Weekly Economic and Market Report

Global Equities Markets: Global Markets Upbeat as Oil Price Rally
Sentiment across global equity indices under our coverage was broadly positive this week despite persisting geopolitical tensions and security threats in Venezuela, Iran and Russia as well as growing concerns of an escalation of the war in Syria which have continued to weigh on global market performance. Resultantly, Oil prices rallied further with Brent Crude hitting a 3-year high of US$71.96/b following President Trump’s warning that the US would respond to the suspected chemical attack in Syria. Relatedly, an attack on an ARAMCO facility in Saudi Arabia also signaled increasing regional tensions which could potentially disrupt production activities in the near-term.

Performance across global markets was largely bullish as most indices under our coverage trended northwards. Across the developed market, all indices closed in the green with the US NASDAQ and S&P 500 closing 3.3% and 2.7% higher as first quarter earnings season approaches. In addition, President Trump’s announcement of a reconsideration of the Trans-Pacific Partnership (TPP) which the US had previously exited, buoyed sentiment. Similarly, UK’s FTSE closed the week 1.2% northwards.

The positive sentiment filtered into Europe and Asia as all indices trended higher. Hong Kong’s Hang Seng led gains with a 3.2% W-o-W growth on the back of improved sentiment stoked by a possible de-escalation in recent trade tensions. Germany’s XETRA DAX trailed, rising 1.9% while France’s CAC 40 and Japan’s Nikkei 225 gained 1.3% and 1.0% W-o-W respectively. Japanese markets rallied following positive reaction to US reconsideration of the TPP.

Across the BRICS markets, Russia’s RTS was the top decliner plummeting 10.6% as threat of new sanctions on Russia due to escalating diplomatic crisis with the US and UK weighed on sentiment. Likewise, Brazil’s Ibovespa fell 0.1% W-o-W. On the flipside, India’s BSE Sens was the top gainer, up 1.7% W-o-W, propelled by gains in Technology and Consumer Goods stocks. South Africa’s FTSE/JSE All Share inched 1.6% higher while China’s Shanghai Composite rose 0.9%W-o-W despite recently released trade statistics, which showed declining exports.

Sentiment in the African markets was largely positive as all indices save the Kenya NSE 20 closed in the green. Nigeria’s All Share Index gained 0.2% W-o-W, bucking the bearish run from prior weeks while Egypt’s EGX 30 and Ghana’s GSE Composite rose 0.7% and 1.1% W-o-W respectively. On the flipside, Kenya’s NSE 20 closed the week flat.

Domestic Equity Market: Bargain Hunting to Drive Market Performance
Performance of the local bourse was mixed this week with the benchmark index closing positive on 3 of 5 trading sessions. Consequently, the All Share Index rose 0.2% W-o-W to settle at 40,928.70 points while YTD return improved to 7.0%. As a result, investors gained N30.7bn as market capitalization expanded to N14.8tn. Performance this week was majorly driven by gains in DANGCEM (+2.0%), NIGERIAN BREWERIES (+0.8%) and SEPLAT (+5.0%). However, activity level waned W-o-W as average volume and value traded reduced by 35.8% and 40.8% to 283.1m units and N3.9bn respectively. The most traded stocks by volume were ZENITH (195.2m), SOVRENINS (106.5m) and SKYE (104.9m) while the top traded by value were ZENITH (N5.1bn), NIGERIAN BREWERIES (N2.7bn) and GUARANTY (N2.6bn).

At the start of the week, the ASI fell 1.0%, extending the bearish trend from the previous week. However, on Tuesday and Wednesday, the ASI gained 17bps and 90bps respectively, due to bargain hunting in DANGCEM, INTERBREW and FBNH. Nonetheless, profit taking activities resumed on Thursday with the ASI sliding 10bps but the week was rounded off on a positive note with the benchmark index gaining 28bps on Friday.

