Global Equities Market: Strong Performance on Improved Macroeconomic Data
This week, coronavirus cases continued to surge, rising 17.0% to close the week at 11.0 million while deaths related to the pandemic rose 9.0% to 524,479 persons. The US (1.5m) and Brazil (523,216) were the countries with the most active cases, followed by India (229,590) which overtook Russia (220,131). Despite a resurgence in cases, the reopening of the US economy is supporting recovery, with 4.8 million non-farm payroll employment added in June from 2.7 million in May while the unemployment rate moderated to 11.1% from 13.3%. Away from domestic matters, the tensions between the US and China is unlikely to ease in the near term as the US’ House of Representative passed legislation that would penalise banks doing business with Chinese officials following the country’s national security law in Hong Kong. Although this legislation is yet to be passed by the Senate and approved by the President, it remains a source of risk and uncertainty to investors.
In the developed markets, performance was upbeat as all 6 indices that we cover gained, save Japan’s Nikkei 225 and Hong Kong’s Hang Seng indices which closed flat. In the US, positive labour market data spurred gains in the S&P 500 and NASDAQ indices by 4.0% and 4.6% w/w respectively. In Europe, Germany’s XETRA DAX and France’s CAC 40 indices jumped 3.6% and 2.0% in that order. Lastly, the UK’s FTSE All-share index advanced 0.2% w/w.
In the BRICS markets, there was a mixed performance as 2 indices gained while Russia’s RTS index was down with a loss of 0.9% w/w. Meanwhile, China’s Shanghai Composite and India’s BSE Sens indices closed the week flat due to weak investor sentiment arising from the conflict between both nations. However, Brazil’s Ibovespa and South Africa’s FTSE/JSE All Share indices climbed 2.8% and 1.6% w/w respectively.
The African markets under our coverage also recorded a bullish performance this week with 4 of 6 indices under our coverage closing higher. Nigeria's ASI index (-2.0%) was the lone laggard while Egypt’s EGX 30 index traded flat. Conversely, Ghana’s GSE Composite and Morocco’s Casablanca MASI indices were the best-performing markets with respective gains of 0.8% and 1.1% w/w. Lastly, Kenya’s NSE 20 and Mauritius' SEMDEX indices also gained 0.4% and 0.2% w/w respectively.
On the other hand, the Asian and Middle East markets recorded a sublime performance as all 5 indices under our coverage recorded gains. Thailand’s SET and Saudi Arabia’s Tadawul ASI indices led the chart with respective 3.2% and 1.1% w/w gains. Trailing, Turkey’s BIST 100 and UAE’s ADX General indices climbed 0.9% and 0.6% w/w respectively. Lastly, Qatar’s DSM 20 index advanced 0.3% w/w.
Domestic Equities Market: Sell Pressures Drag Performance… ASI Lost 2.0% w/w
The local bourse recorded losses on three trading sessions but gained 0.1% and 0.5% on Monday and Wednesday respectively. Consequently, the All-Share index lost 2.0% w/w to 24,336.12 points due to sell-offs in GUARANTY (-8.4%), ZENITH (-5.9%) and UBA (-5.5%). Similarly, YTD return worsened to -9.3% and market capitalisation declined ₦257.1bn to ₦12.7tn. Activity level advanced as average volume and value traded rose 30.1% and 7.2% to 144.3m units and ₦1.5bn respectively. The most traded stocks by volume were FBNH (117.0m units), UBA (63.0m units) and GUARANTY (51.2m units) while GUARANTY (₦1.1bn), DANGCEM (₦860.9m) and NIGERIAN BREWERIES (₦834.2m) led by value.
Across sectors, performance was unimpressive as all indices dipped w/w. The Banking index (-7.5%) led the pack following price declines in UBN (-15.1%) and STERLNBANK (-10.9%). Similarly, sell pressures in BERGER (-9.4%), WAPCO (-5.9%), AIICO (-13.1%) and CORNERSTONE (-9.7%) compelled a 6.4% and 2.2% loss in the Industrial Goods and Insurance indices. Trailing, the Oil & Gas and AFR-ICT indices declined 1.2% and 0.7% respectively due to price depreciation in OANDO (-5.0%) and MTNN (-1.3%). Lastly, price weakness in UNILEVER (-18.8%) and NASCON (-13.8%) dragged the Consumer Goods index (-0.5%) down.
Investor sentiment as measured by market breadth (advance/decline ratio) declined to 0.2x from 0.5x as 13 tickers gained against 56 losers. The top gainers were OKOMUOIL (+20.9%), ROYALEX (+5.8%) and PRESTIGE (+10.6%) while NAHCO (-24.2%), LEARNAFR (-21.5%) and UNILEVER (-18.8%) led the decliners. We anticipate a sustained bearish momentum in the coming week as investor sentiment remains weak.
Foreign Exchange Market: Naira Remains Stable
This week, the CBN intervened through its periodic supply of US Dollars in the FX market, offering a total of $100.0m via the Secondary Market Intervention Sales (SMIS) Wholesale Window. Meanwhile, external reserves declined 0.2% w/w ($66.8m) to $36.1bn (1/7/2020) from $36.2bn last week. The prospect for accretion in reserves remains weak, although oil prices rose 4.2% w/w to $42.64/bbl.
