Weekly Economic and Market Update

Global Equity Market: Global Markets Rebound as US Markets Extend Sell Offs
Performance of global equity indices under our coverage was largely positive this week, with appreciations recorded across most regions save for the US markets. Following the release of minutes from the January Fed meeting on Wednesday, speculations of an impending rate hike were further stoked on the back of better-than-forecast improvement in the US economy as well as higher inflation numbers. Interestingly, against the trend noticed following the completion of the meeting in January, in which sell offs were recorded across regions, the impact of the interest rate hike expectation was limited to the US markets this week. In the commodities market, Oil prices maintained an upward trend, rising from US$64.81/b last week to US$65.80/b at the end of the week.Across the Developed markets, all indices closed in the red W-o-W. The US indices – S &P 500 (-1.0% W-o-W) and NASDAQ (-0.4% W-o-W) – declined as investors reacted to the release of minutes from the Fed Meeting while the UK FTSE slid 0.6% W-o-W.

Markets in Europe and Asia remained upbeat this week as weaker sentiment in the US markets, stoked increased buying interest in the European markets, hence France’s CAC 40 and Germany’s XETRA DAX advanced 0.5% and 0.3% W-o-W respectively. Similarly, Japan’s NIKKEI and Hong Kong’s HANG SENG appreciated 0.8% and 0.5% W-o-W respectively.

In the BRICS markets, all indices trended northwards W-o-W save for South Africa’s FTSE/JSE All Share, which pulled back 0.6% in the week. Russia’s RTS gained 3.0% W-o-W as oil prices rallied while Brazil’s Ibovespa appreciated 3.0% W-o-W on the back of optimism towards the performance of the domestic economy, reflected in the Brazilian Central Bank’s Economic Activity Index for December which was released at the beginning of the week. China’s Shanghai Composite followed, improving 2.8% as the market reopened on Thursday after closing for the Lunar New Year celebrations.

In Africa, performance was mixed across sectors as the Nigerian All Share Index and the Ghana’s GSE Composite both shed 0.2% apiece. On the flipside, Egypt’s EGX 30 advanced the most, up 2.4%W-o-W following a rate cut by the Egyptian Central Bank as investors expect a further slowdown of inflation. Similarly, Kenya’s NSE 20 slightly appreciated 0.2% W-o-W.

Domestic Equity Market:  NSE ASI Extends Bearish Run, despite Gains in the Week
The Domestic bourse started the week on a bearish note, but rebounded in the subsequent session and gains were extended till the end of the week. However the appreciations recorded could not offset the impact of the loss on the first trading day of the week. Hence, the NSE ASI weakened 0.2% W-o-W to settle at 42,570.89 points while YTD return trimmed to 11.3%. Accordingly, investors lost N24.4bn in value as market capitalization reduced to N15.3tn. Also, activity level weakened as average volume and value traded reduced 26.4% and 21.7% W-o-W to 403.6m units and N4.6bn respectively. The top traded stocks by volume were FBNH (210.9m), SKYEBANK (149.5m) and FIDELITY (142.1m) while the top traded stocks by value were FBNH (N2.3bn), ZENITH (N1.8bn) and GUARANTY (N1.7bn).

The NSE ASI declined on only 1 trading day in the week (on Monday), as the benchmark index was dragged by losses in NESTLE (-4.2%) and NIGERIAN BREWERIES (-1.6%). However, a rebound was recorded on Tuesday (+0.4%) with DANGCEM uplifting the index. The uptrend was sustained till the end of the week - Wednesday (+2bps), Thursday (+24bps) and Friday (+0.7%) - on the back of buying interest in Banking stocks. Notwithstanding, a 0.2% W-o-W depreciation was recorded.

Sector performance was mixed this  week as 2 of 5 sector indices advanced. The Banking index led gainers, up 1.5% due to gains in UBA (+6.6%) and GUARANTY (+4.5%). The Insurance index followed closely, appreciating 1.2% as AIICO (+7.1%) and MANSARD (+3.8%) advanced. On the flipside, the Oil & Gas index led laggards, down 1.8% following losses in CONOIL (-18.3%) and MOBIL (-4.5%). Similarly, the Consumer and Industrial Goods indices dipped 1.1% and 0.5% respectively due to losses in NESTLE (-1.6%), PZ (-8.0%), WAPCO (-1.3%) and CCNN (-7.1%).

