27th May, 2016

GLOBAL ECONOMYDuring the week, we witnessed crude oil prices rallying above $50/barrel from $47.75/barrel (May 20th, 2016). This was attributed to supply shocks which is estimated to have “knocked off” around 3-4mb/d from the market. In addition to this, was growing demand from China “teapot” refineries alongside declining U.S inventories.

Below is the general trend in oil prices Year-to-Date (YTD).

Table 1: Brent crude prices (Jan-May 26, 2016)

Source: Bloomberg

We remain cautious as current crude prices could at best be temporary, as we monitor developments in Nigeria, Iraq, Venezuela and Libya.

The U.S Fed released its FOMC minutes which centered on improving economic data, as a catalyst for an increase in interest rate. On the back of improving economic data (housing, non-farm jobs growth and inflation), the probability of rate hike in June/July becomes heightened. However, we note that

while this bodes well for banking stocks (interest rate revisions and its effect on margins), we remain mindful on the impact of a strong dollar on exports trade) and commodity prices. Bets in support of the Bank of Japan devaluing the Yen seemed to lose steam during the week under review. This was on the back of the U.S warning against an intervention. The Yen during the week, hovered c. ¥109/$1.

DOMESTIC ENVIRONMENTOn the domestic scene, we witnessed the outcome of the Monetary Policy Committee (MPC) members which was as follows;

I. The retention of the Monetary Policy Rate (MPR), Cash Reserve Ratio (CRR) and Liquidity ratio at 12%, 22.50% and 30% respectively. This was in its bid to allow for better monitoring/effect, policy decisions taken in the month of March, 2016.

II. The introduction of greater flexibility to the foreign exchange market. Guidelines on such flexibility to be released later.

Chart 1: Brent crude prices (Jan-May, 2016)

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Source: Bloomberg

Revenue Allocation, as shown in the FAAC report showed continued reductions in monthly revenue shared. FAAC allocation shared in the month of Apr. 2016 declined to N281.5 billion from N345.09 billion in the month of Mar. 2016. Below is trend line of month allocations from Apr. 2015 – Apr. 2016.

Gross foreign reserves continued to be pressured as IATA during the period revealed that the sum of $575 million belonging to foreign airlines remained unremitted. Below is Nigeria’s gross foreign reserve balance for the week. According to Thisday Newspapers, we learnt of the CBNs decision to defer till a later date the implementation of a higher capital adequacy ratio (16%)

due to the challenging economic environment. We note that the earlier deadline was July 1st, 2016.

EQUITIES MARKETThe Nigerian All-Share Index (ASI) opened the week at 27,129.41 index points (May 20th, 2016) index points and closed at 28,902.25 index points (May, 27th 2016), recording a gain of 6.53%. Year to date (YTD), the market gained 0.91%, with a market volatility of 5.15% (17.83% annualized) having opened the year at 28,642.25 index points.

Market capitalization rose by 6.66% during the week from N9.31 trillion to N9.93 trillion. However, Year-to-Date (YTD) the market has gained 0.81% from N9.85 trillion (Jan, 2016).

The Banking Index during the week rose by 0.48% from 262.23 index points (May 13th, 2016) to 263.49 index points. Year –to –Date (YTD), the index declined 1.86% from 268.49 index points (Jan, 2016).

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Chart 2: FAAC (N’bn)

Source: Ministry of Finance

Chart 3: Gross Foreign reserves ($’bn)

Source: CBN

Chart 4: Jan – May, 27th 2016

Source: Bloomberg

Reuters - May 24, 2016Debt repayment in crude cripple poorer oil producers

Poorer oil-producing countries which took out loans to be repaid in oil when the price was higher are having to send three times as much to respect repayment schedules now prices have fallen.

This has crippled the finances of countries such as Angola, Venezuela, Nigeria and Iraq and created a further division within the Organization of the Petroleum Exporting Countries.

Ahead of an OPEC meeting next week, poorer members have continued to push for output cuts to lift prices but wealthier Gulf Arab members such as Saudi Arabia, which are free of such debts, are resisting taking any action despite prices falling 60 percent in the past 2 years.

Reuters – May 24, 2016Fed’s Bullard: rates too low for too long could be risky

U.S. interest rates being kept too low for too long could cause financial instability in future and stronger market expectations for a rate rise are “probably good”, St. Louis Federal Reserve President James Bullard said on Monday. A relatively tight labor market in the United States may also exert upward pressure on inflation,

raising the case for higher interest rates, Bullard added.

His comments come as financial markets have increased expectations for a U.S. interest rate hike in June or July and a range of policymakers are now stating that a rise is firmly on the table for the next policy meeting in June.

Financial Times – May 18, 2016 Five things to watch out for as oil nears $50 a barrel

As the price of crude oil nears $50 a barrel for the first time this year, traders are split over whether the near 80 per cent rally since prices bottomed in January can keep going.

Five things to watch that could dictate the next move in the price of Brent crude, currently trading near $49 a barrel, and US benchmark West Texas Intermediate which is more than $48.

Bloomberg – May 15, 2016 Forget the Saudis, Nigeria’s the big oil worry

Drag your attention away from the Middle East for a moment. While policymakers have been focused on Saudi Arabia’s oil market machinations, what really matters right now is happening 3,000 miles away in the Niger River delta. The country that was, until recently, Africa’s biggest crude producer is slipping back into chaos.

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WEMA BANK MEDIA HIGHLIGHTS

The Banking Index during the week rose by 8.17% from 279.53 index points (May 13th, 2016) to 302.36 index points. Year –to –Date (YTD), the index rose by 12.61% from 268.49 index points (Jan, 2016).

During the week, Wema Bank share price opened at N0.76 (May 20th, 2016) closing the week at N0.80 with a total of 32.09 million shares traded.

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Children’s Day 2016!Wema Bank hosted school children at it’s corporate head office as we celebrated this years world children’s day. they greeted by members of senior managent as they were given a tour of the different departments and their functions.

A wave of attacks and accidents have hit infrastructure, taking Nigeria’s output down to 20-year lows. Oil prices are responding, rising to their highest in more than six months. Part of this is

explained by the International Energy Agency lifting demand estimates this week. But taking both things together, it’s easy to doubt whether current oil surpluses are sustainable.

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DISCLAIMER: The data provided in this newsletter is for information purposes only and should not be construed as an investment or tax advise nor as a recommendation to buy, sell or hold a particular security. Wema Bank believes the data in the newsletter is accurate but does not verify its accuracy independently and does not warrant or guarantee that it is accurate or complete. Wema Bank has no obligation to provide any update or changes to the data. No investment decision should be made using this data. We value your opinion and feedback would want to hear from you, with regards the quality of our services. We are committed to ensuring you receive the best service possible. You can visit our website at www.wemabank.com for details on our products and services or call us on (+234) 01-2778600, 08039003700 or send us an email at info@wemabank.com