Sector performance W-o-W was largely bearish as only 2 of the 5 indices we track closed in the green. The Oil & Gas index led the gainers chart, up 3.8% buoyed by buy interest in SEPLAT (+5.0%). The Industrial Goods index followed, rising 1.3% due to appreciations in DANGCEM (+2.0%) and WAPCO (+0.7%). On the flipside, the Banking and Insurance indices were pulled down 2.2% and 0.8% respectively due to losses in UBA (-10.5%), ZENITH (-4.4%), AIICO (-4.4%) and NEM (-11.1%). Similarly, the Consumer Goods index lost 0.7% following selloffs in UNILEVER (-13.0%).

Investor sentiment (measured by advance/decline ratio) advanced in the week to 1.0x from 0.4x posted in the previous week as 36 stocks advanced against 37 stocks that declined. The top performing stocks in the week were LEARNAFRCA (+18.6%), MOBIL (+17.6%) and OANDO (+15.2%) while CILEASIN (-18.0%), HMARKINS (-14.7%) and UNILEVER (-13.0%) were the worst performers. Despite subsisting weak sentiment, we maintain our near term positive outlook on the market. Hence, in the coming week, we expect market performance to be driven by increased bargain hunting as already witnessed this week.

Money Market: Liquidity Dynamics Support Steady Money Market Rates; T-Bills Rates Maintain Stability
Money market rates during the week responded largely to financial system liquidity dynamics which recently has remained high at above N500.0bn following the strategic intermittent mop-ups by the Apex Bank. As with other weeks, investor appetite for OMO securities, especially the long dated maturities, remained noticeable in the pattern of subscription. The Open Buy Back (OBB) and Overnight (OVN) rates trended lower W-o-W reflecting improvement in system liquidity which opened at N501.4bn on Monday as OBB and OVN rates fell to 3.3% and 3.5%, down 0.4ppt and 0.5ppt from the previous week’s close. This momentum was sustained till midweek as rates fell to 2.7% and 3.0% respectively following a dearth of OMO auctions and consequential increase in system liquidity to N623.8bn.

On Thursday however, system liquidity opened at a significantly higher level of N1.1tn, necessitating N500.0bn OMO mop-up by the CBN across 112-day (Offered: N100.0bn, Subscription: N1.2bn, Alloted: N1.2bn, Marginal Rate: 12.2%) and 245-day (Offered: N400.0bn, Subscription: N963.9bn, Alloted: N498.7bn, Rate: 13.99%) maturities. Hence, OBB and OVN rates inched 0.3ppts and 0.5ppts higher to 3.0% and 3.8% respectively. As the impact of a moderating inflation continues to anchor yield expectation, we anticipate more subscriptions in longer tenored instruments as investors lock in higher rates ahead of yield moderation.

In the Treasury Bills market, performance was largely flattish as average rate across benchmark tenors trended higher albeit marginally on 3 of 5 trading sessions save for Tuesday. The bearish start of the week, with average rate rising 2bps to 13.1%, had been reversed on Tuesday following 4bps decline in average yield; but rose 3bps mid-week in the absence of a Primary Market Auction and stayed flattish till the end of the week. Rates closed 17bps lower by weekend. In the following week, we anticipate a largely bullish performance in the Treasury Bills Market sequel to the reduction in the amount to be rolled over in line with the planned reduction and substitution of expensive domestic short term debt with cheaper long term foreign debt by the Federal Government. A total of N116.9bn across the 91-day, 182-day and 364-day instruments will be maturing while only N58.4bn is scheduled to be rolled over.

