In the past week, equities continued to shed gains (for a second week running), as investors booked profits amid panic sell-offs driven by a combination of the knock-on impact of recent MSCI announcement as well as ongoing domestic macro concerns.
At the end of the week, the ASI was down 2.4% w/w, settling at 24,719.27 with YTD berthing at -13.7%. Bearish sentiment dominated the major sectors save the financial services and Insurance sectors.
The Consumer goods index (-3.4%) led losses, followed by the Industrial goods (-3.4%) and the Oil and gas (-0.6%) indices. We expect to see some Q1-16 results hit the market this week, although we think market reaction to these results will be mostly muted as investors continue to grapple with plausible impact of on-going struggles on the domestic macro front.
We think the current bearish run in equities will likely extend this week, although at a more measured pace than past week. Money markets opened N230.4 in the past week, although in a rather familiar pattern FX refunds by the apex bank drove liquidity above c.N900.0bn on Tuesday, before front loading by the DMBs helped moderate liquidity levels on the same day. The week also saw three OMO announcements by the Apex Bank, with only two allotted.
The CBN mopped a total of N145.3bn via OMO on Monday (N86.0bn) and Thursday (N59.3bn), and the latter helped moderate the impact of OMO maturity of N91.bn, leaving money balance at around N288.4bn at the close of the week. This, together with the impact of funding for the Bond auction which held mid-meek ensured the Open Buy Back (OBB) and Overnight (O/N) rates hinged higher w/w, closing at 4.0% and 4.5% respectively.
Global markets eke gains amid crude related concerns
US equities finished the week higher despite uncertainties around the meeting of Oil producers in Doha slated for the weekend. Numbers released in the course of the week also showed application for unemployment benefit fell by13, 000 w/w to 253,000, hinting at an improving labour market.
In Asia, China reported that GDP expanded by 6.7% in the first quarter from a year earlier, down from a 6.8% reported in the previous quarter.
We note that since November 2014, the world’s second largest economy has enacted six interest-rate cuts, several reductions in required bank reserves and streamlined hundreds of infrastructure projects aimed at putting a floor under the economic slide.
China has now raised its 2016 fiscal deficit target to 3% of gross domestic product from last year’s 2.3% and is expected to draw on substantial off-budget funds to further spur growth. Premier Li Keqiang also said the central government will front-load its investment spending in the first half of the year to maximize impact.
Despite a bearish close to the Friday, Euro equities finished the week higher although caution lingered ahead of a key meeting of major oil producers. However, the summit, held in Doha, between the world’s largest oil producing countries ended without an agreement, as country leaders failed to strike a deal to freeze output.
The week also saw the Bank of England leave interest rates on hold much in line with consensus, although uncertainties around the proposed EU referendum continued to hover around markets.
On the domestic front, data released by the National Bureau of statistics showed that The Consumer Price Index (CPI), which measures headline inflation rate of goods and services in the economy grew to 12.8% y/y in March, a 44 month high. The jump captures that impact of growing fuel crisis and the ongoing scarcity of foreign exchange to support the economy.
Equities shift further south, shed another 240bps
This past week saw equities shed gains for a second week running, as investors booked profits amid panic reaction to the recent MSCI announcement as well as domestic macro headwinds. The ASI was down 2.4% w/w, settling at 24,719.27 with YTD at -13.7%. Bearish sentiment dominated the major sectors save the financial services and Insurance sectors.
The Consumer goods index (-3.4%) led losses, followed by the Industrial goods (-3.4%) and the Oil and gas (-0.6%) indices. Examples of major counters that drove losses seem in these sectors include PZ (-9.7%), CONOIL (-9.7%), TRANSCORP (-7.4%), TIGERBRANDED CONSUMER (-6.9%), NESTLE (-5.2%), DANGCEM (-4.8%), NB (-3.5%) and WAPCO (-1.3%).
Gains in stocks such as AXAMANSARD (10.0%), GUARANTY (+7.5%), UCAP (+6.4%), CONTRE (+6.3%) UNITY (+6.1%) and ZENITH (+4.5%) were the major drivers of positive weekly return recorded by the Financial services and Insurance indices. Market activity as measured by average volume and value traded increased by 24.7% and 18.1% w/w, to close at 277.2bn and N1.5bn respectively. Market breadth however closed the week lower at 0.7x (vs. 0.9x in the previous week).
We expect to see some Q1-16 results hit the market this week, although we think market reaction to these results will be mostly muted as investors continue to grapple with plausible impact of on-going struggles on the domestic macro front. We think the current bearish run in equities will likely extend this week, although at a more measured pace than past week.
CBN OMO calls and Bond auction drives an uptrend in money market rates w/w
The money market opened N230.4 in the past week, although in a rather familiar pattern, FX refunds by the apex bank drove liquidity above c.N900.0bn midweek, before front loading by the DMBs moderated helped moderate liquidity levels. The week also saw three OMO announcements by the Apex Bank, with only two allotted.
The CBN mopped a total of N145.3bn via OMO on Monday (N86.0bn) and Thursday (N59.3bn), and the latter helped moderate the impact of OMO maturity of N91.bn, leaving money balance at around N288.4bn at the close of the week.
This, together with the impact of funding for the Bond auction which held mid-meek ensured the Open Buy Back (OBB) and Overnight (O/N) rates hinged higher w/w, closing at 4.0% and 4.5% respectively vs. 3.1% and 3.6% in the previous week accordingly.
This week, we think the direction of money market rates will the driven by recurring liquidity dynamics to be set by the cycle of provisioning and refunds for FX as well as OMO mop-ups by the Apex bank. While there will be a net T-bills maturity of N167.5bn, the impact will likely be offset by an auction of an equal amount.
…as the FI market relays mixed sentiment more tilted to the bears
Sentiment in the T-bills market was mostly mixed in the past week, responding to the dynamics of system liquidity. While yields for the 91day moderated by 50bps to 5.7% as it saw increased demand, yields on the 182day and 364days bills was up by 30bps and 60bps, rising to 8.7% and 10.1% respectively. This week will see maturity worth N167.5bn hit the system although impact will likely be neutered by the issuance of an equal amount.
The Bond market relayed bearish sentiment in the past week, mostly driven by the outcome of the Bond auction mid-week which investors re-price yield across the curve in response to the latest inflation numbers.
As a result, yields at the short, mid and long end of the maturity spectrum hinged higher by 60bps, 40bps and 30bps on a w/w, to settle at 11.0%, 11.9% and 12.5% respectively. Also, stop rate for the FEB 2020, March 2026 and March 2036 bonds came in at 12.0%, 12.6% and 13.08%, 70bps, 54pbs and 68bps ahead of stop rates seen at the February auction.
We expect the bond market will see more activities this week, following relative calm at the previous week. We anticipate yields across the curve will close the week marginally higher on average, as investors continue to demand better returns in the light on-going domestic macro struggles. For the T-bills markets, with no major inflow expected, we think overall yield direction will be guided by system liquidity dynamics of FX provisioning and refunds as well as the frequency of OMO allotments.
Naira firms marginally at the interbank, stable at the parallel market
In line with recent pattern, the naira firmed at the interbank in the past week, gaining 10bps to close at N198.8/US$. The currency however remained stable in the parallel market, closing the week at c.N323.00/US$. With the FX policy framework still unclear, we believe the fundamental imbalance currently rocking the FX market will continue, and hence expect the wide gap between the official and parallel market will remain this week.
