Stock Market Closes Week Low

The Nigerian Equities market ended the week negative, closing the last trading session for the week 0.9% lower as the All share Index settled at 29,190.54pts, sustaining a week-long of bearish sentiment.

Market capitalisation equally shed N87.4bn to berth at N9.9tn for the week. Today's decline remained on account of sell pressure on OANDO. We observed that the Oil and Gas Stock has plunged 40.0% since the submission of its FY:2014 result last Friday where it posted a N183bn colossal loss. Equity mover for the day include NIGERIAN BREWEREIS (-5.1%) and UNILEVER (-4.9%). Market activities was however mixed as volume eased 17.4% to 205.5m units while value rose 34.8% to N3.4bn.

Sector indices was largely negative save for the banking index which appreciated 1.1% following gains in ZENITH (+3.3%), UBA (2.3%) and DIAMOND (+2.8%) gains. The Oil & Gas sustained decline with -1.1% attributable to sustained pressure on OANDO (-9.6%). Consumer goods also dipped 2.3% on losses in NIGERIAN BREWEREIS (-5.1%) and UNILEVER (-4.9%). The Industrial goods and Insurance indices both eased 0.2% and 0.1% respectively.

Market breadth, measured by the ratio of advancers to decliners closed at 0.94x after 17 stocks gained and 18 declined. At the close of trade, BERGER (+4.9%), FIDSON (+4.9%) and UBCAP (+4.7%) emerged the highest gaining stocks while OANDO (-9.6%), NIGERIAN BREWEREIS (-5.1%) and UNILEVER (-4.9%) topped the losers' chart. Following a bearish sentiment observed in the Nigerian over the last eight trading days. We envision the possibility of a correction in the coming session as bargain hunter position for speculative gains.

Weekly Equities Market
The Nigerian equities market closed southwards on four trading days of the week as string of sanctions unleashed on key Banking tickers (STANBIC, FBN Holdings and UBA), monumental loss posted by OANDO, together with a discomforting earnings season triggered another round of sell off in the market. Consequently, the benchmark index-NSEASI tumbled 2.7% W-o-W to close at 29190.54pts. Thus, MTD return settled -6.5% for the month October and YTD return worsened to -15.8%. Similarly, Market Capitalization contracted by N370.1bn, to close at N9.9tr. Market activity measured by volume and value of transaction during the week rose as average volume and value of transaction improved 35.9% and 9.8% to 269.7m units and N2.9bn respectively.Performance across sectors also trended northward W-o-W mirroring market performance. The Oil and Gas sector took the most hit tumbling 6.0% as investors refuse to spear OANDO (-40%), placing the counter on full offer throughout the week. The banking sector followed with a 3.4% W-o-W decline on the back of sustained pressure on FBN Holdings (-14.0%), UBA (-14.0%) and STANBIC (-18.0%). The Consumer goods sector index dipped 2.0% despite modest earnings numbers submitted by sector bellwether - NESTLE - who recorded a modest Revenue and PAT growth of 5.2% and 2.2% respectively, and declared a N10.0 divided per share. The industrial good index did not miss the bullet either closing 0.7% W-o-W lower while the Insurance index (+0.2%) closed as the sole gainer for the week.

The sequence of negative news in the horizon further dampened Investor sentiments this week as market breadth (Advancers/Decliners ratio) weakened from 0.7x in the previous week to 0.2. This was not surprising as only12 stock appreciated during the week relative to 51 decliners. The highest gains for the week were recorded in FIDSON (+13.7%), DANGSUGAR (+8.3%) and CONTINSURE (+5.3%) while the highest loses were recorded in OANDO (-40.0%), LEARNAFRICA (-19.8%) and UAC-PROP (-17.9%). We expect bargain hunters to return to the market in the coming week. This is given that most counters closed at bargain prices following the market rout experience during the week. Thus, we anticipate improvement in investor's sentiment on equities. However, we advise investors to exercise caution with respect to stocks affected by negative headlines during the week.

Money Market
The money market remained broadly liquid this week as DMBs continued to maintain a high level of excess reserves, resulting in single digit interbank rates, lower NIBOR and treasury bills rates. Liquidity balance of DMBs opened higher at N494.7bn on Monday relative to N329.2bn it opened last Friday, after the CBN made refunds for unsatisfied Naira provisions DMBs made ahead of the currency auction held last Thursday. Consequently, we observed that the borrowings of DMBs at the CBN discount window declined N40.5bn to NN33.6bn on Monday, although interbank rates were broadly flat as the Overnight (O/N) and secured Open Buy Back (OBB) instruments closed at 5.3% and 5.8%.

