Review and Outlook of Global, Nigeria Markets

Global Market Review and Outlook
Performance across global equities market was mixed this week as emerging markets underperformed against the backdrop of a slide in commodities prices which precipitated a plunge in oil prices to a six-month low on Thursday despite the landmark accord by OPEC to cut output. Contrarily, developed markets closed bullish on the back of a flurry of solid earnings reports released in Europe while the US Fed maintained status quo on interest rate mid-week as expected.

The revived confidence in the White House’s ability to implement policy following the successful passing of President Trump’s Health Care reform bill by the House of Representative, as well as high expectations of the victory of Pro-EU French presidential candidate, Emmanuel Macron also boosted global market sentiment. Hence, in the developed markets, performance was positive as the UK FTSE appreciated 0.7% W-o-W on the back of better than expected earnings releases, while the US NASDAQ and S&P 500 indices climbed 0.4% and 0.6% W-o-W respectively despite uncertainty that lingered through the week in anticipation of the Fed’s interest rate decision on Wednesday.

Across the BRICS markets, all indices closed in the red, with the China SHANGAI COMPOSITE recording the most decline, down 1.6% W-o-W due to concerns regarding tighter financial regulation. The Russian RTS and Brazil IBOVESPA followed suit, plunging 1.2% and 0.5% W-o-W on the back of the stumble in oil prices. Similarly, the South Africa FTSE and India BSE fell 0.6% and 0.2% W-o-W respectively.

In Eurasian Region, all indices closed in the green save for the Hong Kong HANG SENG which slid 0.6% W-o-W. The France CAC 40 appreciated 2.8% W-o-W as a result of the optimism surrounding Presidential candidate Emmanuel Macron in the run-off election which will be held on Sunday, 7th of May 2017.  Likewise, the Japan Nikkei recorded gains, up 1.3% W-o-W, catalysed by robust earnings and gains from Wall Street in the previous week.

Sustaining a three-week trend, performance in the African markets closed mix as the Nigerian All Share Index closed the week on a 6-consecutive day rally, up 1.8% W-o-W on account of impressive earnings scorecard released in the previous week which geared investors towards taking position in bellwethers. Similarly, Egypt EGX 30 appreciated 0.3%, while the Kenyan NSE dipped 0.3% W-o-W. The Ghanaian GSE closed flat.

Equities Market Review and Outlook
Sentiment remained overwhelmingly bullish on the Nigerian Bourse this week as the Benchmark index appreciated 1.8% W-o-W to close at 26,235.60 points, paring YTD loss to 2.4%. The All Share Index recorded gains on all trading days, broadly driven by swirls of positive sentiment which emanated from the impressive first Quarter earnings and expectations of a rebound in economic activities following positive PMI readings for April and improved FX liquidity. Thus, investors actively positioned in bellwethers across sectors - ZENITHBANK (+8.6%), NIGERIAN BREWERIES (+3.5%) and OANDO (+24.0%) – which buoyed market capitalization by N156.2bn to close at N9.1tn. Activity level also strengthened as average volume and value traded across the four trading sessions rose 8.2% and 34.9% W-o-W to settle at 288.5m units N2.6bn respectively.

Sector performance remained mixed as 3 indices gained of 5. The Banking index strengthened the most, up 3.6% W-o-W on account of gains in FBNH (+14.2%) and ZENITHBANK (+8.6%), while the Consumer Goods trailed, adding 3.0% W-o-W owing to price appreciation in INTBREW (+10.4%), NIGERIAN BREWERIES (+3.5%) and DANGSUGAR (+6.5%). Likewise, the Oil & Gas index inched 3.0% higher W-o-W as a result of positive sentiment towards OANDO (+24.0%) and ETERNA (+8.9%). On the contrary, the Industrial Goods index declined1.1% W-o-W as profit-taking in WAPCO (-2.6%) dragged the index lower. Similarly, the Insurance index recorded 0.1% loss W-o-W on sell-off in MANSARD (-5.7%).

Investor sentiment improved as reflected in the market breadth which rose from 1.3x the previous week to 2.3x this week - 41 stocks advanced and 14 declined. FIDSON (+43.6%), OANDO (+24.0%) and LIVESTOCK (+16.2%) topped gainers’ list while UNITYBNK (-13.8%), CHAMPION (-8.9%) and STANBIC (-6.7%) led the losers’ chart.  The impressive market breadth recorded this week as well as broad-based nature of the 2-week long rally – with mid & small cap stocks also advancing – suggests investor sentiment is beginning to improve. Whilst we continue to hold a positive short term view of the market, we expect to see some profit taking in early trades next week.

Money Market Review and Outlook
Financial system liquidity improved this week owing to principal payments of maturing Bonds at the end of last week, FAAC inflow as well as OMO and Treasury Bills maturity. Hence, Open Buy Back (OBB) and Overnight (OVN) lending rates trended within 3.3% - 4.4% band at the start of the week and hovered around this levels till mid-week despite the CBN’s primary market activities. The Apex Bank sold OMO instruments worth N27.8bn and held two SMIS FX auctions (US$100.00 and US$150.00) on the first two trading days but the impact on liquidity was offset by FAAC inflow which hit the system on Wednesday. However, interbank rates rose towards the end of the week as system liquidity tightened. OBB and OVN rates surged to 51.7% and 53.4%respectively on Thursday as system liquidity dropped on the back of debits for successful bids at Wednesday’s T-bills auction and Thursday’s special FX auction, eventually closing the week at 18.2% and 19.3% respectively up 14.2% and 14.5% W-o-W respectively

The T-bills market also trended in line with liquidity dynamics as rates rose on 2 of 4 trading sessions. Significant buying interest was evident at the start of the week on the back of robust system liquidity, resulting in 22bps and 58bps decline respectively in average T-bills rate on the first 2 trading sessions. At the scheduled Primary Market Auction on Wednesday, the CBN offered N45.2bn of the 91-day, N23.4 of the 182-day, and N82.0bn of the 364-day. In line with recent trend, the 364-day instrument witnessed the most subscription – N205.6bn relative to N82.0bn offered – as investors continued to favour longer dated bills at PMAs. The 182-day bill was also oversubscribed – N29.5bn relative to N24.3bn offered. The 91-day instrument was however undersubscribed as investors continue to show a preference for keying into longer dated bills. Accordingly, the Apex Bank allotted N29.1bn, N23.4bn and N178.0bn of the 91-day, 182-day and 364-day instruments at stop rates of 13.6%, 17.3% and 18.8% respectively. Average rate in the secondary market however rose 21bps on Thursday as system liquidity waned on the impact of the debit for successful bids at Wednesday’s T-PMA and Thursday’s special FX auction. Average T-bills rate eventually settled at 18.4% on Friday, up 13bps W-o-W.

Next week, we expect money market rates to fluctuate to liquidity dynamics dictated by the Apex Bank’s activities in the primary market, particularly OMO auctions and FX intervention auctions. Debits for successful bids at the DMO scheduled monthly bonds auction as well as FGN savings bonds auction are also expected to weigh on liquidity towards the end of next week.

Foreign Exchange Review and Outlook
In its drive to ensure the accessibility of FX at all official windows of the FX market, the CBN sanctioned Banks alleged to be frustrating access to FX by SMEs at the SME Form Q window by suspending them from participating at the Wholesale FX interventions carried out this week. The CBN also reiterated its stance on the 41 items termed ineligible for Forex after media reports on the re-admittance of the items at the SME window.

As with recent weeks, the Apex Bank continued dollar sales to the market by conducting 2 Wholesale Intervention Auctions with a cumulative amount of US$150.0m. As a result, the Naira appreciated marginally on all trading sessions at the interbank market, opening the week at N305.80/US$1.00 and settling at N305.70/US$1.00 at the end of the week. However, NAFEX rate published on the FMDQ website depreciated marginally during the week, opening at N376.54/US$1.00 on Tuesday and closing at N377.95/US$1.00 on Friday. At the parallel market, the Naira/Dollar exchange rate remained at N391.00/US$1.00 on all trading sessions.

At the Naira-Settled OTC FX Futures market, activity level was very low during the week as only US$10.5m worth of transactions were carried out, taking total value of open contracts to US$3.5bn on Friday. We suspect that last week’s upward review of the contract prices may have cooled interests in the contracts.

In the week ahead, we expect the Central Bank to continue to boost market liquidity through its FX interventions at the official windows. However, we remain wary about the depth of the Investors & Exporters window as IOCs and IMTOs – major suppliers of FX – are not allowed to participate yet.

Bond Market Review and Outlook
Activity level in the local bond market was bearish this week as yields expanded on all trading days of the week across maturities; consequently, average yield on benchmark bonds rose 19bps W-o-W to 16.2% on Friday. The week commenced with a bit of buying interest but sentiment turned bearish on subsequent trading sessions, particularly at the mid and longer end of the curve. In the coming week, we anticipate a more bearish performance due to increased Primary Market activities with both Savings Bond and DMO monthly bond auction scheduled for next week.

The Debt Management Office (DMO) is to issue N35.0bn - N45.0bn of the FGN JUL 2021, N45.0bn – N55.0bn of the FGN MAR 2027 and N45.0bn – N55.0bn of the FGN APR 2037 instruments at its May bond auction. In line with recent trend, we expect investors to continue to favour longer term debts, building up their duration exposures ahead of expected medium term moderation in yields. The FGN Savings bond auction for the month of April will also commence next week and coupon rates are yet to be determined.

Performance of Sub-Saharan Africa sovereign Eurobond instruments was majorly bearish this week save for the South African bonds which rallied. The weak performance could be attributable to the sell-offs in commodities during the week. Nigerian bonds bucked a 3-week bullish run as average yield on outstanding debts rose 13bps W-o-W. Similarly, average yield on the Ghanaian, Gabon, Ivory Coast, Kenyan and Zambian sovereign Eurobonds rose 22bps, 2bps, 8bps, 37bps, 6bps and 9bps respectively W-o-W.

However, Nigerian corporate Eurobonds continued to enjoy positive sentiment as performance was generally bullish on the back of recent improvement in corporate earnings. Yields fell on all instruments save for the ACCESS 2021 (up 7bps W-o-W) and FIRST BANK 2021 (up 3bps W-o-W). FIRST BANK 2020 (down 50bps W-o-W) witnessed the most buy interest this week but DIAMOND 2019 remains the best performing corporate instrument YTD with a return of +21.5% while the ACCESS 2017 is the worst performer with a YTD loss of 0.6%.