Market Review and Outlook

Photo L-R: Clifford Akpolo, Digital Marketing Manager, The Nigerian Stock Exchange (NSE); Pai Gamde, Ag. Head, Corporate Services Division, NSE; Simisola Ogunleye,  a Celebrity at 2017 NSE Corporate Challenge; Olumide Orojimi, Head, Corporate Communications, NSE and Boluwatiwi Omidiji, CSR Analyst, NSE at the Closing Gong Ceremony in commemoration of 2017 NSE Corporate Challenge at Exchange.


Global Market Review and Outlook
In the global space this week, PMI data reports and the release of US Federal Reserve minutes of last policy meeting held in June dictated sentiment across markets.  Investors have also shifted attention to ongoing deliberations at the G20 Summit which commenced today in Hamburg, Germany and scheduled to last till 8th of July 2017. The Global leaders’ conference will include discussions, and perhaps, decisions on steps towards the resolution of key issues relating to the global socio-political landscape, security and economic welfare. Nonetheless, performance across global equity markets this week was mixed.

In the developed markets, the UK FTSE inched 0.2% higher W-o-W despite scepticism on the direction of the economy as uncertainty relating to BREXIT lingers. Also, the US NASDAQ fell 0.6% W-o-W while the S&P 500 index closed flat due to softer investor sentiment prompted by recently released payroll data which revealed a weaker than expected improvement in unemployment.

Across the BRICS classification, all indices trended northward save for the Russia RTS which slid 0.8% W-o-W amidst concerns on the outcome of Russian President’s first meeting with the US President at the G20 Summit. The Brazil IBOVESPA rose 0.3% W-o-W on account of the uptick recorded in oil prices while the China SHANGHAI COMPOSITE rose 0.6% W-o-W.

In the Eurasia region, performance was mixed as 2 of 4 indices we track closed in the green. The France CAC 40 and Germany XETRA DAX advanced 0.3% and 0.2% W-o-W despite the European Central Bank’s consideration at its recent meeting, to reduce its monetary stimulus following slow but steady increase in inflation. Contrarily, the Japan NIKKEI dipped 0.2% W-o-W as investors remain wary of developments in the US markets while the Hong Kong HANG SENG slid 1.2% W-o-W.

In the African markets, all indices declined save for the Ghana GSE which rose 1.6% W-o-W. The Nigerian All Share Index declined the most, down 2.0% W-o-W due to weakened sentiment towards Banking and Consumer Goods equities. Similarly, the Egypt EGX and Kenya NSE fell 0.2% and 0.7% W-o-W.

Equities Market Review and Outlook
Sentiment was bearish on the Nigerian Bourse in the first week of the month as the market sustained losses on the first three days before staging a mild rebound in the last two sessions. Consequently, the benchmark All Share Index declined 2.0% W-o-W to close at 32, 459.17 points, paring YTD gain to 20.8%, while market capitalization declined N265.0bn to berth at N11.2tn. The negative performance was against the backdrop of a rout in Banking stocks and profit-taking across Consumer and Oil & Gas stocks. Similarly, activity level weakened relative to previous week as average volume and value of stocks traded daily fell 45.7% and 35.6% to 212.2m and N2.5bn.

Sector performance mirrored the broader index as three of five indices closed in the red this week. The Insurance and Industrial Goods indices were the only advancers, up 1.1% and 0.2% W-o-W respectively, following gains in CONTINSURE (+9.2%) and CAP (+6.3%). On the flipside, the Consumer Goods index declined the most, down 4.0% W-o-W which is attributable to bearish sentiment in FLOURMILL (-15.6%) - which delivered a negative earnings surprise – as well as profit taking in NIGERIAN BREWERIES (-4.3%) and UNILEVER (-7.8%). Flourmill’s FY:2017 result was released on Thursday with the miller recording a 53.1% increase in Revenue while PAT declined 38.7% due to high base effect of UNICEM sale in FY:2016 as well as unexpected increase in 4th Quarter cost of sales and OPEX margins. Similarly, the Banking index shed 2.2%, as investors reacted negatively to Etisalat Nigeria credit default, culminating in losses in UBA (-3.0%), ACCESS (-1.8%) and ZENITH (-1.4%). The Oil & Gas index weakened 1.8% W-o-W – pressured by selloffs in MOBIL (-5.4%) and TOTAL (-5.0%).

