Global Market Review and Outlook
Performance across global equity markets this week was broadly bullish – driven by a plethora of positive market developments. First, oil price rebounded to US$50.8/b driven by a drop in U.S. crude stockpiles (their lowest level since February) and statements from OPEC and non-OPEC members to extend production cuts into 2018. Secondly, Bank of England (BoE) monetary policy committee voted to keep rate at 0.25% siting slowing growth in consumer spending as well as sluggish wage growth which both fall in line with expectation. Meanwhile, speculations with regards to a rate hike at the June FOMC meeting continued to mount following comments attributed to some officials of the central bank which suggest that the current macroeconomic weakness in the US economy is “likely to be transitory”. In the developed markets, the UK FTSE extended gains to the third consecutive week, closing 1.3% higher W-o-W. However, performance in the US equities market was mixed as investors reacted to some lacklustre Q1:2017 earnings releases. Accordingly, the US S&P fell 0.2% W-o-W, while the NASDAQ appreciated 0.2% W-o-W.
Across the BRICS classification, all indices closed in the green save for the China SHANGHAI composite which slid 0.6% W-o-W on the back of increasing regulatory pressures which resulted in sell-offs. Similarly, the Brazil IBOVESPA advanced 2.8% W-o-W while the Russian RTS rose 2.0% W-o-W, buoyed by gains recorded in the oil market. Likewise, the South African FTSE closed 0.8% higher W-o-W. In the Eurasian region, all indices closed in the green with the exception of the France CAC 40 index which dipped 0.9% W-o-W despite the successful completion of the Presidential Elections from which Emmanuel Macron emerged President-elect. The Japanese Nikkei gained 2.5% W-o-W on the back of continuous weakening of the local currency against the US dollar while the Hong Kong HANG SENG advanced 2.3% W-o-W. Similarly, the German DAX recorded weekly gains of 0.1% amid improvement in macroeconomic indicators – GDP grew 0.6% in Q1:2017.
Performance in the African markets was positive as all the indices closed in the green. Similar to last week’s bullish performance, the Nigerian All Share Index witnessed a sustained rally on 4 of the 5 trading session in the week, nudging the All Share Index 7.5% northwards W-o-W. The Egypt EGX 30 rose 1.6% W-o-W due to the optimism from its recent approved investment law which is expected to boost foreign investor participation. Likewise, the Kenyan NSE and Ghanaian GSE appreciated 1.5% and 1.1% W-o-W respectively.
Equities Market Review and Outlook
The general positive sentiment in the equities market, which has persisted post launch of the Investors’ & Exporters’ FX window, was sustained during the week as the benchmark index appreciated on 4 of 5 trading sessions. Consequently, the bullish run was extended into the fourth consecutive week as the All Share Index appreciated 7.5% W-o-W to close at 28,192.46 points while YTD gain settled at 4.9%. Performance was largely driven by price appreciation in NIGERIAN BREWERIES (+17.0%), NESTLE (+12.1%), GUARANTY (+12.4%) and DANGCEM (+3.4%). Consequently, investors gained N676.4bn as market capitalization improved to N9.7tn. Activity level also improved as average volume and value traded rose 125.7% and 120.2% W-o-W to settle at N651.0m and N5.7bn.
Performance across sectors was broadly positive as all indices trended northwards W-o-W. The Consumer Goods index led the gainers’ chart, up 13.4% W-o-W on account of gains in NIGERIAN BREWERIES (+17.0%) and NESTLE (+12.1%) while the banking index trailed, accumulating 11.2% W-o-W, on the back of sustained buy sentiment in GUARANTY (+12.4%) and ZENITH (+22.5%). Likewise, the Insurance and Oil & Gas indices appreciated 2.9% and 2.7% W-o-W respectively due to price appreciations in MANSARD (+10.8%) and TOTAL (+5.5%) while the Industrial Goods index inched 0.4% higher W-o-W on the back of gains in DANGCEM (+4.9%) and CCNN (+8.9%).
In view of the bullish sentiment on the Bourse, market breadth (advancers to decliners’ ratio) strengthened to 5.0x (from 2.9x in the previous week) as 55 stocks advanced against 11 that declined. The best performing stocks for the week were MAYBAKER (+32.0%), ETI (+22.5%) and FIDSON (+21.5%) while SEPLAT (-5.9%), AIRSERVICE (-5.6%) and NEIMETH (-5.4%) were the worst performers. As investor sentiment remains strong with the possibility of the positive run extending into subsequent sessions, we suspect that the first few trading days of next week may be characterized by profit taking as the market is currently trading around the overbought region with 14-day RSI of 86.74.
Money Market Review and Outlook
Financial system liquidity trended higher all week, as such, we saw a downtrend in money market rates on all trading days of the week save for Wednesday and Friday owing to a debit from the May bond auction conducted by the Debt Management Office (DMO). Financial system liquidity opened the week at a positive balance of N165.0bn, up from the previous Friday’s close of N91.1bn, thus Open Buy Back and Overnight Rate settled at 16.7% and 17.9% respectively on Monday, down 1.5% and 1.4%. The CBN floated OMO auctions on all trading days save for Monday, selling a sum of N76.6bn of with stop rates ranging between 18.0% and 18.6% as investors showed significant interest in long tenured OMO instruments. By midweek, OBB and OVN rates advanced 0.7% and 1.7% to 15.0% and 15.6% before shedding 1.5ppts and 2.6ppts respectively - owing to OMO maturity of N87.0bn. Rates eventually settled at 27.5% and 29.5% on Friday, indicating a 9.3ppts and 10.3ppts increase W-o-W respectively.
