Macro Highlights and Outlook
During the week to 9th September, the planned industrial action by the Nigeria Labour Congress (NLC) was averted, after the tripartite committee on national
minimum wage reached a last-minute agreement with the labour union on Monday. This came after several failed attempt by the government at convincing the NLC to lower its N30,000 minimum wage demand.
In a related development, however, the Academic Staff Union of Universities (ASUU) declared a nationwide industrial strike action across both Federal and State universities within the country. Insisting the federal government have failed to address the funding need for Universities in the FGN-ASUU Memorandum of
Understanding (MoU) of 2012, 2013 and the Memorandum of Action (MoA) of 2017.
Elsewhere, the Central Bank of Nigeria (CBN) released its H1-18 activity report, indicating that the total domestic debt outstanding at the end of Jun-18 stood at
N12.15tn, a N290.6bn or 2.45%, over the N11.86tn in H1-17. Consequently, the cost of debt servicing grew by 37.04% to N942.0bn at end of June-18, compared to N687.37bn in H1-17. Meanwhile, the International Monetary Fund (IMF), during its presentation of the Regional Economic Outlook for Sub-Saharan Africa, painted
the precarious situation of the nation’s economy amid a high debt service to revenue ratio. This week, we expect the London roadshow by Nigerian officials for the planned $2.8bn Eurobond issuance to be in the highlight. Going by previous issuances, we expect a successful reception. Expected coupon is likely to be marginally above the Feb-2018 issue amid Nigeria’s recent debt worries and tension in the domestic polity.
Global Market Review and Outlook
Global equities mixed, oil falls below $70/b and Fed stands pat on the rate
Global equity indices logged a mixed performance in the previous week. In the US market, the outcome of the midterm congressional elections that saw the Democrat gain majority control of the US House of Representatives and the Republicans the US Senate impacted market sentiments. Additionally, the Fed left policy rates unchanged at its penultimate meeting in 2018 but signalled a continuation of further gradual rate hikes. Amidst of all these, the DJIA, S&P 500 and NASDAQ indices rose 3.0%, 2.1% and 0.9% w/w.
In Europe, the UK’s Office for National Statistics reported that the country posted its fastest quarterly growth in almost two years of 0.6% in Q3-18. Although, there are concerns over loss of momentum going forward, due to uncertainties surrounding BREXIT negotiations. Consequently, the Pan European STOXX (+0.6%), UK’s FTSE (+0.2%) and France’s CAC (+0.2%) all trended northwards w/w.
Emerging markets equity indices were mixed in the prior week. The Brazilian IBOV (-3.4%), China’s SHCOMP (-2.9%), South Africa’s JALSH (-1.8%) and Russia’s RTSI (-1.2%) trended southwards w/w while the Indian SENSEX (+0.4%) index closed the week in the green zone.
Notwithstanding the take-off of US sanction on Iran at the start of the week, benchmark Brent price fell into a bear market during the week, breaching the $70/b psychological level. This can be attributed to the waivers granted by the US to key importers of Iranian oil – Japan, India, Turkey, Taiwan, South Korea, and China – while the effect of the sanction on global supply is expected to be largely offset by a pickup in output by Saudi Arabia and Russia.
Domestic Financial Markets Review and Outlook
Domestic equities recuperate, NSE-ASI up 0.2% w/w
The domestic equity index closed the week unscathed, recording a marginal 0.2% w/w gain. Although the market opened the week on a dull theme and closed in the red on three of five trading days, the gains recorded mid-week tilted in favour of the bulls. The All Share Index closed the week at 32,002.2 points while YTD return recuperated to -15.8%. Likewise, market capitalization accreted N27.5bn to settle at N11.75tn. Meanwhile, activity level strengthened as average volume and value traded rose 17.4% and 11.8% to 253.4mn units and N4.1bn respectively. In other news, the Nigerian Stock Exchange lifted the suspension earlier placed on shares of five companies due to failure to file relevant financial accounts, they are Premier Paints Plc, Austin Laz & Company, Academy Press Plc, Ekocorp Plc, and FTN Cocoa Processors Plc.
