In line with our expectation, the local bourse sustained the buy bias for the 3rd consecutive week, trading positive on three (3) out of five (5) sessions. Consequently, the benchmark index (NGSE ASI) gained 2.2% w/w while YTD loss pared to -12.5%.
Gains (+2.3%) recorded on Monday majorly drove the positive w/w return as bullish sentiment waned in consequent trading days. Similarly, market capitalization appreciated by N207.8bn to settle at N10.4trillion.
Market activity as measured by average volume and value of transactions were mixed; average volume dipped 1.7% to 276.7million units while average value increase by 2.6% to N2.8billion.
The bulls held sway in the Treasury Bills and bond market last week driving yields lower across the board. The demand was driven by increased domestic participation and expectations that CBN may ease its monetary stance in order cushion the effects of TSA outflows.
Average yield on T-Bills dipped by 74bps to 14.6%, some sell activities occurred towards end of the week as some investors took in profits on ‘overpriced’ bills.
Short to medium term instruments were the top toast to investors during the week as all treasury bills instruments recorded strong declines in yields while the Feb-2020, Jan-2022 and Mar-2024 posted the steepest decline in yields.
Market will be relatively calm this week as investors await the outcome of the MPC. However, investors are likely to take position on the back of possible easing by the MPC. This said, we think the cautious approach and locking-in on profit will offset the expected demand in the short week. On this note, we think the market will trade sideways, tilting towards the negative.
Global and Domestic Macro-Economic Updates
Bearish sentiments dominate as US FOMC stay pat on interest rate. U.S. markets led the bearish momentum last week, with the S&P 500 and the Dow Jones Industrial Average closing down, as Federal Reserve’s decision to leave interest rates unchanged fueled fears about global economic growth.
In a similar vein, Asia-Pacific stocks mostly fell last week even as the U.S. dollar strengthened on anxiety about the pace of global growth, which sent investors fleeing to safer assets. The US Fed’s decision to keep short-term interest rates steady sparked the latest round of selling, which pushed down the Shanghai and Nikkei indices as the yen strengthened. In our view, the reluctance to raise rates in part reflects concern about slowing growth in China and other emerging markets; Concerns exacerbated last month by Beijing’s currency devaluation, which set off wild market swings.
Similar to Asian equities, European stocks also slumped last week, mostly on fears that the U.S. Federal Reserve cited concerns about growth world-wide in its decision to leave interest rates at their record lows. The fog around Greece’s legislative election also added to market uncertainties, with the Alexis Tsipras and his left-wing syriza party unsure if they had done enough to remain in power in the upcoming polls.
On the domestic scene, Data from the National Bureau of Statistics (NBS) on Monday said Nigeria inflation rate edged higher to 9.3% in August, compared with the 9.2% rate in July. The Food Sub-index rose by 10.1%y/y in August, slightly higher from 10% in July.
While increases were observed in major groups within the index, bread and cereals, meats and fish, the index was weighted upon by a slower increase in the fruit, vegetables, and potatoes, yams and other tubers groups.
TSA deadline strains system liquidity
System liquidity started the week on a strong note with opening balance on Monday at N376.8bn (N184.8bn the previous session). However, as banks scuttled to meet the TSA deadline (Sept 15th), the significant outflows took a toll on system liquidity, sending rates to highs of 49.2% and 50.9% on Tuesday.
Banks accessed the Standing Lending facility window of N130.3billion in reaction to this, while Treasury bill maturities (N76.6billion) hit the system, moderating rates in subsequent sessions. Average NIBOR closed at 16.3% for the week while the Open Buy Back (OBB) and the overnight closed the week at 14.5% and 15.0% respectively. Inflow of N100.9billion fro Treasury bill maturity is expected to support liquidity this week. Thus, we expect rates to moderate a little this week.
Bulls hold sway in FI market
The bulls held sway in the Treasury Bills and bond market last week driving yields lower across the board. The demand was driven by increased domestic participation and expectations that CBN may ease its monetary stance in order cushion the effects of TSA outflows.
Average yield on T-Bills dipped by 74bps to 14.6%, some sell activities occurred towards end of the week as some investors took in profits on ‘overpriced’ bills. Short to medium term instruments were the top toast to investors during the week as all treasury bills instrument recorded strong decline in yields while the Feb-2020, Jan-2022 and Mar-2024 posted the steepest decline in yields.
The CBN auctioned Treasury bills via 91-day (N26.3bn) and 182-day (N50.3bn). Subscription levels were in favour of the 182-day bills due to attractive rates (13.5%). The 91-day bill was undersubscribed while the 182-day was oversubscribed.
Also, the DMO conducted bond auction on Wednesday for the 5yr (Feb-2020) and 20yr (Jul-2034) for N40billion and N30billion respectively. The instruments were largely oversubscribed as subscription amount was N67.1billion and N54.1billion accordingly, allotted rate was 15.95% (5yr) and 15.97 (20yr).
We expect to see a mixed trend in the market this week though buy bias will likely offset the sell activities as investors will lock-in on attractive yields in anticipation of easing by the MPC which will send yields down. However, activities this week will be modest ahead of MPC decision.
Naira loses against the Greenback w/w
In a rather surprising tale, activities in the FX market remained relatively calm in the past week, despite the removal of Nigerian bonds from the JP Morgan index. The naira however depreciated by 96bps against the dollar on a w/w basis, to close the week at N199.0. We expect recent stability in the USD/NGN to be sustained this week to be driven by the impact of the central bank’s recent slew of policy maneuver around FX.