Rates dipped further on Tuesday as liquidity balance of DMBs slightly expanded after more banks received refunds for the FX provisions. However, the announcement by the CBN that it would be making another FX auction on Thursday led to a squeeze in financial system liquidity as banks made provisions ahead of the FX auction, hence rates trended higher mid-week with the O/N and OBB and NIBOR average closing at week-highs of 6.0%, 6.6% and 13.6% on Wednesday respectively. However, repayment of N187.0bn worth of maturing OMO bills on Thursday and further inflow from Federal Accounts and Allocation Committee (FAAC) distribution which hit the system eased liquidity conditions in the market. Hence, rates fell on Thursday and Friday. The O/N and OBB instruments declined 4.8% and 3.9% W-o-W to close at 0.9% and 1.3% on Friday respectively.

Activities in the treasury bills market mirrored the liquidity dynamics in the money market during the week. Rates were little changed at the start of the week but started trending downwards from Wednesday due to improved buying interests in short to mid-term tenors in expectation of liquidity inflows from FAAC and OMO repayments. Average rates across tenors fell 32bps to 8.1% on Friday. There are no maturing bills next week but we expect interbank rates to stay at current levels as we expect refunds of FX provisions made this week and the FAAC funds to keep the market liquid.

Foreign Exchange Market
Similar to previous weeks, the exchange rate at the interbank market was little changed as it stayed within the CBN administrative corridors of N199.07- N199.10/US$1.00. The CBN revaluated the currency by 30kobo to N196.97/US$1.00 on Monday but eased it to N197.00/US$1.00 on Thursday when it held a major currency auction to DMBs to fulfil some of the backlogs of FX demand.

Against the backdrop of further calls for devaluation to reflect market dynamics -- amplified last week by the former CBN Governor Emir Muhammadu Sanusi II -- the CBN has maintained that, "there will not be further devaluation of the Naira".  The Vice President further reinforced the position of the CBN on Thursday when he stated he does not support devaluation and instead suggested easing of macroeconomic policies, highlighting the need for the government to "start spending more" to "ease up a bit". Although we acknowledge that the CBN's FX demand management measures have successfully reduced FX demand and currency utilization by DMBs by about 30.0% between Q1:2015 and Q2:2015, the current level of external reserves (which gained US$73.3m during the week to US$30.13m) can only cover 6.8 months of import by our estimation. With crude oil prices not expected to recover in the short term, the expansionary fiscal posture of the government is likely to necessitate an adjustment in domestic FX rate in the short to medium term.

Analysis of the MPC members' personal statements for the last policy meeting held in September suggests that most members continue to back the CBN's administrative FX measures and polices, with at one member (Professor Uche Chibuike ) suggesting the imposition of capital control measures to curb disruptive speculative capital flows. We expect that the CBN will in the coming months appraise its current trade-off of FX stability for internal growth. In the interim, we expect demand for FX to increase against the backdrop of the scheduled final phase-off of Nigeria from the JP Morgan Emerging Market Bond index this week.

Bond Market
The Bond markets opened the week with mixed sentiment across the term structure. There was some initial sell-down pressure which soon dissipated as buying interest in mid-term tenured instruments and the benchmark JULY 2034 bond pushed average yield across tenors benchmark bonds down slightly by 6bps to 13.6%.  Activity level was however weak with just N40.5bn worth of bonds traded all day. Activity level improved the following day although selling pressure intensified with average yields on benchmark bonds increasing 9bps to 13.7%. The trend was sustained on Wednesday with activities concentrated in instruments that are to be phased out of the JP Morgan Index (JAN 2022, MAR 2024 and JULY 2034) driving 52.7% of total value traded of bonds.

Liquidity inflows to the financial system on Thursday from maturing OMO bills buoyed activity in bonds market with total value of bonds traded put at N88.1bn whist yields declined 8bps to 13.5% on average across benchmark bonds. Consequent on the additional FAAC inflow which hit the financial system, bonds closed bullish on Friday with yields on benchmark instruments closing either southwards or flat, despite the final phase-out of Nigerian bonds from the JP Morgan index today. Hence, the average yield on benchmark bonds declined 22bps W-o-W to 13.4%.

We do not anticipate any major distortions in the pricing of bonds post-implementation of the JP Morgan phase out as most of the effects have already been priced in, whilst demand for government instruments will continued to be supported by domestic money mangers'. In the interim, ebbing investors' confidence in the equities market - due to weak earnings results, corporate governance and regulatory compliance concerns -- that has resulted in significant selloffs over the past two weeks will continue to drive interest of domestic investors in fixed income securities.