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Nigerian Economy expands in 2018; Presidential elections loom

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By Jameel Ahmad, FXTM Global Head of Currency Strategy and Market Research,

Confidence over the health of the Nigerian economy was slightly elevated this morning after official reports showed that economic growth expanded in 2018.

Gross domestic product in Africa’s largest economy rose 1.93% last year, compared to the tepid 0.8% in 2017. With fourth quarter economic growth also printing stronger than expected at 2.38% in real terms YoY, Nigeria seems to be gaining economic momentum. However, with the nation’s fortunes still closely linked to Oil markets, growth could be threatened this year if Oil prices continue to depreciate.

It will be a monumental week for the Nigerian markets as presidential elections loom. Although the Naira was stable against the Dollar yesterday at N358 in the parallel markets, there could be some volatility this week due to election uncertainty.

USD rally takes investors by surprise; but will the winning streak be able to continue?

A key overhang for the Dollar may be clearing up after US lawmakers announced they have a deal in principle to avoid another US government shutdown this weekend. However, President Trump’s approval is still required before the spending bill can go through.

At the time of writing, the DXY is holding marginally close to 97, having posted gains over the last eight consecutive days – its longest winning streak since 2016. This recent run of form certainly goes against initial expectations for muted Dollar strength this year given the Federal Reserve’s recent U-turn on US monetary policy.

There is a likelihood that central bank policy in the form of the Federal Reserve is not the catalyst behind the USD rally. It probably doesn’t have anything to do with the U-turn from the Fed a few weeks ago either. Investors are possibly thinking that “no news” when it comes to the ongoing US-China trade talks is not necessarily an example of “no news is good news” for this environment of trade tensions. The threat can’t be understated that the United States will pull the trigger on extra trade tariffs on Chinese goods at the beginning of March. We saw throughout the second half of 2018 that market anxiety over trade tensions pushed the Dollar higher against its global counterparts, and it wouldn’t be that much of a surprise if recent history repeats itself – if there is another escalation in the trade tariff world.  

According to the Bloomberg terminal, spot returns for G10 currencies against the stronger Dollar since January 30 have experienced a clear sea of red in favour of the USD. This is following the euphoria that was created when Fed Chair Jerome Powell signalled the need for “patience” when it comes to the potential of hiking interest rates in the United States.

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(Source: Bloomberg Terminal)

What else is driving the Dollar train higher?

Another perspective on what could potentially be driving the USD higher is the lure towards the Greenback being amplified by ongoing praises for the US economy. At the same time, it has become a strain to market headlines that counterparts to the United States throughout a range of developed and emerging markets are highlighting downside risks to their respective economies.

Those who are fatigued from yo-yo trade headlines in the market might be inclined instead to align their mindset to the return of economic and central bank divergence between the United States, and pretty much everywhere else. This ultimately supports the prospects of a stronger Dollar. 

What data to look out for next and what could this mean to interest rate policy?

Markets will look to this week’s US January CPI reading as the next test of the Fed’s data dependence. Following that, attention will turn to next week’s release of the FOMC January 30 meeting minutes for potentially further clues on what could have encouraged the Fed’s recent pivot.

The current stance on US interest rate policy is expected to, in turn, allow other central banks to take a pause on tightening monetary policy. With central banks worldwide either standing pat or moving towards another round of a potential easing bias, investors may have less impetus to part with their current darling, the Dollar.

The dovish outlook on global monetary policy, coupled with further positive indicators of US economic strength, should support the Dollar’s attractiveness and this could mean DXY returning to its recent high of 97.54 achieved in November 2018.

Remember a positive conclusion to trade talks would be seen as Dollar-negative

However, this isn’t to say that demand for the Greenback will continue unabated in the near term. Traders should not be looking at the USD as one-way traffic going higher up the charts by any means.

While the US government shutdown may have been averted, markets are also having to contend with this week’s crucial talks in Beijing surrounding US-China trade tensions. Both countries are nearing the end of the 90-day truce and in the event that President Trump pushes through with hiking tariffs on Chinese goods come March 2, that will be seen as a potential trigger to give the US dollar another leg up.

Although given the political and economic pressures that are at risk of creating headwinds to the world’s two largest economies, markets are holding out hope that a deal would be struck sooner rather than later. This would be viewed in the market as a potentially Dollar-negative outcome.

Should key deals be approved in Washington (to fund the US government) and in Beijing (to avert a tariff hike), these will be viewed as the catalysts for risk-on sentiment to return to the fore. Meaning that this would be a significant driver behind potentially higher global equity markets, improved demand for emerging markets and commodities like Oil.

It would however be seen as a risk to the relentless Dollar rally that has taken place over February.

Where do Emerging Markets stand in the currency environment?

Yet amidst this winning streak against G10 currencies, the US dollar has seen mixed results against emerging-market currencies during the same period.

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(Source: Bloomberg Terminal)

Some of these EM currencies that posted gains against the Greenback are coming back from oversold positions last year, and are supported by factors such as resilient domestic economic fundamentals, foreign fund inflows, and rebounding commodity prices.