Performance in the Treasury Bills market was bearish this week as average rates trended upward on 3 of 5 trading days with minimal activities witnessed across all instruments. The week opened with average rate up 11bps from Friday’s previous close of 18.4% as investors sold-off on short term instruments. By mid-week, rates moderated marginally by 1bp to18.6% owing to improved interest on the shorter end of the curve before settling at 18.6% on Friday, up 20bps W-o-W.
In the coming week, the CBN will be conducting a treasury bills auction of N110.9bn on 91-day, 182-day and 364-day instruments though the impact on liquidity is expected to be muted by a scheduled maturity of the same amount. We also expect debits from successful bids at the FX wholesale intervention action as well as OMO auctions to impact on liquidity conditions and keep money market rates around current levels.
Foreign Exchange Review and Outlook
The Central Bank of Nigeria in its drive to boost dollar liquidity and ensure a convergence in FX rates conducted Wholesale Intervention Auctions with an offer amount of US$100.0m and announced a Special secondary market Intervention sales for the clearance of some backlogs, specifically for matured FX obligations – Raw Materials and Machineries, Agriculture, Airlines and Petroleum Products while stating that FX Obligations for Petroleum Products must have matured on or before January 31, 2017.
In the Foreign exchange market this week, activities in the different segments of the market remained stable. NAFEX rates as published by FMDQ stood at N378.87/US$1.00 by start of the week while slightly appreciating by mid-week. However, a reversal of trend saw rates inch back to N378.87/US$1.00, indicating a flattish W-o-W close. Also, the CBN with its daily interventions continued to keep rates stable at the official market. Rates opened the week at N304.70/US$1.00 and appreciated to N304.60/US$1.00 by Friday. At the parallel market segment, rates opened the week at N390.00/US$1.00 and remained unchanged on 4 of 5 trading days save for Friday where rates appreciated to N386.00/US$1.00.
At the Naira-Settled OTC FX Futures market, activity level remained very minimal across various contracts save for the NGUS NOV 2017 which saw increased participation by US$6.2m. As a result, total value of open contracts increased to US$3,459.89m from US$3,453.68m recorded in the prior week. Since the upward review of contract prices two weeks ago, activities in the Futures market have remained very minimal. In the coming week, we expect a similar performance as the I&E FX window has brought about a new price discovery in the FX market with rates on all segments of the market starting to show a bit of convergence. Also, at the official market we expect the Central Bank to continue to boost market liquidity through its FX interventions while keeping rates at this segment stable.
Bond Market Review and Outlook
Contrary to the previous week, performance in the domestic bond market picked up this week as yields trended southwards on all trading days of the week save for Wednesday. The week commenced with a bit of buying interest on the first two trading sessions with particular interest on the JUL 2034 and MAR 2036 instruments. On Wednesday, the DMO offered N40.0bn of the FGN JUL 2021, N50.0bn of the FGN MAR 2027 and N50.0bn of the FGN APR 2037 instruments at its May bond auction. The JUL 2021 instrument was undersubscribed by 0.4x while the MAR 2027 and APR 2037 were oversubscribed by 1.1x and 1.8x respectively as investors showed preference towards the longer tenured instruments. The DMO allotted N10.0bn, N35.0bn and N65.0bn of the JUL 2021, MAR 2027 and APR 2037 instruments at marginal stop rate of 16.3% apiece. Consequently, average yields across benchmark bonds dipped 7bps W-o-W to 16.1% on Friday. The DMO also offered the May 17 2019 and May 17 2020 savings bond at 13.2% and 14.2% respectively. Offer for subscription opened from May 8 2017 – May 12 2017 with settlement date of May 17 2017.
Performance of the Sub-Saharan African sovereign Eurobond instruments was mixed but majorly bullish this week as investors hunted for bargain across board. Consequently, yields on all SSA sovereigns fell save for the GHANA 2017, GABON 2017, SOUTH AFRICA 2017 and SOUTH AFRICA 2024 which were up 19bps, 10bps, 7bps and 1bp respectively W-o-W. On the bright side, the GHANA 2023 instrument recorded the highest performance with yields down 24bps while the SENEGAL 2019 and 2024 followed with yields down 15bps and 13bps respectively. Yields across all Nigerian sovereign Eurobond instruments also declined W-o-W.
The Nigerian corporate Eurobonds market enjoyed buy sentiments as yields fell on all instruments save for the FIDELITY 2018 (up 52bps W-o-W) and FIRST BANK 2021 (up 4bps W-o-W). The DIAMOND 2019 – best performer YTD - closed flattish W-o-W. Investors took more interest in the ACCESS 2017 (down 59bps W-o-W) while yields on the ACCESS 2021 instruments dropped 31bps apiece. Similarly, the FIRSTBANK 2020 (down 22bps W-o-W) and the GUARANTY 2018 (down 3bps W-o-W) also witnessed positive sentiments. We believe the bullish sentiment would persist in the coming week as we expect the improvement in the FX market to continue to boost investor sentiment.