Investor sentiment measured by market Breadth moderated from 1.4x last week to 0.3x this week as 16 stocks advanced against 48 which declined. Top gainers include CUTIX (+10.0%), CONTINSURE (+9.2%) and HONYFLOUR (+8.0%) while MAYBAKER (-25.8%), NEIMETH (-24.4%) and CONOIL (-18.5%) led the laggards. With the euphoria which greeted the opening of Investors’ and Exporters’ window drying up, we expect performance to be more driven by earnings fundamentals in the near term. Investors will be looking at H1:2017 earnings results due to be released in July/August for clues on how solid companies’ fundamentals are but we expect some early-bird investors to start taking positons ahead of the releases. Hence, we expect the Bourse to recoup losses in trading sessions next week, barring negative earnings surprises.
Money Market Review and Outlook
Open Buy Back (OBB) and Overnight (OVN) rates opened the week at 14.8% and 15.7%(higher than previous Friday’s close of 5.3% and 5.8%) respectively due to a drop in system liquidity from N320.3bn on Friday to N98.7bn at market open on Monday. During the week, activity was largely driven by primary market sales held on all trading days. The CBN held its bi-weekly T-Bills auction on Wednesday, deducting N176.9 from the system while conducting OMO auctions on all other days to squeeze excess liquidity. As a result, money market rates further tightened on Tuesday and Wednesday but moderated on Thursday due to an OMO maturity of N65.0bn. OBB and OVN eventually closed the week at 15.0% and 15.3%, up 9.7% and 9.5% W-o-W respectively.

The treasury bills market recorded a bearish performance this week as yields rose on all trading days on the back of moderation in system liquidity. Average yield across tenors rose 56bps to 18.1% at the start of the week and further rose on subsequent sessions save for Thursday when it dropped 23bps on average. Yields climbed yet again on Friday, taking average yield across tenors to 18.2%, up 23bps W-o-W. At the PMA auction held mid-week, the CBN auctioned N177.0bn worth of T-bills. The 91-day (Offer amount: N35.0bn) and 182-day (Offer amount: N22.0bn) instruments were undersubscribed by N6.2bn and N0.6bn respectively while the 364-day (Offer amount: N120.0bn) was oversubscribed by N41.2bn. The CBN allotted N28.7bn, N21.2bn and N127.1bn for respective instruments at stop rates of 13.5%, 17.5% and 18.59% for the 91-day, 182-day and 364-day bills respectively.

In the coming week, we expect OMO maturities valued at N3.8bn and N123.0bn on Wednesday and Thursday respectively to impact on system liquidity.
Foreign Exchange Review and Outlook
The Naira was stable at all segments of the foreign exchange market this week as the CBN by way of interventions continued to supply liquidity in the Official market. As a result, FX rate barely changed in the official market, depreciating marginally from N305.95/US$1.00 on Monday to N306.00/US$1.00 by Friday, indicating a flattish W-o-W close. At the autonomous market, the NAFEX fixing strengthened from N366.10/US$1.00 at the start of the week to close at N365.41/US$1.00. Meanwhile, at the parallel market, the Naira depreciated to N370.00/US$1.00 from N365.00/US$1.00 at the start of the week.

At the FMDQ OTC derivative market, the value of FX futures open contracts closed the week US$40.0m higher than the previous week. NGUS APR 2018 and NGUS JUNE 2018 received US$20.0m worth of subscriptions each, taking the value of FX futures contracts to US$2.8bn from US$2.7bn in the previous week. Since the upward review of contract prices in April, investors’ appetite for the contracts has cooled significantly.

In the week ahead, we expect the CBN to continue to keep rates stable at the Official market whilst also boosting liquidity in the BDC/Parallel end via retail market sales.

Bonds Market Review and Outlook
Performance in the domestic Bond market was largely bearish for the week as average yield across benchmark bonds rose on 4 of 5 sessions. At the start of the week, average yield dropped 2bps due to buying interest in the JAN 2022 and MAR 2027 instruments. However, from Tuesday to Friday, yields rose successively - albeit marginally. Hence, average yield on benchmark bonds was flat W-o-W at 16.1%.

Next week, the DMO will be re-opening JULY 2021, MAR 2027 and APR 2037 instruments with offer amounts ranging from N30.0bn - N40.0bn, N45.0 - N55.0bn and N45.0 - N55.0bn respectively. As with recent auctions, we expect to see more interest in longer dated bonds. We also expect a bit of selling in the secondary market in early trading sessions next week ahead of the primary market auction.

In the Eurobond market, sentiment on sovereign instruments across SSA was bearish this week against the backdrop of a global rout in bonds following increased expectation of tighter monetary policy by the US Fed and ECB. Consequently, yields rose on a W-o-W basis across outstanding Eurobond issues of Nigeria, Ghana, Gabon, Ivory Coast, Kenya, Zambia, Senegal and South Africa.  Nigeria’s 6-year and 15-year Sovereign bond yields rose 53bps and 36bps W-o-W to 6.3% and 7.3% respectively. Performance in the Corporate Eurobond market was also bearish except for ACCESS 2021 (YTM down 6bps to 9.3%), ZENITH 2019 (YTM down 6bps to 5.1%), and FBN 2021 (YTM down 50bps to 10.7%) which received buying interest. Year to date, DIAMOND 2019 has outperformed with a return of +22.3%.