Weekly Market Report

Global Equity Market: Global Markets Rebound Following 2-Week Downtrend
Investors seem to have shaken off the impact of the expectation of a Fed Fund rate hike, which was stoked by rising inflation in the US, as focus turned towards positive earnings expectation from corporates. Consequently, the 2-week sell off recorded across global market halted this week as investor sentiment strengthened with 14 of the 16 indices under our coverage closing positive W-o-W. Also, oil prices trended upwards during the week to settle at US$64.81/b as US production volumes data from the Energy Information Administration (EIA) rose at a slower pace than forecast.

In the developed markets, all indices trended northwards W-o-W. In the US, the S&P 500 and NASDAQ appreciated 4.3% and 5.6% W-o-W respectively as a result of bargain hunting as well as impressive corporate earnings which surpassed analysts’ projections following successive weeks of decline. Similarly, the UK FTSE 100 also rebounded from the negative performance of the prior week as it advanced 2.6% W-o-W.

Across markets in Europe and Asia, the Hong Kong HANG SENG was the top gainer (up 5.4%) due to a rebound in energy and financial services stocks while Japan’s Nikkei 225 jumped 1.6% W-o-W; Some Asian markets, which closed yesterday 15th on account of the Lunar Day celebrations are to open 22nd February. The positive sentiment filtered into the European markets with Germany’s DAX and France’s CAC 40 increasing 2.6% and 3.8% W-o-W respectively.

In the same vein, markets in the BRICS classification rebounded in the week as all indices trended northwards. South Africa’s FTSE/JSE All Share closed 6.2% higher W-o-W as political gridlock in the country was brought to a close following the resignation of Jacob Zuma as President and election of President Ramaphosa. Similarly, Russia’s RTS improved 6.2% W-o-W on the back of rising oil prices. The Brazil IBOVESPA and China’s Shanghai Composite (which closed midweek for Lunar new year celebrations) advanced 4.1% and 2.2% W-o-W respectively.

However, we saw mixed sentiment in the African markets as the Nigerian ASI and Kenya’s NSE 20 declined 1.1% and 1.0% W-o-W respectively on the back of continued sell-offs from the previous week. Ghana’s GSE Composite sustained gains from the prior week, advancing 2.5% W-o-W while Egypt’s EGX 30 gained 0.3%.

Domestic Equity Market:  NSE ASI Snaps 7-Day Losing Streak during the Week, but Declines 1.1% W-o-W
The bearish trend in the Nigerian equities market extended to the second week as the NSE All Share Index (ASI) declined 1.1% W-o-W to settle at 42,638.83 points while YTD return moderated to 11.5%. Accordingly, investors gained N12.4 in value as market capitalization fell to N15.3tn. Losses sustained in bellwethers across sectors - DANGCEM, NIGERIAN BREWERIES and GUARANTY were the major drags to performance. However, activity level was mixed as average volume traded fell 38.1% from 885.1m to 548.1m units while average value traded rose 14.6% from N4.8bn to N5.6bn. The top traded stocks by volume were SKYE (275.2m), FCMB (185.7m) and FBNH (185.0m) while GUARANTY (N4.2bn), ZENITH (N2.4bn) and FBNH (N1.8bn) were the top traded by value.

The All Share Index declined on 2 of 5 trading sessions during the week, with market initially trading bearish on the first two trading days due to sell pressures in bellwether Banking, Industrial and Consumer Goods stocks. The index snapped a 7-day losing streak on Wednesday as investors bought dips in the Banking and Consumer Goods sectors - ZENITH (+5.0%), UBA (+6.3%) and NESTLE (+1.9%). This positive trend persisted till the end of the week with the ASI appreciating 1.0% and 0.1% on Thursday and Friday respectively.

Performance across sectors was largely bearish this week as all sectors declined. The Insurance index depreciated the most, losing 1.7% W-o-W on the back of losses in HMARKINS (-22.9%) and PRESTIGE (-14.3%). Following closely, the Industrial Goods index fell 1.1% W-o-W due to losses in CAP (-9.3%) and DANGCEM (-2.5%). Similarly, the Consumer Goods Index declined 0.9% W-o-W on sustained profit taking in GUINNESS (-4.5%) and NIGERIAN BREWERIES (-4.3%). Relatedly, Nigerian Breweries released a largely positive FY:2017 result during the week with Gross Revenue and PAT advanced 6.6% and 16.3% Y-o-Y to N334.6bn and N33.0bn respectively in the period. The Banking and Oil & Gas indices lost 0.6% and 1.0% W-o-W respectively due to price depreciation in UBN (-9.1%), DIAMOND (-5.8%), FORTE (-6.6%) and TOTAL (-0.4%).

