Weekly Market Review and Outlook

Global Market Review and Outlook
Performance in the global equities market was largely bullish as 10 of 16 indices under our watch closed the week positive as investors await a speech from Federal Reserve chair Janet Yellen on Friday at the Jackson Hole Economic Symposium in Wyoming, with hopes of getting further clues as regards the outlook for monetary policy and financial stability. Also, there were speculations that the Fed Chair could attempt to convince markets there will be one more rate hike in 2017. In the commodity market, oil prices firmed up at the start of the week as the Energy Information Administration (EIA) reported a drop in US crude inventories. The market however pulled back towards the end of the week owing to strengthening of Hurricane Harvey in the Gulf of Mexico which could lead to shut down of refineries in the storm’s path.

In the developed equity markets we track, the UK FTSE rose 0.9% to top gainers as the Pound slid against the Euro due to Brexit concerns and tepid growth outlook. Similarly, the U.S. S&P 500 and NASDAQ expanded 0.8% apiece amidst reports that President Trump team and lawmakers may be making progress toward pro-business reforms. Performance was however bearish in Europe & Asia 's major Bourses with the German XETRA DAX emerging loan gainer, up 2bps W-o-W despite the diplomatic spat between Germany and Turkey which has heightened tensions and dragged relations between the two nations to a new low. Similarly, the France CAC dipped 0.2% W-o-W while the Hong Kong HANG SENG and Japan NIKKEI stayed flat.

The bullish sentiment extended to the BRICS region as all indices closed in the green save for the China SHANGHAI COMPOSITE which slid 2bps W-o-W. On the other hand, the Russian RTS recorded the most gain, up 3.4% W-o-W followed by the Brazil IBOVESPA, adding 3.1% W-o-W. Likewise, the South African FTSE advanced 2.4% W-o-W while the Indian BSE closed 0.2% higher.

Similar to the previous week, performance in the African market stayed mixed as the Ghanaian GSE and Kenyan NSE benchmark indices closed positive, up 2.5% and 1.9% W-o-W respectively while the EGX 30 dipped 1.5% W-o-W. Likewise, profit taking in the Nigerian market dragged the All Share Index 0.7% lower despite release of positive corporate earnings by some Tier - 1 banks.
Equities Market Review and Outlook
As the earnings season draws to a close, performance of the benchmark index was mixed this week as the All Share Index (ASI) rose on 3 of 5 trading sessions. During the week, the last of Tier-1 Lenders yet to release H1:2017 scorecards submitted audited financials with better than expected performance reported across earnings metrics.  Nonetheless the impressive results from the Tier-1 banks, the All Share Index ended the week in the red, down 0.7% W-o-W, while YTD gain moderated to 36.4%. Also, market capitalization fell by N94.5bn to settle at N12.6tn. The negative close this week was against the backdrop of sell-offs in large cap stocks including DANGCEM (-4.0%), WAPCO (-3.4%), ZENITH (-5.8%), TOTAL (-5.0%) and UNILEVER (-9.2%). Activity level was however mixed as average traded volume rose 10.3% to 307.5m units while average traded value fell 3.3% to N4.8bn W-o-W.

Overall sector performance was mixed this week as 3 of 5 sector indices declined against 2. The Oil & Gas index declined the most with a loss of 3.7% on the back of sell-offs in MOBIL (-14.5%), CONOIL (-14.2%) and TOTAL (-5.0%). The Industrial Goods index followed with a decline of 3.3% due to profit-taking in DANGCEM (-4.0%) and WAPCO (-3.4%). Likewise, the Insurance index closed the week 1.8% lower on account of price depreciations in MANSARD (-7.3%) and LINKASSURE (-6.5%). On the gainers chart, the Consumer Goods index led with a 2.4% W-o-W return owing to buy interest in NIGERIAN BREWERIES (+5.0%), DANGFLOUR (+10.3%) and DANGSUGAR (+6.6%) while the Banking index closed 0.3% higher due to upticks in GUARANTY (+2.3%), UBA (+3.7%) and ACCESS (+2.9%). ACCESS, ETI and UBA and H1:2017 financials released the week showed Gross Earnings grew 42.0%, 41.5% and 34.5% Y-o-Y to N246.6bn, N386.9bn and N222.7bn while PAT rose 17.3%, 19.7% and 56.2% to N39.5bn, N37.7bn and N42.3bn respectively. ACCESS and UBA declared interim dividend of N0.25k and N0.20k respectively.

Investor sentiment as measured by market breadth improved to 0.9x from last week’s close of 0.4x as 29 stocks advanced against 37 decliners. This week’s best performers were CAVERTON (+16.0%), UBN (+13.2%), UAC-PROP (+9.1%) while MOBIL (-14.5%), CONOIL (-14.2%) and UNILEVER (-9.2%) were the worst performers. Given the extended sell pressure on the Bourse over the past two weeks, we see the potential for bargain hunting in early trades next week. We maintain our positive medium term view for equities, supported by positive forward earnings and increase in valuation multiples.

