Global Market Review
Performance in the global equities market closed the week bearish ahead of Donald Trump’s inauguration slated for 20th January 2017 as the 45th President of the US. The frenzy surrounding the Trump Administration’s fiscal and economic policies (which include trade protectionism) continue to raise concerns as to how this would impact markets. In Europe, the ECB President, Mario Draghi restated that monetary stimulus can be increased if the outlook becomes less favorable. This remarks came in after the ECB left its benchmark interest rate unchanged at a record-low 0.0%, in line with forecasts, and kept its monthly asset purchase at approximately 80 billion euros. Meanwhile, British Prime Minister, Theresa May opted for a “hard Brexit“, promising a global Britain after Brexit.
In the developed markets, all indices closed southwards as the US NASDAQ and S&P 500 indices slid 0.6% and 0.5% respectively while the UK FTSE also declined 1.6% W-o-W as retail sales dipped 1.9% in the UK in contrast to analysts’ expectation of a minimal 0.1% decline, dampening optimism on the British economy. Similarly, Euro-Asian stocks closed in the red with the France CAC declining the most, down 1.4% while Japan NIKKEI closed 0.2% lower. The Hong Kong HANG SENG and German DAX dipped 0.2% apiece W-o-W.
Indices in the BRICS markets were mixed. The Brazilian IBOVESPA and the China SHANGHAI COMPOSITE index led gainers, up 0.9% and 0.3% respectively. The SHANGHAI COMP rose on account of stronger GDP growth numbers for Q4:2016. On the flip side the Indian BSE topped losers, sliding 0.7%, followed by the South African FTSE (-0.5%). Likewise, the Russian RTS (-0.3%) closed negative W-o-W.
In the African Markets, the Ghanaian GSE emerged lone gainer, up 0.9% W-o-W while Egypt's stock market dipped - down 3.2% W-o-W. Contrary to the previous week, the Nigerian All Share Index depreciated 0.4% W-o-W on account of selloffs in consumer goods stocks.
Equities Market Review and Outlook
In contrast to last week’s performance, sentiment was bearish in the local bourse as the market was unable to sustain a positive outing this week. The benchmark index weakened 0.4% W-o-W to settle at 26,223.54 points while YTD loss worsened to -2.4% and market capitalization eased by N35.3bn W-o-W to settle at N9.0tn. The market opened the week positive on Monday on account of sustained buying interest in banking stocks but maintained a bearish trend from Tuesday to Thursday before rebounding 0.1% on Friday. Performance was dragged by losses in FORTE (-10.5%), NESTLE (-5.7%), DANGCEM (-0.6%), DIAMOND (-6.3%) and NIGERIAN BREWERIES (-0.1%). Thus, activity level was mixed as average volume traded rose 32.2% to 268.1m units and value traded fell 0.5% to N1.8bn.
Sector performance was mixed with the Banking index appreciating the most, up 1.8% on the back of sustained interest in UNITY (+10.3%), ACCESS (+4.6%), ETI (+2.9%) and ZENITH (+2.8%).The Insurance index followed, adding 1.0% W-o-W due to gains in CONTINSURE (+10.9%) and CUSTODYINS (+1.9%). The week turned out bad for the Consumer Goods index which dipped 2.1% consequent on price depreciation in NESTLE (-5.7%) and NIGERIAN BREWERIES (-0.1%) while the Oil & Gas index followed, down 1.9% due to loses in FORTE (-10.1%) and TOTAL (+6.3%). DANGCEM (-0.6%) and PORTPAINT (-5.0%) dragged the Industrial Goods index 0.3% lower.
Investor sentiment strengthened this week as market breadth (advancers/decliners ratio) improved to 1.1x (from 0.8x in the previous week) on account of 29 advancing stocks against 26 decliners. CONTINSURE (+10.9%), MOBIL (+10.5%) and UNITY (+10.3%) topped gainers for the week while FORTE (-10.5%), GUINNESS (-8.2%) and TOTAL (-6.3%) led laggards. In the coming week, we expect investor sentiment to be driven by outcome of the first Monetary Policy Committee (MPC) meeting of the year slated for 24th and 25th of January 2017.
Money Market Review and Outlook
Activities in the money market this week remained dictated by system liquidity. The week opened with improved system liquidity of N256.7bn, indicating a N91.0bn increase as against previous Friday. During the week, the CBN sold N208.9bn worth of OMO instruments and N268.9bn of Treasury Bills. Also, the DMO conducted its first Bond auction for the year which squeezed N214.9bn from the system. Overall, the impact of the liquidity squeeze was mostly felt on Wednesday (OBB and OVN rates fell 3.0% and 3.3% respectively) and Thursday (OBB and OVN rates rose 2.5% and 3.0% respectively) owing to a maturity and debit of the PMAs. An OMO maturity of N33.0bn on Thursday slightly buoyed liquidity level. Eventually, money market rates - OBB and OVN closed the week at 10.7% and 11.5%, up 1.8% apiece W-o-W.
