Review & Outlook of Global, Nigeria Markets

Global Market Review and Outlook
Performance in the global equities market was bearish this week as investors strengthened bets on possible rate hike by the US Federal Open Market Committee (scheduled to meet 1st and 2nd of November) and less policy accommodation by the Bank of England (BoE) following better-than-expected GDP numbers. The U.K economy grew 0.5% Y-o-Y in Q3:2016, outperforming analysts’ expectations, while the U.S expanded at an annualized rate of 2.9% in Q3 - also above consensus estimates of 2.5%. Oil prices however held steady around the US$50.0pb mark as the Organization of the Petroleum Exporting Countries (OPEC) will be having a 2-day meeting starting Friday 28th October. Discussions surrounding the agreement of an oil production cut as well as the production volume cap of member countries will be detailed. Russia, Egypt, Canada as well as other non-member countries will be in attendance.

In the developed markets, all indices closed in the red. The UK FTSE fell 0.6% W-o-W despite a 0.5% growth in the economy’s GDP while the US S&P 500 and NASDAQ lost 0.2% and 0.6% W-o-W respectively as investors awaited macro-economic data. Indices in the Euro-Asian region closed negative but for the Japan NIKKEI which appreciated 1.5% W-o-W as gains in Textile, Marine Transport and Finance & Investment sectors boosted the index. The Hong Kong HANG SENG lost the most, down 1.8% W-o-W while the German DAX followed suit with a loss of 0.2%. The France CAC closed the week flattish.

Performance in the BRICS region was broadly mixed as the Russian RTS surged 5.7% W-o-W. The China SHANGHAI COMPOSITE gained 0.4% even as the Yuan continues to fall against the dollar while the Brazil IBOVESPA improved 0.2% W-o-W. On the flipside, the South African FTSE /JSE was down 1.6% while the Indian SENS recorded a loss of 0.5%.

Across the African region, the Nigerian All Share Index lost 1.1% extending the negative close to the second consecutive week. The Ghanaian GSE trimmed 2.1% amid a downward revision of its growth forecast by its finance ministry. On the contrary, the Egypt EGX erased last week’s loss to gain 0.8% W-o-W while the Kenyan NSE closed the week flat.

Equities Market Review and Outlook
Activities in the equities market this week were broadly dictated by investors’ reaction to Q3:2016 earnings scorecard. The Benchmark index ended the week on a negative note, declining 1.1% W-o-W; thus expanding YTD loss to 4.7% while market capitalization declined by N103.9bn to settle at N9.4tn. Performance during the week was mixed as the All Share Index (ASI) declined on 2 of 5 trading sessions, losing 8bps at the start of the week while extending losses to Tuesday (-1.7%) as investors sold off on DANGCEM (-4.8%) in anticipation of the ticker’s 9M:2016 scorecard. The market staged a comeback on Wednesday (+0.1%) and further rose on Thursday (+0.4%) as investors reacted to TOTAL’s impressive 9M earnings result and positioned in DANGCEM and WAPCO. The ASI closed the week on a positive note, up 0.2% on Friday. However, activity level was mixed during the week as average volume rose 0.4% W-o-W to settle at 135.5m units while value traded fell 10.2% to settle at N1.4bn.

Sector performance was mixed as 3 sector indices gained while 2 declined. The Industrial Goods index emerged the best performing sector, gaining 2.7% W-o-W on account of strong bargain hunting in WAPCO (+16.3%). The Oil & Gas and Consumer Goods indices gained 0.3% apiece W-o-W on account of gains in TOTAL (+13.8%), UNILEVER (+8.9%) and CADBURY (+3.6%). On the flip side, the Banking Sector index lost 0.4% on the back of losses in STERLING (-2.3%) and GUARANTY (-1.8%) while the Insurance index lost 0.3% W-o-W due to AIICO (-4.9%) and NEM (-4.8%).

In line with market performance, investor sentiment remained weak, as reflected in the market breadth which settled at 0.5x (from 0.4x the previous week) as 21 stocks advanced while 39 stocks declined. The best performers for the week were CAVERTON (+27.9%), WAPCO (+16.2%) and TOTAL (+13.7%) while FIDSON (-16.4%), ASHAKACEM (-9.6%) and HONYFLOUR (-9.2%) were the worst performers for the week. With earnings result of companies released after market close today largely unexciting – although mostly in line with expectations, investors would likely react to these in early trades next week. Hence, we expect sentiment to remain bearish in the week ahead.

Money Market Review and Outlook
Buoyed by improved system liquidity, money market rates moderated during the week, easing from triple/double digits recorded in recent weeks to close the week in single digit despite a series of OMO auctions. Open Buy Back (OBB) and Overnight (O/N) rates settled at 9.7% and 10.3% on Friday, down 4.3% points apiece W-o-W (from last Friday’s 14.0% and 14.5%).