Despite the negative performance, sentiment in the market strengthened as reflected in the market breadth which improved to 0.6x from 0.3x in the previous week as 29 stocks advanced while 47 stocks declined. The gainers-chart was topped by BERGER (+15.0%), BETAGLAS (+10.2%) and ACCESS (+5.4%) while HMARKINS (-22.9%), FIRSTALU (-19.6%) and COURTVIL (-17.4%) declined the most. Following 3 successive weeks of decline in the broader index, we anticipate a rebound in the coming week as indicated by the strengthening market breadth. Furthermore, we believe investors’ bargain hunting ahead of the full year earnings season will also drive market performance.
Money Market Review and Outlook: Rates to Trend Slightly Higher on Expected OMO Mop-Ups
The Money market rates trended downwards throughout the week in line with system liquidity despite the OMO (Open Market operations) mop-up, Wholesale FX Secondary Market Intervention Sales (SMIS) and the T-bills primary market auctions by the Apex bank. The Central Bank of Nigeria’s (CBN) activities in the past weeks have further shown its commitment to stabilize the financial system, keep liquidity levels in check while also sustaining the recent gains in price and exchange rate stability.  Open Buy Back (OBB) and Overnight (OVN) rates trended lower to 18.0% and 20.0% on Monday from last week’s close of 43.3% and 45.5% respectively despite lower system liquidity of N35.5bn (from Friday’s level of N46.4bn) and FX sales of US$100.0m at the SMIS window.

On Tuesday, rates continued on a descent as OBB and OVN settled at 14.3% and 15.3%, following a No-Sale OMO auction conducted by the CBN, on the back of improved system liquidity which opened the day at N35.1bn. OBB and OVN continued its steady decline on Wednesday settling at 8.7% and 9.0% as the total T-bills issuance of N176.0bn dwarfed the improved system liquidity which opened at N260.7bn. By Thursday, the CBN mopped up N50.7bn from the system but the effect on system liquidity was negligible following the N90.0bn OMO inflow on the same day which took system liquidity to N492.3bn. As a result, OBB and OVN fell further to 6.7% and 6.9% respectively. On Friday, OBB and OVN closed the week at 6.7% and 6.9% indicating a 36.6ppts and 38.6ppts decrease W-o-W respectively.

In the Treasury Bills (T-bills) market, average rates across most instruments hovered round the same levels throughout the week despite the Primary Market Auction of N176.0bn by the CBN. Treasury Bills maturity of 91-day (N6.0bn), 182-day (N30.0bn) and 364-day (N140.0bn) hit the system on Thursday with the same amount rolled over at 11.95%, 13.7% and 15.9% marginal rates respectively. At the start of the week, rates were broadly unchanged staying flat at 14.4% on Monday. On Tuesday however, sell offs were witnessed across maturities; hence rates inched 10bps higher to 14.5% at the close of trade.  By Wednesday, average rate fell 3bps but recovered to 14.5% on Thursday to eventually close the week at 14.5% by Friday.

In the coming week, despite the level of system liquidity at N371.5bn as of Friday, we expect money market rates to trend slightly higher on the back of expected OMO mop-ups and the planned Wednesday DMO bond auction of N100.0bn notwithstanding Thursday OMO maturity of N37.9bn.
Foreign Exchange Market Review and Outlook: Naira Outlook Remains Stable as External Reserves Hit 48-month High of US$41.5bn
In line with trend, the CBN continued its weekly FX interventions, injecting US$100.0m on Monday via wholesale SMIS intervention. A total of US$55.0m was auctioned at the Small and Medium Enterprises (SMEs) segment while US$55.0m was sold to satisfy retail invisible demand (Tuition fee, medical payments and BTA). Thus, FX rates traded within a tight band at all segments of the market with the CBN official spot rate trading flat all week after an initial 5kobo depreciation on Monday (to N305.90/US$1.00). Similarly, at the parallel market, rate opened at similar levels from the prior Friday (N363.00/US$1.00) and traded flat all week.

