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Financial markets await CBN introduction of FX code

by Business News Report

Recovering from the previous week’s decline, the Naira appreciated by 1.07% w/w at the NAFEM market to close at N1,531.20/US$1. The parallel market shared a similar sentiment as the Naira gained 0.60% w/w closing at N1,660/US$1. The positive sentiment in the market is further buoyed by reports that the Central Bank of Nigeria (CBN) is set to introduce a Foreign Exchange (FX) Code next week. The code aims to guide the banking industry in promoting ethical practices among authorized dealers in the Nigerian FX market. The FX Code is expected to curb speculative activities, reduce market distortions, and enhance the CBN’s ability to oversee and regulate the market effectively. Authorized dealers will be required to conduct all forex transactions through the EFEMS platform approved by the apex bank, ensuring increased transparency of transactions. The CBN’s published gross foreign exchange reserve declined for the third week in a row by 0.75% or US$303.95mn, ending the week at US$39.99bn. We observe a trend from same period last year and attribute the decline to likely debt servicing and fx demands for imports.
At the Treasury Bill auction which took place midweek, the CBN offered N530.00bn (US$341.37m), 2.91% higher than the amount offered at the previous auction. Total subscription surged to N2.54tn, up from N1.52tn in the last auction with a bid-to-offer ratio of 4.78x, while the total sales also rose to N756.01bn compared with N515.00bn previously. Consequently, the stop rates for the 91-day and 182-day, instruments remained at 18.00% and 18.50% respectively while the stop rate for 364-day moderated to 21.80% from 22.62% at the previous auction. Notably, the demand was primarily focused on the 364-day bill, reflecting investors’ preference for longer-term securities. The secondary fixed-income market sustained a mixed performance during the week. While in the Treasury bill market, the average yield was bullish as it fell by 38bps to 24.83% pa due to a strong buying interest across all maturities. The FGN bond market closed bearish with the average yield increasing by 65bps to 20.72% pa driven by investor’s demand across all tenor buckets.
Brent price declined this last week losing 2.83% w/w to close at US$78.50/bbl. This brought the average price of the commodity y-t-d to US$77.22/bbl, 3.31% lower than the average price of US$79.86/bbl in 2024. The market responded to President Trump’s speech at the World Economic Forum criticizing OPEC’s pricing and announced plans to request Saudi Arabia in particular and the group generally to lower prices by increasing supply. His broader trade and energy policies, including proposed tariffs on Russia, Canada, Mexico, and the European Union, along with a potential 10% tariff on China, have increased market uncertainty, further weighing on oil prices. Additionally, his recent national energy emergency declaration aims to reduce environmental restrictions and accelerate energy infrastructure projects in the US.
Volatility is expected in oil prices to linger, driven by a lack of clarity on US trade policies and pressure from the US administration to increase oil supply. The US Energy Information Administration reported a 1mn barrel inventory dip for the week ending January 17, contradicting the American Petroleum Institute’s forecast of a 958,000-barrel rise in crude stocks, along with substantial builds in gasoline and distillate inventories. Compared to last week, the local bourse posted gains this week. The All-Share Index increased by 1.22% week-on-week to close at 103,598.46 points bringing the year-to-date return to +0.65%. Positive sentiment for MTN Nigeria (+6.39% w/w) alongside some tier-one banking names including Guaranty Trust Holding Company (+5.60% w/w), Zenith Bank
(+5.98%) and Access Holdings (+4.76%) overweighed selloffs in FBN Holdings (-1.71%) and Dangote Sugar (-9.09%). The sectoral indices closed mixed with the NGX Banking Index (+4.09% w/w) leading the gainers, followed by the NGX Pension Index (+2.33% w/w), the NGX 30 Index (+1.58% w/w) and the NGX Industrial Goods Index (+0.12% w/w). On the flip side, the NGX Consumer Goods Index (-1.20% w/w), the NGX Insurance Index (-1.20% w/w) and the NGX Oil and Gas (-0.93% w/w) closed in the red.

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