Global Equities Review and Outlook
As US refineries restart production in the aftermath of hurricane Harvey, oil prices rallied to touch a 5-month high of US$55.99/b on Thursday, 14th September, 2017 before declining to US$54.99/b at the close of the week. The IEA report released earlier in the week, which projected rising demand for oil, was a major driver of the rally. In addition, despite the launch of a second missile by North Korea over Japan into the Pacific Ocean in the early hours of Friday as a form of retaliation to the United Nations sanctions against their leader, global markets appear to have shrugged off the brewing tensions as there was no noticeable impact on equity markets performance. Sentiment was however mixed across the broad range of markets we track, with developed markets bullish whilst emerging markets and Sub-Saharan Africa equity markets were bearish.
In the developed markets, the US NASDAQ and S&P 500 appreciated 1.4% and 1.5% W-o-W respectively, as investors’ fears with regards to expected damage by the Hurricane were tapered following the downgrade of Hurricane Irma from an expected Category 5 to Category 1. Contrarily, the UK FTSE fell 2.0% W-o-W. In the same vein, the European and Asian markets benefitted from the generally positive sentiment as all indices trended northwards W-o-W. The German DAX and France CAC grew 1.2% and 2.2% respectively. However, the Japan NIKKEI and Hong Kong Hang Seng closed the week flat, despite the missile launch threat by North Korea in the region.
In the markets under the BRICS classification, performance was largely mixed with Brazil IBOVESPA and India BSE climbing 3.1% and 1.8% W-o-W respectively while the China SHANGHAI COMPOSITE closed flat. Contrarily, Russia RTS slid 0.5% W-o-W despite the appreciation in Oil prices while the South Africa FTSE fell 0.1% W-o-W respectively.
Performance across the African markets was largely bearish as all indices closed the week lower save for the Egypt EGX which gained 1.3%. The Nigeria All Share Index (ASI) trailed, down 2.6% W-o-W on sustained profit taking by investors in market bellwethers, followed by the Ghana GSE which plunged 2.3% W-o-W.
Equities Market Review and Outlook
The Nigerian Bourse started the week on a bearish note, closing 81bps and 71 bps lower on Monday and Tuesday respectively. However, on Wednesday, investor sentiment strengthened as bargain hunting in large cap stocks pushed the benchmark index 19bps northwards and this was sustained on Thursday (+0.6%). However, the market returned to the red on Friday, down 1.8% to close the week at 35,005.57 points, implying a 2.6% decline W-o-W . Consequently, YTD return fell to 30.3% while investors lost N325.5bn as market capitalization trimmed to N12.1tn. The drag in performance was due to losses in market bellwethers - DANGCEM (-4.3%), NIGERIAN BREWERIES (-5.1%) and GUARANTY (-4.0%). In the same manner, activity level weakened as average volume and value traded contracted 19.6% and 30.3% W-o-W to 160.1m units and N3.0bn respectively.
The Oil & Gas index was the lone gainer, up 1.2% W-o-W consequent on bargain hunting in SEPLAT (+5.0%). On the flip side, the Industrial Goods index led decliners, shedding 4.4% on the back of losses in DANGCEM (-4.3%) and WAPCO (-5.3%), while the Consumer Goods index trailed, down 2.5%as a result of price depreciation in NIGERIAN BREWERIES (-5.1%). Similarly, the Banking and Insurance indices lost 2.3% and 0.3% W-o-W respectively, owing to sell offs in GUARANTY (-4.0%), ZENITH (-4.2%), LINKASSURE (-7.8%) and MANSARD (-2.6%).
Investors’ sentiment weakened as market breadth (advancers/decliners’ ratio) declined from 0.9x in the previous week to settle at 0.6x – 22 gainers vs. 39 losers. The top performers for the week were NEM (+17.8%) CILEASING (+12.3%) and UNILEVER (+9.9%) while NEIMETH (-15.7%), SKYEBANK (-13.3%) and PRESCO (-11.6%) led laggards. In the week ahead, we expect to see some bargain hunting in early trading sessions even as investors take advantage of bargain opportunities in the market.
Money Market Review and Outlook
In the money market this week, Open Buy Back (OBB) and Overnight (OVN) rates trended lower on all trading days despite OMO mop-ups by the Apex bank on four days in the week. On Monday OBB and OVN rate closed at 22.3% and 23.1% respectively as the CBN offered a total of N40.0bn via OMO auctions but was undersubscribed with only N7.1bn mopped up. Rates trended lower on Tuesday as OBB and OVN closed at 20.0% and 20.8% respectively even as the CBN floated yet another OMO auction (86-day and 191-day). Similar to the previous day, investor appetite was weak due to low liquidity, hence no sale was recorded on the 86-day instrument while the 191-day was undersubscribed. OBB and OVN rate moderated 0.7ppt and 0.8ppt on Wednesday and further declined on Thursday to settle at 10.7% and 11.3% respectively, following an OMO maturity of N156.7bn which boosted system liquidity. OBB and OVN closed the week at 11.3% and 12.2%, down 11.0% and 18.8% W-o-W.
