This past week saw the equities market extend losses, as investors continued to book gain on prior positions due to worry over the deteriorating macro landscape which was further accentuated by June headline inflation numbers which came in higher than consensus. The ASI was down 398bps w/w, settling at 27,659.44 with YTD now firmly rooted in the negative territory and trimmed to -3.4%.
The money market opened N188.2 long in the past week. However, OMO announcements by the Apex banks as well as funds provisioning for T-bills auction in the course of the week further tightened liquidity thereby pushing key money market rates higher. At the end of the week, the Open Buy Back (OBB) and Overnight (O/N) rates while still elevated declined marginally w/w, closing at 16.6% and 17.6% respectively vs. 20.8% and 22.8% in the previous week accordingly .
Global and Macro-economic market update
ECB disappoints but equities extend rally across markets
US equities rose cautiously in the past week, notching a fourth week of gains ahead of a crucial week where FOMC policy statement will be released. A batch of mostly better-than-expected Q2-16 earnings offered some cause for cheer among investors and provided some support for equities in the past week. On the data front, Markit’s preliminary reading of its manufacturing purchasing manager’s index came in at 52.9 for July from 51.3 in the prior period, beating consensus expectations reading of 51.5 and providing some further evidence that the US economy is gradually stabilizing.
European also posted weekly gains, as investors sifted through corporate earnings reports for reasons to cheer after the European Central Bank failed to deliver a boost as it decided to leave monetary policy unchanged. The bank, led by President Mario Draghi, expects its interest rates to remain at the present level or lower for an “extended period,” and it plans to continue its bond-buying program until at least March 2017. The outcome of the meeting was the ECB’s first policy decision since the June 23 Brexit vote for the U.K. to leave the European Union.
Despite some disappointment over a “no action” by the ECB, Asian equities still managed to post weekly gains. The week was also pivotal for China as the cabinet, vowed to make it easier for local and foreign companies to do business in the country by cutting red tape and expanding their financing channels. Specifically, investment projects will no longer require government approvals, except for those that concern state security, ecological security, strategic resources development and public interests. The full guideline is expected to be released this week.
On the domestic scene, the IMF has announced that it expects Nigeria’s economy to contract by 1.8% in 2016, as the country grapples with the impact of low oil prices. The IMF’s projection contained in its World Economic Outlook update, is down from the 2.3% growth it foresaw in its April forecast. It now forecasts 1.1% growth for 2017, down from 3.5% in the April forecast.
Equities: Equities market extend slide, losses another 4.0% w/w
This past week saw the equities market extend losses, as investors continued to book gain on prior positions due to worry over the deteriorating macro landscape which was further accentuated by June headline inflation numbers which came in higher than expected. The ASI was down 398bps w/w, settling at 27,659.44 with YTD now firmly rooted in the negative territory and trimmed to -3.4%.
As one would expect, sector performance across sectors was bearish, with the Banking index leading losses (-7.3%), followed closely by the Industrial goods index (-7.1%). The Insurance, Oil and gas as well as the Consumer indices also declined w/w, down 3.1%, 0.93% and 0.9% respectively. Across these sectors, examples of the counters that drove broad based losses over the course of the week include OANDO (-25.6%), LIVESTOCK (-17.8%), STANBIC (-16.1%), ETI (-14.6%), TRANSCORP (-14.6%), UCAP (-14.3%), LAW UNION (-13.3%), DIAMOND (-11.7%), HONEYWELL (-11.7%), FIDSON (-11.1%), WAPCO (-10.4%), GUARANTY (-7.8%) and DANGCEM (-5.5%)
When compared to the previous week, overall market sentiment worsened this week as market breadth settled at 0.3x (relative to 0.6x in the previous week) as 15 stocks advanced while 44 declined. Activity level during the week was however divergent as average volume declined 6.2% w/w to 255.7mn while average value increased by 24.6% to N2.1bn. The week also saw more H1-16 earnings numbers released with results mostly mixed. An example is Flourmill which saw an 11% increase in its revenue to N342.bn and PAT 50.0% higher to N11.5bn. We note however, that the strong bottom line performance was significantly boosted by the income from the recent sale of one of its Associate investments – Unicem.
Lower liquidity drives money market rates higher w/w
The money market opened N188.2 long in the past week. However, OMO announcements by the Apex banks as well as funds provisioning for T-bills auction in the course of the week further tightened liquidity thereby pushing higher key money market. At the end of the week, the Open Buy Back (OBB) and Overnight (O/N) rates while still elevated declined marginally w/w, closing at 16.6% and 17.6% respectively vs. 20.8% and 22.8% in the previous week accordingly.
We expected FAAC inflow to support system liquidity this week, which should help moderate money market rates from current levels.
FI assets assume a bearish trend on MPC expectations
In line with recent pattern, bearish streak in the fixed income and Treasury bills market extended for another week. For T-bills, average yield across maturities was up 3.1% to 14.7%, as tight system liquidity, investors’ reactions to the latest inflation numbers and caution ahead of the MPC meeting combined to drive broad based sell – offs across tenors.
There was a T-bills primary market auction (PMA) mid-week which saw N36.8bn, N39.2bn and N129.bn of the 91day, 182 day and 364day bills allotted, with stop rates coming in at 14.1%, 15.5% and 16.5%, respectively, significantly higher than the last PMA (91day:- 9.9%, 182day:- 12.2%, 14.9%)). Average yields at the Bond market also increased by 70bps to 15.3%, as investors demand higher risk premium in reaction to June’s headline inflation number which came in higher than anticipated at 16.5%. We see a mixed week for the FI markets this week, with the markets likely to start on a quiet note as investors shift gaze to the development around the MPC meeting and its specific outcomes. Nevertheless, we expect FAAC inflows to spur some demand towards the end of week as investors bargain hunt.
Depreciation of the naira extends for another week
At the spot market, the naira closed at N305.3 NGN/USD in the past week, and depreciated further in the [parallel market to 370.0 NGN/USD from 353.0 NGN/USD. Despite recent introduction of a new FX policy regime, the naira continues to see pressure as investors continue to evaluate the effectiveness of the new FX policy. At the international market, Oil price closed the week US$1.6pb lower than the previous week at US$45.6pb as pressure from the supply side continues to exert its influence.
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