Review and Outlook of Global, Nigeria Markets –Week Ended June 10, 2016

Global Market Review and Outlook
During the week, the World Bank revised downwards global growth forecast for 2016 from 2.9% projected in January to 2.4%. The decision was necessitated by slowing growth in developed economies, lower commodity prices which have greatly hit commodity exporting emerging markets and weakening global trade as well as declining capital flows. This is not coming as a surprise as slowing pace of growth in the world second largest economy, China, has remained a major concern. Nevertheless, investors remained more focused on the outcome of the FOMC meeting next week as well as the BREXIT referendum slated for June 23rd.

Sentiments across global equities were broadly bearish across regions under our coverage this week. In the developed markets, the US S &P 500 appreciated 0.1% W-o-W while the NASDAQ fell 0.6% W-o-W even as investors look towards the outcome of the FOMC meeting in the coming week. The UK FTSE continued southwards, losing 1.4% W-o-W. In the European Markets, sentiments stayed bearish as the France CAC and the German DAX declined for a 2nd consecutive week, down 2.3% apiece W-o-W as uncertainties remain over the possibility of a BREXIT after the referendum on June 23rd. In the Asian markets, sentiments were mixed as the Hong Kong Hang Seng advanced for a 2nd consecutive week, up 0.5% W-o-W while the Japanese Nikkei trended further southwards, falling 0.2% W-o-W.

Performance in the BRICS markets was broadly bearish as the Russia RTS was the lone gainer in the group. The Russian RTS advanced 1.1% W-o-W on account of the rally in oil prices during the week. Contrarily the Brazil Ibovespa fell 0.9% W-o-W despite the rally earlier in the week following developments in the state- controlled oil producer, Petrobas which drove a rally in the counter. The Chinese market was closed mid-week for holiday celebrations however, the index closed in the red (-0.4% W-o-W) despite the improvement in macroeconomic data (imports). In the same vein, the South African JSE/FTSE and the Indian BSE Sens depreciated in the week, Closing 2.0% and 0.8% lower W-o-W respectively.

In the African markets, The Nigerian All Share Index was the lone decliner, down 1.5% W-o-W. The Egyptian EGX advanced for a 2nd consecutive week, up 1.8% W-o-W while the Kenya NSE followed, appreciating 0.4% W-o-W and the Ghana GSE improved 0.1% W-o-W.
Weekly Equities Market Review and Outlook
The equities market extended sell sentiment into the 2nd week as investors remain wary on lingering delay in the release of the modalities for the operation of the proposed currency market flexibility. Consequently, the market opened in the red on the first trading day of the week, as profit taking by investors drove the index 0.1% southwards at the close of trade. This trend was continued on Tuesday and Wednesday as the benchmark index closed 0.4% and 1.4% lower respectively. However, on Thursday, after a 3-day losing streak, there was a change in sentiments as investors sort for bargains in market bellwethers that had significantly declined since the start of the week, hence, the market improved 0.7% but the downtrend continued on Friday as the All Share Index ended 0.2% lower. The losses recorded during the week, outpaced the gain recorded hence the All Share Index fell 1.5% W-o-W to close at 27,232.62 points. YTD return also settled at -4.9%. Similarly, market capitalisation reduced by N138.0bn to settle at N9.4tn. Activity level weakened as average volume traded fell 38.4% to 191.9m units while average value traded declined by 44.1% to N1.6bn.

Performance across sectors was mixed as 2 indices appreciated while 3 declined. The Oil & Gas index appreciated the most, up 2.0% following gains in OANDO (+13.6%) and FORTE (+0.5%) Similarly, the Insurance index improved 1.7% on the back of price appreciation in MANSARD (+2.5%). On the flipside, the Consumer goods index depreciated the most, losing 1.9% on account of losses in NIGERIAN BREWERIES (-4.4%) and GUINNESS (-4.1%). The Industrial goods and Banking indices also followed suit, falling 1.5% and 1.0% respectively following losses in DANGCEM (-2.7%) and UBA (-9.1%).

Sentiments in the market albeit still soft,  improved this week as market breadth rose to 0.4x from 0.3x last week consequent on 15 stocks which advanced while 41 declined.   The top gaining stocks for the week were UNITYBANK (+30.4%), NEM (+24.7%) and UNIONDICON (+15.7%), while CADBURY (-9.7%), AIRSERVICE (-9.4%) and UBA (-9.1%) were the worst performing counters for the week. The performance of the market during the week was broadly subdued by protracted delay by the CBN to announce the anticipated guidelines for the operation of the planned flexible FX market. We expect activities to remain lacklustre in the week ahead so long as the policy details remain unknown.