Foreign Exchange Market: Naira Stable across Segments of Foreign Exchange Market
The improving global demand on the back of optimistic growth outlook, sustained OPEC production cut deal and Saudi Arabia’s vow to cut more oil output, propped global oil prices during the week as Brent Crude gained 7.5% W-o-W to close at US$72.28/b. This positive development continues to strengthen the Central Bank of Nigeria (CBN’s) external reserves buffer - which during the week sustained the recent momentum of accretion, with the gross level reported at US$46.7bn as at (09/04/2018) - and its capacity to uphold the level of FX intervention needed to support the local currency. Consequently, the CBN in line with trend, continued its weekly FX intervention sales, offering US$210.0m via the Wholesale Secondary Market Intervention Sales (SMIS); in its commitment to sustain liquidity levels and maintain stability in FX rate across all segments of the market. As a result, the naira was stable during the week.

The CBN’s spot rate opened the week at N305.60/US$1.00 and appreciated to N305.55/US$1.00 on Monday but maintained this rate till the end of the week. At the parallel market, rates started the week at N362.00/US$1.00 but marginally weakened by N1 to close at N363.00/US$1.00. At the Investors and Exporters’ (I&E) Window, the NAFEX opened the week flat at N360.00/US$1.00 and closed at the same rate by week-end. Activity level in the I&E FX window improved following a 6.8% increase in turnover to US$1.1bn from US$1.0bn traded in the previous week.

In the FMDQ OTC futures, total value of open contracts of the Naira settled OTC FX futures rose by US$151.9m to US$3.4bn as compared with US$3.3bn posted last Friday which denotes an increase of 4.8% in market size. April 2018 instrument will be maturing in the next two weeks and in line with previous actions by the CBN, we expect the instrument to be replaced by a new contract.

In line with the trend of weekly interventions by the CBN within the FX market, we expect rates to trade within similar levels across the FX market segments.

Bond Market: Sub-Saharan Eurobonds Bearish amidst Sustained Bullish LCY Bonds Performance
The Local bond market was bullish this week as the average yield declined W-o-W consequent on investors’ reaction to the monetary policy rate retention and a moderation in headline inflation rate to 13.34% from 14.33% in February. Accordingly, the average yield across tenors fell 6bps on Monday to close at 13.6% due to buying interest across tenors, specifically in short and medium dated instruments. The downward trend in yield continued till mid-week as the average yield across tenors further moderated to 13.6% (5bps lower) on Tuesday and 6bps lower on Wednesday before settling at 13.5% on Thursday. Average yield closed the week at 13.5% on Friday, recording a 23bps decline W-o-W. Based on our near term outlook, we expect the bullish performance to be sustained in the current moderating yield environment as investors retain interest in longer dated maturities.

Performance of Sub-Saharan Sovereign Eurobonds was largely bearish, halting the bullish sentiment in prior weeks, as 17 of 22 instruments witnessed an upward trend in yields W-o-W while the NIGERIA 2018, GHANA 2026, IVORY COAST 2028 & 2032 and SOUTH AFRICA 2020 instruments declined W-o-W. The bearish sentiment has been linked to the weakening US dollar (measured by the Dollar index) which has lost 2.5% YTD in value compared to major currencies of the World. Notwithstanding the bullish run on global oil prices during the week, rising above US$70.0/b with forecast as high as US$80.0/b, emerging and frontier market assets recorded the bulk of the sell-offs.

Subsequently, average yield across the Nigerian, Ghanaian, Gabonese, Kenyan, Zambian, Senegalese and South African Eurobonds rose 4bps, 8bps, 20bps, 3bps, 13bps, 5bps and 7bps respectively. On the other hand, Nigerian Corporate Eurobonds were largely bullish as yields on 8 of 12 instruments closed in the red W-o-W while the 4 other instruments trended upwards. The instrument with the most buying interest was DIAMOND 2019 (down 27bps to 8.7%) while FIDELITY 2018 recorded the most sell-offs (up 31bps to 4.3%). Nonetheless, DIAMOND 2019 and FBN 2021 instruments are the best performers YTD, up 3.7% and 3.2% respectively.

In view of our near term outlook, we expect the Sub-Saharan Eurobonds market to rebound following the bearish performance this week as higher yields will likely sustain investor appetite for Sub-Saharan emerging and frontier Eurobonds.