Markets sound indifferent to expansionary budget

On face value the Federal Government’s 2016 Fiscal Plan, otherwise referred to as the national budget, presented to the National Assembly last week has been described as audacious by economy analysts apparently as expenditure and total budget size show huge increases against equally huge decline in both real and projected income from the key revenue earner, oil.


Total expenditure at N6.1 trillion was over 40 per cent higher than 2015 figure of N4.4 trillion. Former president Goodluck Jonathan had reduced the budget for 2015 from N4.7 trillion after the oil price began a steady drop in the third quarter of 2014. The policy thrust of the 2016 budget included stimulating the economy and making it more competitive by focusing on infrastructural development; delivering inclusive growth; and prioritizing the welfare of Nigerians.

To keep the economy growing on a sustainable path and ensure an inclusive growth, the federal government aims to achieve a real GDP growth rate of 4.37%  via alignment of fiscal, monetary, trade and industrial policies as well as ensuring job creation focus on every aspect of the execution of the 2016 budget. Its inclusive growth strategy would entail a reduction in tax rates for smaller businesses as well as subsidized funding for priority sectors such as agriculture and solid minerals.
Obviously the bullish posture of the expansionary fiscal regime should douse the tension that had griped the economy and the various financial markets since middle of this year, shortly after President Mohammadu Buhari assumed duties. But our market reports indicate a rather indifferent and indeterminate market responses so far as can be seen by results of transactions last week across all financial markets.
In the just concluded week, the Naira strengthened against the dollar not because of the positive budgetary pronouncements but on a temporal supply boost by homecoming diaspora Nigerians, for the festive season, according to market dealers. Week-on-week, the local currency gained 3.64 per cent relative to the greenback to close at N265/USD from N275/USD in the preceding week at the Bureau De Change market segment. Similarly, the Naira appreciated by 3.57 per cent of its value relative to the USD at the parallel market segment to close at N270/USD from N280/USD in the previous week.
CBN clearing rate and interbank rate closed steady at N196.97/USD and N199.1/USD respectively. However, the spot rate implied slight depreciation of the Naira relative to the dollar at N199.34/USD as against N198.56 / USD in the previous week. Currency market dealers said they expect relative stability in the exchange rate this week as demand for USD declines in the yuletide season against improved supply from the informal sectors.
Also the money market was indifferent. Nigerian Interbank Offered Rates moved in mixed directions amid inflows from Federation Account Allocations, FAAC, worth N369.88 billion for the month of November. Meanwhile treasury bills worth N67.46 billion were auctioned via the primary market. They include: 91-day bills worth N28.12 billion; and 182-day bills worth N39.34 billion, while bills of equivalent tenors and values also matured.
However, treasury bills worth N178.80 billion matured in the Open Market Operation, OMO, made up of 171-day bills worth N88.93 billion and 181-day bills worth N89.87 billion. The overnight and one month Nigerian Interbank Offer Rate, NIBOR, fell to 1.02 per cent (from 1.48 per cent) and 9.09 per cent (from 9.43 per cent); while, the three months and six months tenors rose to 10.80 per cent (from 12.95 per cent) and 12.52 per cent (from 12.27 per cent).
At the secondary market for treasury bills, the Nigerian Interbank Treasury bills True Yields also moved in mixed directions. Yields on the one month, six months and 12 months yield rose, respectively, to 1.17 per cent (from 1.02 per cent), 5.57 per cent (from 4.79 per cent) and 8.65 per cent (8.44 per cent). However, the three months and fell to 3.30 per cent (from 3.32 per cent).
This week, 153- day treasury bills worth N27.4 billion will mature in the OMO. Analysts expect NIBOR to move southwards as liquidity from the FAAC allocations settle into the position of the banks as well as lull in outflows due to the yuletide holidays.““Despite the bullish budget but in line with financial analysts expectations, Federal Government bond prices at the over the counter, OTC, market advanced on increased bargain hunting. On a weekly basis, the 20-year, 10 per cent FGN July 2030 bond rose by N1.06 (yield fell to 11.13 per cent).
The 10-year, 16.39 per cent FGN January 2022 note gained N0.12 (yield decreased to 11.02 per cent);  the 7-year, 16 per cent FGN June 2019 paper firmed by N0.94 (yield fell to 10.22 per cent); the 5-year, 15.10 per cent FGN April 2017 debt rose by N1.73 (yield slid to 6.63 per cent).
However, the 3-year, 13.05 per cent FGN August 2016 bond moderated by N0.67 (yield rose to 5.07 per cent). At the international bond market, FGN Eurobonds declined across board as investors locked in profit. The 10-year, 6.75 per cent FGN January 2021 paper shed USD0.51 (yield rose to 8.29 per cent) while the 5-year, 5.13 per cent FGN July 2018 bond lost USD0.08 (yield climbed to 6.84 per cent).
Similarly, the 10-year, 6.38 per cent FGN July 2023 bond fell by USD0.31 (yield rose to 8.42 per cent).
This week, financial analysts expect to see mixed performance in prices on FGN bonds at the local OTC markets as investment activities remain low due to the Monday and Friday holidays.““In the just concluded week, the equities market witnessed resumed bargain hunting activities, particularly on blue chips, resulting in the rise of the twin market performance measures, the Nigerian Stock Exchange, NSE, All Share Index, ASI, and market capitalisation, by 126 basis points, bps, each to 26,871.24 points and N9.24 trillion respectively. The NSE 30 Index also increased by 126bps to 1,209.07 points.
Petroleum and industrial stocks were most upbeat as their respective gauges, NSE Oil/Gas Index  and NSE Industrial Index climbed by 311bps and 795bps to 2,048.42 points and 327.13 points respectively. However, total deals, transacted volumes and Naira votes fell by 39.17 per cent, 38.99 per cent and 46.40 per cent to 8,325 deals, 743.12 million shares and N6.59 billion respectively, due to three days of trading on account of the public holidays to mark Malud Nabiy and Christmas.