Weekly Market Review and Outlook – Week Ended Jan. 13, 2017

Global Market Review
Global market performance is expected to remain dictated by political development in the US and comments by FED officials. While investors continue to digest different remarks made by the President-elect (Donald Trump) and uncertainties surrounding his future polices, the Fed Chair, Janet Yellen on Thursday noted that the US economy is ‘doing well’ and with a stable short term outlook, thus buoying market sentiment.

In the developed markets, the tech-heavy US NASDAQ advanced 0.9% W-o-W but the S&P 500 Index slipped 0.2% dragged by health sector after Trump said pharmaceutical companies are "getting away with murder" in what they charge the government for medicines. The UK FTSE rose 1.3% as gains in the financial sectors drove the index higher. In the Eurasian region, the Japan NIKKEI emerged lone loser dipping 0.9% W-o-W. Sentiment improved marginally across other markets in the region with the Hong Kong HANG SENG advancing 1.9% while the German DAX increased 0.1%. In the same vein, the France CAC climbed 0.2% W-o-W.

All indices in the BRICS markets closed higher excluding the China Shanghai Composite which fell 1.3% as trade balance in China came in at a surplus of US$40.8bn for December with exports down 6.1% and imports up 3.1%. The Brazilian IBOVESPA and Russian RTS both advanced 3.4% W-o-W while the South African FTSE trailed, up 3.1% W-o-W.

In the African Markets, performance was broadly bullish as all indices under our coverage closed in the green, save for the Kenyan NSE All Share Index which fell 5.4% W-o-W. The Egypt EGX appreciated the most, up 4.9% while the Ghanaian GSE trailed with a 1.8% W-o-W gain. Similarly, the Nigerian All Share index added 0.3% W-o-W on account of bullish sentiment towards banking stocks.

Equities Market Review and Outlook
The local bourse recorded its first weekly gain for the year after a bearish start last week. The All Share Index (ASI) rose 0.3% W-o-W to settle at 26.325.93 points, driven by sustained positive sentiment in banking stocks - UBA (+6.6%), ACCESS (+6.5%), ZENITH (+5.4%)  and GUARANTY (+1.5%) - as well as  DANGCEM (+0.6%). Accordingly, YTD loss pared to -2.0% while market capitalization improved by N25.6bn W-o-W settling at N9.1tn. Activity level strengthened as average volume and valued traded advanced 57.0% and 61.5% to 202.7m units and N1.8bn respectively.

Contrary to the previous week, performance across sectors was mixed as the Banking index appreciated the most, up 3.3% W-o-W on account of strong buy sentiment across Tier-1 and Tier-2 counters including DIAMOND (+23.3%) and STERLING (+10.0%). The Industrial Goods index trailed adding a marginal 0.1% against the backdrop of moderate appetite for DANGCEM (+0.6%). On the flip side, the Oil & gas index topped sector losers, down 3.1% as a result of sell-offs in FORTE (-8.2%) and MOBIL (-5.7%). Similarly, declines in NESTLE (-2.3%) and 7UP (-13.6%) dragged the Consumer Goods index 1.8% lower while the Insurance index dipped 0.3% on losses in MANSARD (-5.3%) and NEM (-10.5%).

Investor sentiment strengthened this week as market breadth (advancers/decliners ratio) improved to 0.8x (from 0.6x in the previous week). 28 stocks advanced against 34 decliners. Top gainers were DIAMOND (+23.3%), OKOMUOIL (+10.2%) and CONTINSURE (+10.0%) while the worst performers included CUTIX (-18.0%), 7UP (-13.6%) and CAVERTON (-12.8%). Although the performance this week was in line with our expectation of a rebound in counters, Banking stocks remain the major driver while interest across non-banking sector counters seems to be weighed down by poor earnings expectation. We expect the rally in banking stocks to moderate in subsequent trading sessions, as such overall return in the week ahead may be negative.

Money Market Review and Outlook
The week opened with improved aggregate financial system liquidity (N134.9bn from N88.9bn last Friday). Consequently, money market rates, OBB and OVN declined 41bps and 25bps respectively to close at 7.9% and 8.6% on Monday. However, the CBN mopped up N223.4bn on Monday and the impact of the debit for successful bids at the auction weighed on system liquidity on Tuesday despite FAAC inflows which hit the system; as a result, OBB and OVN rates rose 7.1% and 7.2% points respectively to close at 15.0% and 15.8%. Money market rates however dropped towards the end of the week owing to improved system liquidity, from N17.0bn on Wednesday to N101.0bn on Friday. Eventually, OBB and OVN rates closed the week at 8.8% and 9.7% indicating a 49bps and 85bps increase W-o-W respectively.

Performance in the Treasury Bills market was mixed but largely bullish as average rate (across tenors) closed lower on 3 of 5 trading sessions during the week. Average T-bills rate rose 2.2% points on Monday in reaction to the announcement of an OMO auction by the CBN but moderated marginally on the other days of the week save for Friday when it rose 0.2% to close at 16.0%, up 42bps W-o-W.

In the week ahead, there is a scheduled T-bills maturity of N196.0bn but its impact on liquidity levels is expected to be tapered by a rollover of the same amount in a T-bills auction next Wednesday. We also expect the CBN to mop-up liquidity by way of OMO auctions at the start of next week, in line with its tightening policy, due to relatively high liquidity. Accordingly, we expect money market rates to rise next week.

Foreign Exchange Review and Outlook
Activities at the interbank foreign exchange market remained minimal during the week as liquidity crunch lingered. Also, the CBN’s weekly intervention continued from Monday to Friday as interbank spot rate remained tightly held at N305.00/US$1.00 throughout the week. At the parallel market, the Naira depreciated on all trading days, from N490.00/US$1.00 on Monday, to N497.00//US$1.00 on Friday. This was despite indications by the Association of Bureau De Change operators to adopt N400.00/US$1.00 as BDC rate during the week.

In the Futures market, the value of open contracts rose to US$3.8bn from US$3.7bn last week. We observed that the value of the “soon to mature” NGUS JAN 25 2017 rose by US$58.3m during the week. Nonetheless, despite attractive prices of the contracts on offer, most of the contracts in the Futures market remained largely undersubscribed due to overhanging liquidity crisis in the currency market.

We expect exchange rate at the interbank to remain stable in the week ahead as the CBN continues daily intervention. Meanwhile, plans by the CBN to resume dollar sales to BDC operators may offset some of the pressure on exchange rates at the parallel market.

Bond Market Review and Outlook
Sentiment in the local bonds market was broadly bearish this week with yields rising on most trading sessions as investors sold off particularly on the medium to long dated instruments. Average yield across benchmark bonds declined 36bps on Monday before inching higher for the rest of the week save for Thursday when average yields dipped 8bps. Consequently, average yield closed the week at 16.3%, up 0.2% W-o-W. In the week ahead, the Debt Management Office (DMO) is scheduled to conduct its first Primary Market Auction in 2017. The DMO will be re-issuing N40.0bn of the JUL 2012, N50.0bn of the JAN 2026 and N40.0bn of the MAR 2036 instruments.
In the Eurobonds market, performance across SSA sovereigns was largely bearish as yields rose across instruments save for the South African sovereigns, Ghana 2023 and Ghana 2026 instruments. Average yields on the Nigerian sovereign Eurobonds rose 11bps W-o-W. Also, average yields on Senegal sovereign Eurobonds inched 16bps higher W-o-W whilst Gabon sovereign yields increased 9bps on the average. We believe the weak showing of the SSA sovereigns remained attributable to the US Fed rate hike which has relatively dampened interest in emerging markets assets.
It was however a largely bullish week for Nigerian Corporate Eurobonds as yield declined on all the instruments but Fidelity 2018 (up 52bps W-o-W) and Access 2021 (up 11bps W-o-W) whilst Zenith 2019 closed the week flat. The FBN 2021 had the best outing thus far in 2017, with YTD price change of +3.9%.