Sectoral performance was evenly mixed as three sector indices rose and declined concurrently. The Oil & Gas (+1.3%), Consumer Goods (+1.6%) and Agriculture (+5.0%) indices closed higher as buying interests in SEPLAT (+6.9%), UACN (+11.1%), NESTLE (+7.4%) and PRESCO (+10.7%) buoyed the indices. On the other hand, the Industrial Goods (-3.8%), Insurance (-1.9%) and Banking (-0.5%) sector indices lagged w/w as declines in CCNN (-11.6%), WAPCO (-14.3%), AIICO (-8.5%), NIGERINS (-8.3%), ACCESS (-7.8%), WEMA (-5.2%) and FBNH (-2.6%) outpaced the gains recorded in CAP (+3.3%), DANGCEM (+0.05%), LASACO (+3.5%), FCMB (+6.5%) and DIAMOND (+6.7%).
Meanwhile, market breadth a yardstick for gauging investor’s sentiment reflected a dampened theme as the ratio closed at 0.8x (previously 0.3x); 25 stocks advanced while 32 declined. With the culmination of the Q3-18 earnings season, we expect a mixed theme this week as issues around the polity remain in focus.
Money Market: CBN surprises markets with two OMO auctions
Markets remained sufficiently liquid as OBB and overnight rates averaged 4.2% compared to an average of 7.8% in the preceding week. Liquidity was braced by
inflows from the CBN which more than offset 305.2bn worth of fresh OMO bills that were issued by the bank after floating a total of 681.2bn against N376.0bn maturities. Notably, two OMO auctions were conducted during the week – a divergence from the usual trend of the CBN.
In the secondary market, players traded sentiments on expectations of OMO auctions at attractive yields, as well as the unexpected OMO auction. Consequently, yields on benchmark Nigerian Treasury Bill (NTB) papers inched higher by 23bps on average to close at 13.7%: 91-day (up 105bps to 13.2%), 182-day (up 22bps to 13.4%) and 364-day (down 1bps to 16.8%). In this coming week, we anticipate system maturities to the tune of N552.1bn, split between OMO maturities of N423.8bn and NTB maturities of N128.2bn. We expect the tempo of these events to guide trading sentiments through the week.
Bond Market: Lull theme guides trading sentiments
A cautious theme directed trading sentiments in the bonds space on the backdrop of some uncertainty on the direction of yields. off the week with a spike in yields which came on the back of some offshore sell-off. Overall, FGN bond yields edged higher by 9bps on average to close at 15.5%, driven by increases in maturities 2034 (+14bps), 2028 (+14bps), 2027 (+14bps) and 2030 (+12bps). Also, the average yield for FGN Eurobond inched higher by 15bps to settle at 7.5% while average yield in corporate Eurobonds edged lower from 14.7% from 10.3%. Looking ahead, we expect proceedings to be bullish as investors take advantage of the yields uptick.
Foreign Exchange: Pressure on Dollar reserves slows amid rising yields
In the Foreign exchange market, the performance of the local currency against the U.S dollar was in line with recent narratives, closing mixed across market segments. The CBN sustained its weekly FX intervention in the wholesale and retail FX market. Accordingly, FX reserves eased marginally 0.3% w/w to $41.8bn as at Wednesday as pressures on FX seems to be dissipating on the back of rising yields in the environment. Meanwhile, benchmark Brent price breached the $70.0/b support level on Friday, less than a month after touching a record high of $86.0/b.
In line with this, FX rate at the Parallel and Official market depreciated by 14bps w/w and 2bps w/w to close the week at N361.5/$1 and N306.65/$1 respectively, while NAFEX rate appreciated marginally by 2bps w/w to close at N363.65/$1. Looking ahead, we expect the sustained weekly FX intervention by the CBN to continue to support the local unit as demand pressures persist. Meanwhile, the downtrend in global crude oil prices, if sustained, portends a negative outlook for reserves.
Courtesy: United Capital Research