Money Market Review and Outlook
The financial system liquidity opened the week on Tuesday higher at N463.2bn relative N277.4bn closing balance in the previous week. Thus, money market rates, OBB and OVN settled at 3.1% and 3.4% respectively prompting an OMO auction of N50.0bn by the CBN. Consequently, system liquidity moderated to N412.5bn on Wednesday but did not materially impact on rates as the OBB rates dropped to 2.8% while O/N steadied at 3.4%. On Thursday, system liquidity received a boost as it further inched higher to N439.4bn while OBB and OVN rates moderated to 2.7% and 3.3% in that order. As at Friday, OBB and OVN rates closed 2.0% and 2.3% lower W-o-W to settle at 2.8% and 3.2% as the system liquidity had improved 51.4% to close the week at N408.3bn.

At the Treasury Bills market, investors continue to show interest in the short dated T-bills instruments as against the 364 Day instruments that traded at yields in excess of 11.0% throughout the week. Average T-bills yield opened higher on Tuesday at 10.1% in response to system liquidity dynamics but moderated at 9.3% on Wednesday and Thursday. The CBN on Wednesday conducted a total of N143.9bn treasury bills auction for the 91-Day, 182-Day and 364-Day instruments at respective marginal rates of 8.0%, 9.1% and 11.1% with the three instruments more than 100.0% oversubscribed. Amidst the weighty macroeconomic risk factors in the system, we expect investors to remain cautiously in favour of shorter term instruments; hence, we expect the T-bills market to trade bullish in the week.

Foreign Exchange Review and Outlook
The week opened with financial system liquidity at N258.6bn, down from last Friday’s opening levels of N306.5bn.  The Apex Bank auctioned OMO bills worth N93.2bn during Monday’s trading session. Consequently, Open buy back (OBB) rose 1.1% to 3.1% whilst Over Night (O/N) rose 1.3% to 3.6% from Friday’s closing rates. Liquidity levels inched lower on to N160.4bn on Tuesday as the debit for the successful OMO bids hit the system whilst OBB and ON rates increased to 4.4% and 4.9% respectively in tandem to liquidity dynamics. By midweek OBB and ON rates settled at 4.8% and 5.3% respectively as system liquidity rose to N898.7bn as a result of the refunds to deposit money banks for unfulfilled bids at last week’s FX auction and an OMO maturity, eventually closing at 4.2% and 4.7% respectively on Friday, up 1.4% and 1.5% W-o-W.

In the Treasury Bills market, rates movement were largely influenced by OMO mop-ups and maturity during the week. Average rate closed the first trading session of the week at 8.0% as the central bank mopped up N93.2bn from the system and inched even higher to 8.5% on Tuesday. However, average T-bills rates dropped to 8.4% by midweek as N129.6bn OMO maturity hit the system. Average T-bills rate closed the week at 8.4%, up 0.2% W-o-W.

In the week ahead, we expect rates to gyrate to liquidity dynamics during the week as Debt Management Office prepares to auction N105.0bn worth of bonds at the monthly bonds primary market auction while FX provision and refunds continue to drive rates.

Bond Market Review and Outlook
Bearish sentiments dominated the Bonds market this week as average yield across benchmark bonds rose on most trading days of the week. Average yield across benchmark bonds closed the first trading day of the week at 13.7%, up 1.2% from Friday as sell sentiment lingered. The selloffs continued on Tuesday as yield rose 0.2% to close at 13.9%. The sell offs continued towards the end of the week with increased activity observed on the FGN MAR2024, FGN JUL2034 and FGN MAR2036 bonds, average yield settled at 14.0% by the end of Thursday’s trading session, eventually ending the week at 14.0%, up 1.5% W-o-W.

The Debt Management Office is scheduled to auction N105.0bn worth of bonds at the monthly bonds primary market auction. The amount on offer is N15bn of FEB2020, N40bn of JAN2026 and N50bn of MAR2036 bonds. We expect these bonds to clear at stop rates of 13.7%, 13.9% and 14.0% respectively. We believe the bonds market performance in the week ahead will be majorly driven by the auction as investors free up liquidity ahead of the auction even as unsuccessful bids are redirected into the secondary market.