Money Market Review and Outlook
During the week, money market rates moved in tandem with liquidity dynamics. The CBN conducted OMO auctions on all trading sessions of the week while the DMO held its monthly bond auction on Wednesday which squeezed N56.1bn from the system. As a result, money market rates – OBB and OVN- rose on 4 of 5 sessions while system liquidity remained in deficit all week despite FAAC inflow and maturing OMO bills repayment of N652.23bn and N95.7bn respectively.
At the start of the week, OBB and OVN rates stood at 18.0% and 18.6% respectively and further rose to 24.2% and 25.2% on Tuesday due to a larger system deficit of N78.6bn against N59.7bn on Monday. Liquidity levels further deteriorated on Wednesday to a deficit of N221.5bn due to a series of outflows (debits from the bond and OMO sales). Consequently, OBB and OVN rate spiked 67.5 and 70.8 percentage points to 91.7% and 96.0% respectively. However, rates moderated on Thursday to 9.5% (OBB) and 10.1% (OVN), owing to OMO maturity of N95.7bn which more than offset the N58.3bn debit in OMO sales, although system liquidity remained in a deficit. At the close of week, OBB closed flat at 12.0% W-o-W whilst OVN rate slid 30bps to 12.6% W-o-W.
Performance in the treasury bills market was mixed this week. Average T-bills rate across benchmark instruments closed higher in 3 of 5 sessions. The week started off on a quiet note, as average yield at the end of trade closed 4bps lower to settle at 18.5% while rates further declined 2bps on Tuesday to 18.4%. By Wednesday, average T-bills rates inched a marginal 1bp higher to 18.5% and remained flat on Thursday. Average yield however closed the week at 18.5%, indicating a marginal 4bps hike W-o-W.
In the coming week, there will be an OMO maturity of N101.2bn, and we expect the CBN to continue with its OMO mop-ups in order to guide interbank rates to target levels.
Foreign Exchange Market Review and Outlook
In a recent development with regards to the FX market, an appeal has been made to the Central Bank of Nigeria (CBN) by the Association of Bureau De Change Operators of Nigeria (ABCON) to review the rate at which the dollar is sold to BDC operators as the current rate of N360.00/US$1.00 is deemed unfavorable and has resulted in the cessation of operations by some of its members. However, the CBN is yet to make any formal address in response to this.
Meanwhile, the CBN in its drive to sustain the improved liquidity condition in the market continued with its weekly SMIS sales by offering US$100.0m for spot and short tenored forwards not exceeding 60 days. Against this backdrop, FX rates across all segments traded within a tight band this week. At the official market, the naira opened the week at N305.70/US$1.00 and closed at N305.80/US$1.00 due to daily interventions by the CBN. Similarly, the domestic currency traded flat at the parallel market, closing at N370.00/US$1.00 all through the week. However, at the NAFEX segment, rate appreciated on all trading days, opening at N360.66/US$1.00 to close at N359.25/US$1.00 which represents a 0.4% appreciation W-o-W.
At the FMDQ OTC Futures Exchange, value of open contracts closed the week higher at US$2.5bn from US$2.4bn in the prior week. During the week, the recently issued NGUS AUG 2018 received subscriptions worth US$45.3m which drove total value of the contract to US$57.0m. Notwithstanding, amongst the 12 open contracts, the NGUS SEP 2017 has the highest subscription at US$361.6mn with a contract price of N359.50/US$1.00 while the NGUS MAY 2018 is the least subscribed (US$40.2m at a contract price of N362.50/US$1.00).

In the coming week, we expect rates to hover at current levels as the CBN continues its drive to deepen liquidity via Wholesale and Retail markets interventions in various segments.

Bonds Market Review and Outlook
In line with the recent trend in the domestic bond market, investor interest stayed soft this week and performance was largely bearish as average yield across benchmark bonds trended northwards on 4 of 5 trading sessions. At the start of the week, average yield on benchmark bonds rose 2bps from the preceding Friday, to settle at 16.5% on account of sell offs in JUN 2019 and APR 2037 instruments. This trend was reversed on Tuesday as average yield marginally fell 1bp ahead of the August Bond Auction. On Wednesday, the Debt Management Office offered N35.0bn of the JUL 2021 (Subscription: N10.4bn, Allotted: N9.2bn), N50.0bn of the MAR 2027 (Subscription: N19.9bn, Allotted: N17.5bn) and N50.0bn of the APR 2037 (Subscription: N33.4bn, Allotted: N29.4bn) instruments at marginal rates of 16.8%, 16.8% and 16.9% respectively. Unsurprisingly, all Instruments were undersubscribed as lower system liquidity as well as investor preference for higher yield but short tenored T-bills and OMO bills weighed on investor appetite at the PMA. Average yield rose 11bp on Thursday and eventually settled at 16.7% on Friday, up 17bps W-o-W. In the week ahead, we expect activities in the bonds market to remain soft.

Sentiment on SSA Eurobonds was largely bullish this week as prices rose and yields fell on all trading instruments under our coverage, save for the Ghana 2017(+49bps), Ghana 2024 (+5bps) and South Africa 2019 (+2bps) instruments. The Gabon and Zambia Eurobonds received the most interest as average yield on respective country bonds declined 40bps and 16bps respectively W-o-W. The Kenya 2024, Zambia 2024 and Nigeria 2023 Eurobonds remain the best performing with YTD return of 10.3%, 8.8% and 8.5% respectively.

Performance of Nigerian Corporate Eurobonds was mixed but largely bullish as investors were bearish on FBNH 2021 (up 2bps) and DIAMOND 2019 (up 71bps) Notes. The ZENITH 2022 (-34bps) received the most buying interest followed by the ACCESS 2021(-4bps), FBNH 2020 (-11bps) as well as the UBA 2022 (-6bps). Relatedly, ACCESS and UBA released largely impressive H1:2017 results during the week and we believe this could have driven interest in the banks’ Eurobonds. On a YTD basis, DIAMOND 2019 (+21.3%) remains the best performing on price basis followed by FBNH 2021 (+19.1%) and FIDELITY 2018 (+13.8%).