Maintaining Downward Streak, FMDQ Turnover Dropped by N5tn in May

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As the global financial markets continue to bow to the pressure of the novel Coronavirus pandemic, otherwise called COVID-19, Nigeria’s FMDQ market, where investors trade daily in fixed income and currency (FIC), is not exempted from the crisis as turnover in May dropped by N5trillion. Bamidele Famoofo reports

Turnover in the FMDQ market platform witnessed a drop of about N5.0trillion in May with turnover declined by 29.34 per cent from N16.7trillion in April to about N11.8trillion.

Transactions in treasury bills and foreign exchange derivates were more impacted compared with other segments of the ‘FIC’ market in the review period.

Trading in treasury bills dropped by N4.4trillion or 133 per cent from about N7.7trillion in April to about N3.3 trillion in May. Investors (mostly banks) also traded less in foreign exchange derivates as turnover in that segment dropped by 243 percent from N3.17trillion to N1.87trillion in May.

Transaction in foreign exchange (forex) also recorded a decline albeit marginally in the review period with turnover dropping from N1.21trillion in April to N1.07trillion, representing a decline of 11.6 percent.

There was drop in turnover across board in the market in May with an exception of repurchase agreement/buy-backs and unsecured placements/takings categories. The former recorded an increase to the tune of 26 percent to about N4.0trillion from N2.97trillion while the latter grew by 324 percent from N51.1billion to N218.24billion in the preceding month.

It should however be noted that transactions in the month of May was done only in 18 days as opposed to 22 in April.

Review

Meanwhile, turnover in the Fixed Income and Currency (FIC) markets for the month ended April 30, 2020 was N16.70trillion, representing a month-on-month (MoM) decrease of 34.92 percent (N8.96trillion) from the turnover recorded in March 2020 (N25.66trillion), whilst recording a YoY2 increase of 2.02 percent (N0.33 trillion) from the turnover recorded in April 2019 (N16.37 trillion).

Foreign Exchange (FX) and OMO bills remained the most actively traded products, jointly accounting for 72.10 percent of the total FIC market turnover recorded in April 2020. Total FX market turnover in April 2020 was $11.36bn (N4.38 trillion), representing a MoM decrease of 60.73 percent ($17.57billion) from the turnover recorded in March 2020 ($28.92billion; N10.73 trillion).

The FMDQ said the performances in April was driven mainly by the decline in economic activities and foreign capital inflows due to the Coronavirus Disease (COVID-19) pandemic, resulting in a decrease in FX supply, exacerbated by the temporary cessation of the periodic FX supply by the Central Bank of Nigeria (CBN) through its intervention sales in April 2020.

Analysis of FX market turnover by trade type in the month indicated that all categories recorded a MoM decrease in April 2020 as it was in May. The Member-Client category accounted for 46.16 percent ($8.11billion) of the total MoM decrease in FX turnover in April 2020, representing the highest decrease across all trade categories. Additionally, analysis of FX market turnover by product type indicated that FX Spot turnover and FX Derivatives turnover recorded MoM decreases of 79.76 percent ($11.12billion) and 43.03 per cent ($6.45billion) respectively in April 2020. In the OTC FX Futures market, the near month contract (NGUS APR 29 2020) with an outstanding notional amount of $1.52bn matured and was settled, whilst a new far month (60-month) contract, NGUS APR 30 2025 was introduced at a contract rate of $/N413.36. The total notional amount of open OTC FX Futures contracts as at April 30, 2020 stood at c.$15.00billion, representing a 3.23% ($0.47billion) increase on the value of open contracts as at March 31, 2020 (c.$14.53billion), while the total notional amount of OTC FX Futures contracts traded to-date stood at $45.35billion as at April 30, 2020.

The CBN Official Spot US$/N exchange rate remained flat at $/N361.00, as at April 30, 2020 compared to the rate as at March 31, 2020, while the Nigerian Naira depreciated against the US Dollar at the Investors’ and Exporters’ (I&E) FX Window by $/N1.75 ($/N385.55 as at March 31, 2020) to close at $/N387.30 in April 2020. In the parallel market, the Nigerian Naira depreciated by $/N35.00 to close at $/N450.00 (March 31, 2020 – $/N415.00), increasing the spread between exchange rates in the I&E FX window and the parallel market by 112.90 per cent (N33.25) to N62.70 from the spread recorded in March 2020 Fixed Income Market (T.bills , OMO bills and FGN Bonds).

In the primary market, average discount rates on the 91-day, 182-day and 364-day T.bills declined further in April 2020 to 1.99 percent, 2.81 per cent and 4.05 percent from 2.40 per cent, 3.59 percent and 4.95 per cent recorded in March 2020 respectively. Similarly, average marginal rates for the 5-year, 15 year and 30-year FGN Bonds decreased to 9.00 percent, 12.00 per cent and 12.50 per cent from 10.00 per cent, 12.50 per cent and 12.98 per cent respectively recorded in March 2020, as FGN Bonds were oversubscribed by an average of 459.45 percent at the April 2020 FGN Bond auction. As at April 30, 2020, total T.bills outstanding value remained flat at N2.65trillion; OMO bills outstanding recorded a MoM decrease of 4.79 percent (N0.50trillion) to N9.94trillion, while the total FGN Bonds outstanding value also recorded a MoM increase of 1.80 per cent (N0.17trillion) to N9.64trillion from N9.47trillion as at March 31, 2020. Liquidity in the secondary market for T.bills declined further in April 2020 as trading intensity fell to 0.01 from 0.08 in March 2020, with T.bills turnover decreasing MoM by 85.00 per cent (N0.17trillion) to N0.03trillion due to investors holding their T.bills investments to maturity. Trading intensity for OMO bills decreased marginally to 0.75 in April 2020 from 0.76 in March 2020, the first (1st) MoM decrease in 2020 due to the MoM decrease in OMO bills turnover by 5.54 percent (N0.45trillion).

Trading intensity for FGN Bonds also decreased MoM to 0.16 in April 2020 from 0.26, as FGN Bonds turnover also decreased MoM by 34.85 per cent (N0.84trillion) to N1.57trillion, all as a result of lower activity due to the COVID-19 pandemic and its associated impact on financial markets globally. However, trading intensity for bills (T.bills and OMO bills combined) and FGN Bonds increased YoY to 1.20 and 0.16 respectively in April 2020, compared to 0.30 and 0.08 recorded in April 2019.