Monthly Markets Review: Overview of Markets in February 2018 and Outlook

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Highlights:

  • Global equities were rattled by inflation and bond market concerns in February, with all indices that we track closing in the red. The equities market snapped to a loss, after an impressive start to the year.
  • The equities market in February recorded loss, after an impressive start to the year.
  • The overnight lending rate fell by 75bps to close the month at 4.5%, driven by buoyant system liquidity in the last week of the month.
  • Sentiments in the bond market reversed, with average yield recording a 31 bps m/m expansion to close at 13.72%.
  • The USD/NGN strengthened by 0.11% to NGN360.09 in the I&E FX window, while it weakened by 0.27% to NGN363 in the parallel market.

Global Equity Markets

After a bullish start to the year, U.S. equities retreated, with the DJIA and S&P 500 declining by 4.28% m/m and 3.89% m/m respectively in February – following a significantly pressured first half of the month. Activities during the month – arguably Wall Street’s wildest month since 2008 – reflected a sharp contrast to what January offered. Investors largely ignored positive narratives about global economic growth and jettisoned earlier optimism about corporate performance, which was hinged on the expected impact of the U.S. tax reform bill. Earlier in the month, the Dow tumbled c.12% in just 14 days. Risky assets came under the whims of inflation and bond market concerns. Investors worry about the 10-year Treasury rate creeping closer to 3% were exacerbated by Fed chief Jerome Powell’s upbeat outlook on the economy and inflation – suggesting higher-than-expected interest rate hikes during the year.

Worries eased over the second half of the month, thanks to encouraging corporate earnings and upbeat data on the labour market. Meanwhile, demand was short-lived amid a strengthening dollar and a slide in the price of oil — which sent energy stocks to the market’s sharpest losses.

European stocks were not left out of the broad selloffs induced by inflation and treasury rate concerns. Both the FTSE 100 (-4.00% m/m) and Euro Stoxx 50 (-4.46% m/m) closed lower than their respective January levels. Losses for banks and commodity companies further dampened appetite for risk. We note particularly bearish sentiment on the German bourse after Deutsche Bank posted a bigger-than-expected loss in the fourth quarter. These overshadowed a rally for chip makers that came after Apple-supplier AMS AG reported a major jump in revenue and lifted its sales forecasts.

Earnings-related drag continued in the second half of the month, with specific mention of consumer products heavyweight Reckitt Benckiser Group PLC and German automaker Daimler AG. In addition, investors received disappointing updates on manufacturing and services activity in the Eurozone. While the latter part of the half saw cautious trading, as investors waited for remarks from Federal Reserve officials who may give more insight into the central bank’s thoughts on interest rates; some investors rode on (1) a pullback in the euro on news of a potentially favorable development for the U.K. in its Brexit negotiations with the European Union, and (2) a short-lived rebound on Wall Street. Though too little and too late, the buying lifted the Euro Stoxx 50 (+0.35%) in the second half while the FTSE 100 (-0.86%) found no respite.

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