The week opened with aggregate financial system liquidity in a deficit of N19.4bn. However, OBB and O/N rates inched 4.0% and 3.8%points lower to close at 10.0% and 10.8% respectively on the back of the inflow from September FAAC allocation which improved system liquidity level, enough to offset the impact of an OMO auction by the Apex Bank (where N120.2bn was mopped up at stop rates of 18.0% and 18.5% for the 185-days and 339-days instruments). The Apex Bank further sold N51.5bn and N53.8bn worth OMO bills on Tuesday and Wednesday in a bid to mop up excess liquidity, thus OBB and O/N rates rose 67bps and 83bps respectively to close at 10.7% and 11.6% on Tuesday, eventually settling at 10.5% and 11.3% by midweek.  OBB and O/N rates moderated to single digit on Thursday to close at 8.8% and 9.5% respectively due to the impact of N144.9bn OMO maturity on system liquidity.

Activities in the Treasury Bills market were largely bearish as average T-bills rate trended upwards on most trading days during the week on the back of the Central Bank’s aggressive activities in the primary market. Average T-bills rate rose 20bps on Monday to close at 17.2% as sell sentiment trickled into the market. Despite improved system liquidity, the sell sentiment persisted on Tuesday as average T-bills rate increase 51bps to close at 17.7% as the CBN mopped up liquidity via OMO auctions at higher rates. Average T-bills rate closed the week at 17.6%, up 0.6% W-o-W.

Next week, we expect the Apex Bank to continue mopping up liquidity through OMO auctions and thus expect money market rates to inch higher from current levels.  There is also a scheduled T-bills maturity of N123.0bn expected to hit the system but its impact on liquidity levels will be neutral due to a rollover of the same net amount.

Foreign Exchange Review and Outlook
Consistent with recent trend, the Naira remained relatively stable against the dollar at the interbank with Naira/Dollar exchange rate slightly appreciating to N304.50/US$1.00 at the end of the week (from N304.75/US$1.00 in previous week) while the CBN continued to intervene with dollar supply in some trading sessions during the week. However, FX rate remained volatile in the parallel market, attributable to the Apex Bank’s decision to maintain status-quo on Deposit Money Banks suspension (ex FBN Limited) from selling dollars to bureau-de-change operators, the restrictions on use of naira debit cards for FX transactions as well as Travelex’s inability to conveniently fulfil all USD demands. Thus, the Naira/Dollar exchange rate at the parallel market opened the week at N455.00/US$1.00 but depreciated to N470.00/US$1.00 by midweek before firming up slightly to N465.00/US$1.00 on Friday.

In the futures market, the Central Bank settled $270.6m in notional value of the maturing OCT 26 2016 futures instrument on Wednesday. As with the trend since introduction of the futures market, the Apex Bank issued a new 12-month tenor instrument (OCT 25 2017) worth US$1.00bn at N258.50/US$1.00 to replace the maturing instrument.

In the interim, we expect the exchange rate at the parallel market to remain pressured due to restricted access to official windows and surge in dollar demand associated with the festive season. The CBN is yet to guide to a metric that would trigger a shift from its current peg; thus, we expect FX rate at the official market to remain stable whilst the CBN continues to intervene via spot/forward sales of the Greenback.

Bond Market Review and Outlook
Sentiments in the local bonds market were mixed this week as average yield across benchmark bonds declined on 2 trading days and increased on 3. Average yield settled at 15.1% on Friday, down 2bps W-o-W. The week started with strong buying interest across tenors which resulted in a 9bps decline in average yield from 15.1% across benchmark bonds (last Friday) to 14.9% on Monday. Market activities however quietened towards midweek as investors redirected attention towards the money market on the back of the CBN’s activities in the primary window. Accordingly, average yield across benchmark bonds rose 4bps and 2bps on Tuesday and Wednesday respectively as investors sold off particularly at the shorter end of the curve. Average yield dipped 1bp at the end of trade on Thursday with longer tenored rates moderating.

Despite the ECB’s commitment to policy easing last week which buoyed interest in SSA instruments, investors sold off across SSA sovereign Eurobonds (and in the global bonds market) as sentiment now favours an early tightening by the US FED and less policy accommodation by the  BoE following impressive GDP numbers released in the US and U.K.  Yields on the Nigeria 2023 and 2018 rose 1bp and 5bps W-o-W respectively whilst that on the Nigeria 2021 instrument dipped 1bp W-o-W. Similarly, yield on the Ghana 2023 and 2026 instruments increased 24bps and 20bps W-o-W respectively whilst yield on the Ghana 2017 fell 5bps. Average yield on South African Sovereigns rose 56bps W-o-W. Despite the bearish sentiments this week, the Kenya 2024 and 2019 Eurobonds enjoyed buying interest.

Performance in the Nigerian corporate Eurobonds market mirrored last week’s as buying interest continued in the Access 2017 (down 20bps W-o-W), Guaranty 2018 (down 10bps W-o-W)  and Zenith 2019 (down 26bps W-o-W) this week. Investors however took profit on the Fidelity 2018 Eurobond instrument as yield rose 19bps. Nevertheless, the Guaranty 2018 Eurobond commands the highest YTD return at 8.5%.

In the week ahead, we expect yields in the local bonds market to moderate marginally as we anticipate more buying activities from PFAs as they reposition their portfolios ahead of the new month.