At the Investors & Exporters’ (I&E) window, the NAFEX rate shed 49kobo in the first two trading sessions to close at N360.58/US$1.00 on Tuesday from N360.09/US$1.00 the previous Friday. The losses were fully recouped in Wednesday’s trading session as the Naira strengthened 54kobo to settle at N360.03/US$1.00 but slightly pared gains on Thursday, shedding 7kobo before settling at N360.00/US$1.00 on Friday, translating to a 1kobo W-o-W depreciation. Similarly, activity level weakened at the Window relative to previous week as cumulative weekly turnover as of Thursday (US$608.9m) was 15.0% weaker than US$716.6m recorded in the same period the prior week.

At the FMDQ OTC futures market, the total value of open contracts of the Naira settled OTC futures closed the week at US$3.3bn, US$10.5m higher than US$3.3bn the prior week. The DEC-2018 instrument (contract price: N362.84) received the most buying interest in the week with additional subscription of US$10.0m which took total value to US$189.63. NGUS APR-2018 (contract price: 360.92) however remains the most subscribed with a total value of US$657.9m while the NGUS JAN-2019 instrument (contract price: N362.27) is the least subscribed with total value of US$10.0m.

Following a successful Eurobond issuance by the Federal Government this week in which US$2.5bn was raised to refinance maturing short term local debt securities, we expect further accretion to external reserves (currently at a 48-month high of US$41.5bn) with positive feedback on the CBN’s ability to sustain FX intervention sales. Hence, despite downside risks of volatility in the oil market and political uncertainty, we retain our near term positive outlook on FX market stability and liquidity.

Bond Market Review and Outlook: Sentiment Rebounds in Local Debt Market but Stays Bearish on SSA Eurobonds
Contrary to the sell-offs recorded in the local bond market the previous week, sentiment was bullish this week as yields trended 12bps lower W-o-W to an average of 13.8% across tenors at market close on Friday on the back of improved investor appetite following stability in global financial markets on one hand and the supply of new FGN Eurobond debt securities (Thursday) on the other hand. The week started off on a quiet note with yields falling a marginal 1bp on average as momentum was sustained on Tuesday with average yield moderating 8bps to 13.8% due to buying interests in MAR-2027 (-3bps) and APR-2037 (-8bps) benchmark bonds. Sentiment further improved in subsequent trading sessions as yields fell 3bps on Wednesday, 1bps on Thursday and staying flat on Friday against the backdrop of expectations of lower volume of primary market issuances.

On Thursday, the Nigerian Government announced the pricing of its US$2.5bn dual tranche Eurobond offering to complete the US$5.5bn external debt programme approved by the National Assembly in 2017. The pricing was largely successful as both instruments offered (12-year and 20-year series) garnered impressive buying interest from leading global institutional investors with a peak order book of over US$11.5bn. Both instruments have offerings of US$1.25bn apiece, with the 12-year series priced at a yield of 7.1% while the 20-year series was issued at 7.7%. The proceeds from the Eurobond issuance would be used to refinance relatively expensive short term domestic borrowings as the FGN plans to achieve an optimal mix of domestic and foreign debt and reduce overall debt servicing cost. The impact of the debt refinancing, coupled with declining inflation rate and stability in FX rate, is anticipated to continue to anchor yield expectation lower in the near term and reduce crowding out of private sector borrowers.

Across the Sub-Saharan Africa Eurobonds, performance remained bearish as yields trended higher W-o-W on all instruments under our coverage save the GHANA 2026 (-10bps) and KENYA 2019 (-10bps) bonds. The extended bearish sentiment is on the back of ongoing global bond market rout as investors continue to price-in impact of reflation threat in advanced economies – and consequent normalization of monetary policy – in the valuation of fixed income assets. Consequently, average yield across the Nigerian, Ivorian, Zambian, Senegalese and South African instruments rose 20bps, 10bps, 70bps, 10bps and 30bps respectively. After the intense sell-offs in the last three weeks, YTD price performance across all instruments have turned negative.

Similar to the performance of SSA Sovereign bonds, sentiment was bearish on Nigerian Corporate Eurobonds as yields rose on 7 of 12 instruments W-o-W. The FIDELITY 2018 (down 40bps to 3.4%) received the most buying interest as investors continue to aggressively position in the soon to mature bond while UBA 2022 instrument (up 30bps to 6.8%) recorded the most sell-off.