year point to a ‘softer’ Brexit, a short-pound market may scrabble for the exit and a large short squeeze could lead to a jackpot for those looking for a move above $1.30. Investors may look to hedge against sudden swings by going long vega, a measure of an option’s sensitivity to changes in the volatility of the underlying asset.

The euro area also has to deal with elections in the Netherlands, France and Germany, following a referendum in Italy last month that saw its prime minister step down. There is potential for another round of elections in Greece, since there’s an impasse in a review of the country’s bailout. Markets may be under-positioned against these risks.

While euro-dollar bearish bets, as shown by six-month risk reversals, surged in November, this was because of the U.S. elections rather than European risks. The sentix Euro Break-Up Index, which reflects the probability that one of the euro area countries will leave the common currency within 12 months, stands below its five-year average.

  • NOTE: Vassilis Karamanis is an FX and rates strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice