Review and Outlook of Global Markets

Global Equities Market: US-China Tentative Trade Deal and Positive Brexit Development Buoy Market Performance
Earlier this week, the IMF downgraded global growth forecast for 2019 to 3.0%, the fifth downward review from its initial 3.9% forecast mid-2018. This means that global growth is expected to be at its slowest since the 2008 financial crisis. The downward revision is hinged on weakening economic activities, partly caused by prolonged trade tensions. Meanwhile, the trade tension between US and China seems to be abating as the two parties reached a tentative agreement this week. The US suspended the tariff hike on $250.0bn worth of Chinese goods which was supposed to take effect on Tuesday while China equally agreed to purchase US agricultural products worth $40.0bn - $50.0bn. In Europe, a provisional Brexit deal was reached between the United Kingdom (UK) and the EU. Although this is encouraging, the approval of the UK parliament is essential to finalising the deal. This may be a hard nut to crack as in the case of the previous deal reached by ex-Prime Minister, Theresa May, which was rejected by the parliament. We expect Brexit developments and persistent trade tensions to shape performance in the developed markets in the coming weeks.

Performance in the developed markets was bullish this week as 5 of 7 indices under our coverage gained. In the US, the S&P 500 and NASDAQ indices rose 1.2% and 1.0% W-o-W respectively due to the trade agreement with China and positive earnings releases. In Europe, performance was mixed as only Germany’s XETRA DAX index gained, up 1.2% W-o-W while UK’s FTSE All Share and France’s CAC 40 indices lost 0.5% and 0.4% W-o-W respectively. Japan’s Nikkei 225 rose 3.2% W-o-W while Hong Kong’s Hang Seng index appreciated 1.6% W-o-W despite persistent political protests.

In the BRICS markets, performance was bullish as only 1 of the indices we track declined W-o-W. China’s Shanghai Composite index was the lone loser, down 1.2% due to weak economic growth which was the lowest since early 1990s. On the flip side, India's BSE Sens led gainers, up 3.1%. Russia’s RTS index trailed with a gain of 2.0% W-o-W. Brazil’s Ibovespa and South Africa’s FTSE/JSE All Share indices also gained 1.3% and 0.9% W-o-W respectively.

The African market recorded mixed performance as 3 of 6 indices under our coverage lost W-o-W. Mauritius’ SEMDEX Index lost the most, shedding 1.0% W-o-W. Meanwhile, Egypt’s EGX 30 and Nigeria’s All Share indices trailed, down 0.7% and 0.3% W-o-W respectively. Conversely, Ghana’s GSE Composite index led gainers, advancing 1.1%. Morocco’s Casablanca MASI and Kenya’s NSE 20 indices also gained 80bps and 20bps W-o-W respectively.

In the Asia and Middle East region, performance was mixed but negatively skewed as 3 of 5 indices tracked declined W-o-W. Saudi-Arabia’s Tadawul advanced the most, gaining 0.8% W-o-W and Turkey’s BIST 100 index followed with a 0.6% gain W-o-W. On the other hand, Qatar’s DSM 20 led laggards, down 1.9% W-o-W. Similarly, UAE’s ADX general and Thailand’s SET indices declined, shedding 0.4% and 0.3% W-o-W respectively.

Domestic Equities Market: Yet Another Bearish Outing… ASI Sheds 30bps W-o-W
The week ended on a negative note after the ASI fell by 3bps on Friday, following losses in GUARANTY (-1.3%), ZENITH (-1.4%) and WAPCO (-1.0%). Overall, the losses recorded on 4 of 5 trading days led to a 30bps W-o-W decline in the ASI to 26,448.62 points while YTD loss worsened to 15.9%. Furthermore, investors lost N41.5bn as market capitalisation fell to N12.9tn. However, activity level rose as average volume and value inched higher by 8.6% and 44.2% to 310.6m units and N5.0bn respectively. GUARANTY (77.2m units), ACCESS (53.2m units) and FBNH (46.5m units) were the most traded stocks by volume while NESTLE (N5.0bn), GUARANTY (N2.1bn) and MTNN (N916.6m) led by value.

The week opened on a positive note after Price appreciation in DANGCEM (+0.6%), DANGFLOUR (+3.6%) and UBA (+1.7%) stoked gains in the equities market by 10bps. However, market shed gains on the 3 days that followed on the back of sell-pressures in MTNN (-0.8%), WAPCO (-4.1%), UBA (-2.5%) and GUARANTY (-1.3%). Accordingly, the Benchmark index fell 20bps, 16bps and 6bps consecutively on Tuesday, Wednesday and Thursday.

Performance was mixed across sectors under our coverage W-o-W. Gains in CUSTODIAN (+9.7%) and LAWUNION (+6.8%) moved the Insurance index up by 2.4% to lead the gainers while the Consumer Goods index followed, up 0.1% W-o-W following price appreciation in DANGFLOUR (+3.6%) and FLOURMILL (+2.4%). Conversely, the Banking index led the laggards, down 2.0% W-o-W on the back of losses in STERLING (-7.7%) and ETI (-5.4%). Similarly, Industrial Goods and Oil & Gas indices lost 0.3% and 0.2% W-o-W apiece due to sell pressures in CUTIX (-12.7%), WAPCO (-5.3%) and OANDO (-2.0%). On the other hand, the AFR-ICT closed flat.

Investor sentiment strengthened as market breadth (advance/decline ratio) increased to 0.8x from 0.6x as 18 tickers gained against 22 that lost. FIDSON (+11.1%), CUSTODIAN (+9.7%) and LAWUNION (+6.8%) led the best performing stocks while CORNERSTONE (-17.9%), CUTIX (-12.7%) and PZ (-11.9%) led losers. We expect the bearish momentum to continue although there is room for gains due to opportunities for bargain hunting in fundamentally sound stocks.

Foreign Exchange Market: Naira Remains Relatively Stable Across Board
As the price of crude oil continues to approach new support levels and dollar inflows from FPIs decline steadily, Nigeria’s external reserves has recently been on a downward trend. Unsurprisingly, external reserves declined 0.9% to US$41.0bn (on Wednesday) from US$41.4bn on Wednesday last week. The CBN spot rate opened the week at N306.95/US$1.00 but closed the week at N306.90/US$1.00, appreciating 5kobo W-o-W from N306.95/US$1.00 last week. At the parallel market, the exchange rate traded flat all week at N360.00/US$1.00 while at the Investors’ and Exporters’ (I&E) FX Window, the NAFEX rate opened the week at N362.53/US$1.00 and closed the week at N362.21/US$1.00, depreciating 8kobo W-o-W from N362.13/US$1.00. Activity level in the I&E Window declined 24.8% to US$936.1m.

At the FMDQ Securities Exchange (SE) FX Futures Contract Market, the total value of open contracts settled at US$10.6bn, up US$108.8 (1.3%) from US$10.4bn last week. The OCT 2020 instrument (contract price: N365.50) received the most buying interest in the week with additional subscription of US$5.7m which took total value to US$30.1m. On the other hand, the JAN 2020 instrument (contract price: N362.96) was the least subscribed, with an additional subscription of US$0.5m for a total value of US$1.4bn. In the coming week, we expect rates to trade within similar levels across the various FX segments as the CBN sustains its weekly intervention.

Money Market: Elevated System Liquidity Drives Rates Downward
In the money market this week, interbank rates trended lower on 3 of 5 trading days due to improved system liquidity attributable to OMO & T-bills maturities which offset OMO mop-ups by the Apex bank. At the start of the week, Open Buy Back (OBB) and Overnight (OVN) rates closed at 16.0% and 16.8% respectively, from 11.4% and 12.4% recorded the previous Friday as system liquidity declined to N79.5bn. On Tuesday, consequent on the retail FX Secondary Market Intervention Sales (SMIS) refund, rates trended lower as system liquidity increased to N286.0bn; hence, OBB and OVN rates closed at 8.4% and 9.1% respectively. Finally, OBB and OVN rates fell to 5.1% and 5.9% respectively as system liquidity settled at N661.8bn.

On Wednesday, the CBN at the primary market auction (PMA) issued; 91-day (Offer: N5.8bn; Subscription: N9.4bn; Sale: N5.8bn), 182-day (Offer: N3.5bn; Subscription: N38.1bn; Sale: N3.5bn) and 364-day (Offer: N112.5bn; Subscription: N586.6bn; Sale: N112.5bn) instruments at a marginal rate of 10.8%, 11.0% and 12.9% respectively compared with previous rates of 11.1%, 11.6% and 13.2%. All instruments were oversubscribed by 1.6x (91-day), 10.9x (182-day) and 5.2x (364-day). On Thursday, following the inflow from OMO maturities worth N464.0bn, the CBN conducted OMO auction worth N430bn to mop-up excess liquidity in the system. As a result of stronger appetite for higher yields, there was weak investor interest across shorter tenors. The 91-day (Offer: N30.0bn; Subscription: N14.3bn) and 182-day (Offer: N50.0bn; Subscription: N36.3bn) instruments were undersubscribed by 0.5x and 0.7x respectively while the 364-day (Offer:; Subscription: N1.1tn) instrument was oversubscribed by 3.1x. The OMO instruments were issued at marginal rates of 11.6% (91-day), 11.8% (182-day) and 13.4% (364-day).

In the secondary market, the performance was mixed albeit positively skewed as rates across benchmark tenors trended lower on 3 of 5 trading days. The week started on a bearish note – due to low system liquidity – as average rate across tenors settled at 11.93%, up 8bps from 11.87% recorded the previous Friday. On Tuesday and Wednesday, sentiment was bullish as average rate fell 14bps apiece to settle at 11.91% and 11.89% respectively. Following that, average rate rose 20bps on Thursday, and closed the week on a bullish note, down 36bps due to OMO maturities worth N464.0bn and PMA repayment worth N121.9bn. Consequently, the average rate across the market declined 4bps W-o-W to settle at 11.87%.

In the coming week, we expect the CBN to sustain its OMO auction given that OMO maturities worth N338.5bn will impact system liquidity levels. Also, we envisage that elevated system liquidity levels would continue to drive rates lower in the secondary T-Bills market.

Bonds Market: Yields Trade Bearish in the Domestic Bonds Market
This week, the Debt Management Office (DMO) successfully completed the listing of FGN N15.0bn Green Bond Series II on the Nigerian Stock Exchange. The seven-year bond was issued at coupon rate of 14.50 percent and is due to mature on June 13, 2026. The bond is aimed at addressing environmental challenges and fostering sustainable financing in Nigeria.

In the domestic bonds market, the bearish momentum was sustained as average yield rose 48bps to settle at 14.7% W-o-W. The market started the week with a bullish performance as yields fell on Monday (-3bps), Tuesday (-6bps) and Wednesday (-8bps) but ended the week on a bearish note as yields rose 27bps and 37bps on Thursday and Friday respectively. Across the term structure, the long-term instruments enjoyed the most buying interest as yields declined 15bps while yields on the medium-term instruments fell 7bps. Finally, the short-dated instruments recorded a bearish performance as yields surged 566bps as the FGN 7.0% 23-OCT-2019 instrument approaches maturity.

In the SSA Eurobonds segment, the trend remains the same as all instruments that we track posted gains W-o-W except for the ZAMBIA 2027 that rose 2bps. The ZAMBIA 2024 and 2022 instruments led the gainers with yields shedding 183bps and 195bps respectively. Similarly, the NIGERIA 2043 and KENYA 2049 instruments trailed again with 83bps and 88bps drop in yields respectively.

In the African corporate Eurobonds space, the bullish momentum persisted as yields declined across board. The MAURITIUS BAYPORT MANAGEMENT 2022 instrument enjoyed the most demand, paring 88bps W-o-W. The NIGERIA SEPLAT PETROLEUM DEV 2022 and FIDELITY BANK PLC instruments trailed as yields dropped 73bps and 58bps W-o-W respectively. We expect frontier and emerging market instruments to remain attractive in the coming weeks on the back of continued easing in advanced economies.