Market breadth (advance/decline ratio) which measures investor sentiment, weakened to 0.4x from 0.6x the previous week as 23 stocks advanced while 53 stocks declined. The top gainers for the week were LIVESTOCK (+19.0%), JAPAUL OIL (+16.7%) - following a rally stoked by the announcement of a US$350.0m financing deal with Milost Global Incorporated - and CAP (+7.8%) while the worst performing stocks were CONOIL (-18.3%), COURTVILLE (-15.8%) and UNIC (-15.6%). Despite the decline recorded in market performance, the increase in market breadth suggest sentiment is gradually improving in the market. We anticipate companies to begin filing FY:2017 earnings result by next week, hence this will be a major driver of performance in the near term.

Money Market Review and Outlook: Interbank Rates Moderate as Treasury Bills Market Traded Bullish
In the Money Market, Open Buy Back (OBB) and Overnight (OVN) rates trended lower on 3 of 5 trading days to end the week at lower levels relative to prior week. At the start of the week, OBB and OVN rates rose to 25.2% and 26.7% from 18.2% and 19.5% recorded the previous Friday due to tighter liquidity which trailed the CBN’s weekly US$210.0m FX intervention sales at the Interbank and Retail segments. Rates fell on subsequent trading days as liquidity remained against the backdrop of robust system liquidity. The OBB and OVN rates moderated to the lowest level in the week on Thursday - 9.8% and 10.2% respectively - due to OMO maturity of N56.4bn which partly offset OMO sale (offered: N80.0bn, Sales: N67.6bn). The CBN allotted N67.7bn of 182-day and 18.0bn of 241-day OMO bills auctioned at the same marginal rate of 14.4%. However, by Friday, liquidity tightened against the backdrop of debits for Thursday’s OMO auction as well as bond auction conducted mid-week; hence OBB and OVN rates rose to 11.5% and 12.4%, 6.8 ppts and 7.1ppts lower than 18.2% and 19.5% recorded at market close the prior week.

In the Treasury Bills market, performance was mixed as rates across benchmark tenors trended lower on 2 of 5 trading days.  The week started on a bearish note - due to tighter financial system liquidity - as average rate across tenors settled at 14.3%, up 16bps from 14.1% recorded the previous Friday as sell offs were recorded in mid-term instruments which fell 49bps while other tenors stayed flat. On Tuesday, sentiment was largely bullish as average rate across benchmark tenors declined 8bps on account of buying interest at the shorter end of the curve. This bullish sentiment was largely attributable to the CBN’s non-issuance of OMO instruments in the primary market. Market stayed bullish till Thursday (average rate fell 13bps), driven by buying interest in short and mid-term bills (-28bps). Average rates closed at 14.1% on Friday, implying a 10bps W-o-W decrease.

In the coming week, despite an OMO maturity of N109.4bn on Thursday, we expect money market rates to remain at similar levels as the CBN is anticipated to mop-up the liquidity via OMO auction.

Foreign Exchange Market: Naira Depreciates 6 Kobo at the NAFEX Window; Trades Flat on the Street
In line with trend, the Apex bank continued with its weekly interventions, injecting US$100.0m at the start of the week through wholesale Secondary Market Intervention Sales (SMIS), while US$110.0m was offered at the retail segment to Small and Medium Scale Enterprises (SMEs) and customers in need of forex for invisibles such as Tuition, Business Travel Allowance (BTA) and Medical payments. Thus, the CBN’s official rate traded within the bind of N305.95/US$1.00 - N305.60/US$1.00 during the week but closed flat W-o-W at N305.95/US$1.00. At the Parallel market, the Naira appreciated by N1.00 to N362.00/US$1.00 on Tuesday and remained at similar levels all through the week.

At the Investors’ & Exporters’ (I &E) window, the naira fluctuated marginally at the start of the week, appreciating 1 kobo to N360.09/US$1.00 on Monday from N360.10/US$1.00 but took a different turn on Tuesday, depreciating 11 kobo to N360.20/U S$1.00. By midweek, the naira recouped losses, appreciating to N360.08/US$1.00. At the close of the week, the oscillatory movement in the local currency saw the naira depreciating 6 kobo W-o-W. However, activity level improved at the window as weekly turnover inched 15.7% higher W-o-W from US$789.9m to US$913.6m.

Total value of open contracts at the FMDQ futures market closed at US$3.4bn, from US$3.3bn the previous week. The APR 2018 (contract price: US$360.92) instrument was the most subscribed while the JAN 2019 instrument (contract price: US$362.27) remains the least subscribed with total value of US$18.5m. The FEB 2018 instrument will be maturing next week and in line with trend, we expect the instrument to be replaced with a new contract.

With external reserves at US$41.8bn (as at 21/02/2018) and the ongoing issuance of US$2.5bn Eurobond by the FGN coupled with the sustained stability global oil prices, we are confident of the CBN’s continued ability to support FX market liquidity and stability.

Bond Market Review and Outlook: Investor Appetite for Longer Tenored Bonds to Remain Upbeat
Performance in the local bond market was largely bearish, although marginal, as average yield rose on all trading sessions. The week started off with investors trading cautiously in anticipation of the bond auction which was to hold mid-week. As a result, average yields remained flattish on Monday at 13.7% and inched 5bps to 13.8% on Tuesday.  On Wednesday however, average yield traded flattish at 13.8% as most investors seem to have channelled their orders through the primary market auction which was conducted by the Debt Management Office (DMO) on the same day.

A total of N100.0bn was offered at the February Bond Auction, split equally between the reopened JULY 2021 instrument and the newly issued FEB 2028 instrument. From the Bond Auction result, the JULY 2021 was undersubscribed with total subscription at N38.9bn against N50.0bn on offer while range of bids was between 12.5% and 16.0%. However, the DMO allotted N27.2bn at a clearing rate of 13.7%. On the contrary, the FEB 2028 instrument was largely oversubscribed as subscription totalled N78.7bn relative to N50.0bn offered while bids ranged between 12.5% and 16.0%. Unlike JULY 2021, the DMO allotted N52.4bn at a clearing rate of 19.8%. We believe investors’ appetite for longer tenored bonds will continue to remain strong in anticipation of a further moderation of the interest rate environment.

In the Sub Saharan Africa Sovereign Eurobond market, performance was mixed as yields on 10 of 22 instruments declined W-o-W. South African instruments enjoyed the most buying interest in the week, down 2bps as investors shifted focus to the country. This is unsurprising following the optimism associated with Cyril Ramaphosa’s election as President. Also in the week, Kenya raised a US$2.0bn dual tranche Eurobond in a new sovereign issue which was seven times oversubscribed. The bond was issued in two equal tranches of 10-year at 7.25%and 30-year at 8.25% coupon rates and according to government, the proceeds will be applied towards the government’s development initiatives and liability management. Consequently, the currently existing Kenyan 10-year instruments traded bullish during the week as yield moderated 28bps W-o-W to settle at 6.2%. On the other hand, average yield across Ghana, Gabon and Ivory Coast bonds rose 4bps, 8bps and 4bps respectively W-o-W.

Performance across the Nigerian Corporate Eurobond was largely positive this week as yields on 9 of 12 instruments trended southward. The FIDELITY 2018 (down 28bps to 3.3%) enjoyed the most buy interest while FBN 2021 and ZENITH 2022 experienced the most sell offs, up 10bps apiece to 8.6% and 6.0% respectively. Year to Date, most Nigerian Corporate Eurobonds have performed positively with average return of 1.3%. Despite anticipated policy normalisation in the US market, increasing investor appetite for high yielding frontier and emerging market instruments will continue to support the SSA Corporate Eurobond space in the near term.