The Treasury bills market experienced mixed sentiment during the week as average yield rose on 2 out of 5 sessions. The week started with sell-offs across short to medium term instruments as investors positioned for the OMO auction (143-day and 297-day instruments issued at 18.0% and 18.6% marginal rates) announced by the CBN. Meanwhile, the T-bills auction conducted midweek saw the CBN allot N36.9bn of the 91-day, N39.2bn of the 182-day and N193.0bn of the 364-day instruments at stop rates of 13.9%, 17.3% and 18.6% respectively. On the whole, investors showed preference for longer dated instruments (the 297-day and 364-day instruments were oversubscribed by N142.0bn and 187.4bn respectively). Average rate across tenors eventually closed the week at 15.9%, indicating a flattish W-o-W close.
In the week ahead, there are no maturing securities and we expect money market rates to trade in double digits barring any major inflow into the system, while activities in the Treasury Bills market trade mildly bullish.
Foreign Exchange Review and Outlook
Activities in the foreign exchange market remained besieged by liquidity crunch in all segments of the market. At the Interbank, the CBN continued daily dollar interventions in order to meet some dollar demands and also contain intra-day interbank rate movement on all days during the week. Accordingly, interbank rate hovered within a tight band of N305.25/US$1.00 and N305.5/US$1.00 at market close during the week. On the other hand, rates at the parallel market experienced some volatility as the Naira recorded marginal gains against the dollar – appreciating to N495.00/US$1.00 – as the CBN resumed sales of the greenback to BDCs at the start of the week before depreciating to N498.00/US$1.00.00 on Friday.
At the futures market, the value of open FX Futures contract at the end of the week rose to US$3.9bn from US$3.8bn last week. Next week, the CBN will be settling US$274.4m in value of open contracts of the maturing NGUS JAN 25 2017. The value of open contracts in the instrument rose by US$17.3m as investors saw opportunity in the short TTM of the contract. Nonetheless, we expect the Apex Bank to issue a new 12 month Jan 2018 instrument next week to replace the maturing contract.
Next week, the MPC will be holding its first meeting in 2017 and we believe the operations of the FX market and its impact on foreign funds inflow into the Nigerian market will be a talking point at the meeting. However, we do not think a major shift in the management of the foreign exchange market will be announced at the end of the meeting. Also, the approval of the Medium Term and Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) with exchange rate projection of N305.00/US$1.00 suggests that the controls in the FX market will persist in the short-term. Thus, we expect rate at the official market to remain at similar level in the week ahead whilst the parallel market remains pressured.
Bond Market Review and Outlook
Activities in the local bonds market was largely bearish as investors sold–off on a range of instruments in preparation for the Bond auction held mid-week and in response to result of the auction which showed the auctioned instruments were issued at higher yields. Thus, average yield across benchmark bonds rose on all trading sessions save for Monday (down 52bps) and Friday (down 4bps). The week started on a bullish note as yields closed 52bps lower on average but sentiment turned bullish in subsequent sessions with yields closing the week at 16.5% on average, representing a 22bps increase W-o-W. The Debt Management Office (DMO) conducted its first bond auction for the year on Wednesday, allotting N34.9bn of the JUL 2021, N74.9bn of the JAN 2026 and N105.1bn of the MAR 2036 at marginal rates of 16.9%, 17.0% and 17.0%, 91bps, 75bps and 56bps higher than previous auction respectively. Overall, the bond auction was largely successful as all instruments witnessed increased participation, with a total oversubscription of N105.1bn. We expect sentiment to stay bearish next week as investors reprice yields upward in response to the DMO bond auction result.
Sentiment in the Sub Saharan African sovereign Eurobonds space was broadly bearish as yields rose across board save for the South African 2017 bond (down 2bps W-o-W). The bearish sentiment could be seen on a range of instruments with the Nigerian sovereign Eurobond instruments averaging 14bps higher.
Similar to last week performance of Nigerian Corporate Eurobonds, sentiment was bullish as yields fell across a range of instruments save for the ACCESS 2021 and ACCESS 2017 (which inched higher by 0.2% apiece W-o-W) as well as FIRST BANK 2021 (up 4bps W-o-W). Coincidentally, the FIRST BANK 2021 commands the highest YTD price return (+3.9%), due to strong buying interest earlier in the year, while ACCESS 2021 and ACCESS 2017 have recorded the worst performance with YTD losses of 0.2% apiece.