The CBN spot rate traded flat all week to close at ₦361.00/$1.00, unchanged from the prior week. At the parallel market, rates opened at ₦460.00/$1.00 and closed ₦461.00/$1.00, depreciating ₦1.00kobo w/w. At the Investors’ & Exporters’ (I&E) Window, the NAFEX rate opened at ₦386.86/$1.00 and closed at ₦386.00/$1.00 on Friday, appreciating ₦0.33kobo w/w from ₦386.33/$1.00. Activity level in I&E Window rose 30.7% to $388.4m from $297.2m recorded in the previous week.
At the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts of the Naira settled at $13.2bn, up $144.0m (+1.1%) from $13.1bn in the prior week following subscription in the JUL 2021 instrument. The JUN 2021 instrument (contract price: ₦420.22) received the most buying interest in the week with additional subscription of $3.2m which took total value to $28.9m. On the other hand, the APR 2021 instrument (contract price: ₦414.82) was the least subscribed, with an additional subscription of $0.8m for a total value of $474.0m. Next week, we expect rates to continue to trade within a tight band across the different segments of the market.
Money Market: Rates Fall in the Secondary Market
This week, the OBB and OVN rates opened the week lower at 14.8% and 15.3% respectively from last week’s close of 15.0% and 16.1% even as system liquidity remained low at c.₦70.0bn. On Wednesday, rates declined to 11.8% and 12.9% as system liquidity improved to ₦133.7bn. Furthermore, the OBB and OVN rates plummeted to 2.8% and 3.6% respectively as OMO maturities worth ₦333.3bn improved system liquidity to ₦405.0bn on Thursday. At the close of the week, the OBB and OVN rate spiked to 21.5% and 23.5% respectively as system liquidity settled at ₦280.1bn.
On Wednesday, the CBN at the primary market auction (PMA) issued 91-day (Offer: ₦10.0bn; Subscription: ₦24.9bn; Sale: ₦10.0bn), 182-day (Offer: ₦20.0bn; Subscription: ₦58.8bn; Sale: ₦20.0bn) and 364-day (Offer: ₦58.7bn; Subscription: ₦246.8bn; Sale: ₦58.7bn) instruments at a marginal rate of 1.8%, 2.0% and 3.7% respectively same with previous rates. Demand remained high at the auction as instruments across board were oversubscribed at 2.4x (91-day), 2.8x (182-day) and 4.0x (360-day).
On Thursday, the CBN conducted OMO auction worth ₦100.0bn to mop-up excess liquidity in the system. Demand at the auction was healthy as the 341-day (Offer: ₦80.0bn; Subscription: ₦148.0bn; Sale: ₦80.0bn), 194-day (Offer: ₦10.0bn; Subscription: ₦15.3bn; Sale: ₦10.0bn) and 89-day (Offer: ₦10.0bn; Subscription: ₦14.1bn; Sale: ₦10.0bn) instruments were oversubscribed by 1.7x, 1.5x and 1.4x with marginal rates of 8.99%, 7.79% and 4.95% respectively (compared to 5.0%, 7.8% and 9.0% in the previous auction).
In the secondary treasury bills market, performance was bullish as average yield across benchmark tenors trended lower by 40bps w/w to close at 2.2%. The 180-day note enjoyed the most demand, resulting in average yield decline to 2.1% (vs 2.7% in the previous week). Furthermore, the 91 and 364-day bills fell to 1.7% and 3.0% from last week’s close of 2.0% and 3.1% respectively. In the coming week, we expect high liquidity from maturing OMO bills worth c.₦100.0bn to keep rates low.
Bonds Market: The Bullish Streak Continues
The bulls maintained dominance in the secondary market this week as average yield declined 69bps w/w to 8.1%. The week began on a bullish note with yields declining on the first 2 days of the week while performance turned bearish on Wednesday as investors positioned for the primary market auction by the CBN. However, the market resumed its bullish run on Thursday and Friday. Across tenors, the mid-term bonds recorded the most interest with yields down 105bps w/w. Similarly, the short and long term instruments recorded 56bps and 31bps decline in yields respectively.
At the SSA Eurobond market, the bullish sentiment persisted with average yields declining 13bps to 8.7% as all instruments under our coverage recorded gains, save the Ghana 2029 instruments which recorded a 6bps rise in yields. The Ghanaian 2022 instrument enjoyed the highest demand, shedding 83bps w/w. Similarly, the Nigerian and Republic of Senegal's 2021 instruments recorded gains as yields declined 46bps and 28bps respectively.
For the African Corporate Eurobonds that we track, the bullish streak halted as average yields rose 56bps w/w to 6.1% as a result of sell-offs in 8 instruments. ESKOM HOLDINGS 2021 recorded the highest sell-off as yields surged 4.28ppts as the company plans to issue rand-denominated Sukuk bonds to reduce financing costs. On the other hand, the ACCESS BANK 2021 and SIBANYE GOLD 2023 led the gainers with yields declining 208bps and 206bps w/w respectively. In the coming week, we expect a slightly bullish performance in the domestic and Eurobonds market on the back of high system liquidity in the domestic market and sustained demand in the sovereign Eurobonds market.