However, EM currencies are still exposed to major events that can sway global risk sentiment, such as US-China trade tensions, Brexit uncertainties, and slowing global growth. China’s moderating economic conditions remain a major overhang for the global growth narrative, and the slowdown may be felt in many emerging economies via the trade and FX channels.

Ultimately, EM currencies will likely be dictated primarily by the broader US dollar theme, and whether the Greenback can build on its one percent climb so far in 2019.


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Ugo Onwuaso is an ICT enthusiast. He believes technology should be used for general good. He holds a Master of Public Administration (MPA) degree from the Lagos state University. Dear Reader, Your support matters. But we believe that technology makes life more exciting and helps improve the lives of people around Nigeria and indeed the world. That is why, we have devoted our energy to independent reportage of technology and finance and how they affect lives. Our incisive and analytical view of how technology news affects the daily life help individuals and organizations make up their minds. Quality journalism costs money. Today, we're asking that you support us to do more. Kindly support our effort to deliver technology and finance journalism to everyone in the world. Donate as little as N1,000. Bank transfers can be made to: UBA Plc 1017156876 Communication Week Media Ltd

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E-Financial

Lagos State Appoints MoneyMaster as Payment Partner for “Ounje Eko” Programme

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“Ounje Eko”, the food price discount initiative of the Lagos State Government, has appointed leading payment service bank, MoneyMaster Payment Service Bank Limited (MMPSB), as its collaborator in the bid to ensure ease of payments at the market.

MoneyMaster is one of the Central Bank of Nigeria-licensed Payment Service Banks (PSBs) to promote financial inclusion across Nigeria.

Under the partnership, MMPSB will apply its cutting-edge payment solution to engender easy payment and reconciliation in order to make   the experiences of Lagosians who will be getting their food supplies from the markets pleasurable. Its payment solution is also all-encompassing and ensures real time value to payment destinations.

The mobile bank was appointed as the collection and payment partner for “Ounje Eko” Food Markets programme which is a government initiative serving the five divisions of Lagos State. Consequent on this, MoneyMaster Payment Service Bank will collect payments in 57 LCDAs in the state.

The partnership gives credence to the quality of payment solutions that MoneyMaster is reputed for in its services to its growing business clientele in private and public sectors.

 


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CBN, EFCC Probe Banks, Firms over Alleged Forex Racketeering

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Central Bank of Nigeria (CBN), is investigating irregular foreign exchange transactions and forward contracts valued at approximately $2.4 billion.

CBN, EFCC Probe Banks, Firms over Alleged Forex Racketeering

The  inquiry follows an extensive audit by Deloitte, which scrutinized $7 billion in dollar debts accumulated under the bank’s previous leadership.

In the aftermath of the 294th Monetary Policy Committee meeting in Abuja, Yemi Cardoso, governor of CBN,  disclosed to journalists that the investigation, supported by the Economic and Financial Crimes Commission, among other security bodies, aims to clarify the legitimacy of these FX allocations identified as problematic by the audit.

“It was determined that a number of these transactions did not qualify…they were outright illegal. The law enforcement agencies are now looking into those transactions that as far as we are concerned, are not valid to be paid,” Cardoso detailed, emphasizing the unlawful nature of these forex deals.

The crux of the investigation lies in the audit findings that a significant portion of the scrutinized transactions lacked proper documentation and, in many instances, were deemed outright illegal.

However, the unfolding investigation has raised concerns within the organized private sector, with some entities contemplating legal action against commercial banks for unresolved forex bids.

Despite these tensions, Governor Cardoso reassures that the foreign exchange market remains open and transparent, inviting stakeholders to address their forex needs through the official channels.

Furthermore, Cardoso clarified the distribution of fertilizers to farmers as a one-off measure and not indicative of a shift back to direct interventions by the CBN, underscoring a commitment to strategic, regulatory governance rather than direct market involvement.

 

 

 

 

 

 

 

 


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CBN Urges Banks to Expedite Action on Recapitalisation

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Central Bank of Nigeria (CBN) has directed deposit money banks in the country to expedite action to increase their capital base from the current ₦25bn.

CBN Urges Banks to Expedite Action on Recapitalisation

Olayemi Cardoso, governor of CBN

Olayemi Cardoso, governor of CBN, stated this during the apex bank’s 294th meeting of the Monetary Policy Committee (MPC) on Tuesday in Abuja, when the MPC hiked the interest rate by 22.75% to 24.75%.

The apex bank chief said the MPC examined developments in the banking sector and expressed satisfaction that the industry remained stable. The committee, however, said to guard against risk, commercial banks in the country should accelerate their recapitalisation efforts.

Cardoso said, “The MPC also reviewed developments in the banking system and noted that the industry remains safe, sound, and stable. The committee thus called on the bank to sustain its surveillance and ensure compliance of banks with existing regulatory and macro-potential guidelines.

“The MPC also enjoined the banks to expedite actions on the recapitalisation of banks to strengthen the system against potential risks in an increasingly globalised world.”

 

 

 

 


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