In the Treasury Bills market, activities at the start of the week remained pressured by tighter liquidity levels. Average rate across tenors opened the week at 17.7% but declined 4bps by the close of trade on Thursday following release of the result of T-bills PMA held mid-week which showed stop rates dropped on longer dated bills auctioned. Sentiment stayed bullish on Friday due to improvement in liquidity and investor reaction to result of the PMA; hence, rates further dropped 7bps on average to 17.6, indicating a 21bps W-o-W decline across tenors. On Wednesday, there was a T-bills maturity worth N174.1bn which was rolled over at the PMA. The Apex bank offered N39.0bn of the 91-Day (subscription: N23.0bn, Allotment: N22.9bn), N48.5bn of the 182-Day (subscription: N25.3bn, Allotment: N25.1bn) and N86.7bn of the 364-Day (subscription: N338.9bn, Allotment: N126.1bn) instruments at marginal rates of 13.3%, 17.4% and 17.8% respectively.
In the coming week, despite the OMO maturity of N140.9bn expected to hit the system, we expect money market rates to remain at current levels as the Apex bank continues with its frequent OMO Mop ups.
Foreign Exchange Review and Outlook
Ahead of the 5th MPC meeting scheduled to commence next week, the Central Bank of Nigeria (CBN) has reiterated its stance towards intervening at the Interbank Foreign Exchange market. The CBN spokesperson, in a press statement, further warned speculators against “nefarious activities” whilst stating that necessary checks were in place to guard against unlawful practices. On this basis, the CBN this week, adopted the use of Electronic Certificate of Capital Implementation (eCCI) to enhance transparency and efficient processing of foreign investment inflows into the economy.
At the Official segment of the FX market, the CBN conducted its weekly SMIS sales with US$100.0m offered at a fixed rate of N330.00/US$1.00 while Official rate pegged at N305.95/US$1.00 all through the week. At the Interbank market, the Naira 0.8% appreciation W-o-W against the Greenback to close at N355.49/US$1.00 on Friday. At the Parallel market, the Naira held steady at N367.00/US$1.00 between Monday and Wednesday but closed lower at N369.00/US$1.00 on Thursday, indicating a 1.1% depreciation W-o-W. At the I&E Window, activities remained robust with weekly turnover put at US$671.3m (ex-Friday) as of writing against US$705.1m recorded last week. Notwithstanding, rate opened the week at N359.50/US$1.00 and depreciated on all trading days save for Tuesday where it traded flat, to close the week at N360.25/US$1.00.
At the FMDQ OTC Futures market, current total value of open contracts for the 12 instruments on the calendar stood at US$2.6bn as at Thursday, 14th September, with the soon to mature SEP 20 2017 being the most subscribed at a value of U$383.30m and contract price of N358.50/US$1.00. The least subscribed remains the MAY 30 2018 instrument, currently trading at N363.33/US$1.00 with total value of subscriptions at US$42.3m.
In the coming week, barring any surprise rate cut or comments on current administration of the FX market, we expect rates to hover around current levels at the different segments of the FX market.
Bond Market Review and Outlook
Similar to last week’s performance, the Bond market was bullish this week as investors reacted to lower stop rates at the Treasury Bills PMA held mid-week. Consequently, yields dropped on bonds across tenors. The market started the weak slow with average yield flat at 16.9% on Monday and Tuesday despite marginal interest in the JUL 2034(-4bps), MAY 2018 (-3bps), MAR 2019 (-2bps) instruments. However, the market turned bullish on Wednesday, as average yield fell by 21bps to close at 16.7% and further by 6bps on Thursday. We attribute this to lower stop rates on the 181-Day and 364-Day Treasury Bills at the PMA on Wednesday. This led to increased interest in long duration bonds, with the 20-year and 15-year benchmark bond yields falling 23bps and 17bps WTD on Thursday. The bullish sentiment lingered till Friday as yields further fell 4bps on average across trading bonds to close at 16.6%, down 0.3% W-o-W.
We expect the market to pullback next week after substantial gains this week as investors take profit and free up liquidity for upcoming PMAs. During the week, the N100.0bn 7-year Sovereign Sukuk bond was opened for subscription and is expected to close on the 20th September, 2017. The instrument offers a 16.47% Rental rate and will be used for the construction and rehabilitation of key roads across the six geopolitical zones of the country.
In a reversal of the bullish trend across the SSA Eurobonds over the past month, this week’s performance was characterised by profit taking on majority of the instruments. Yield on all instruments save for the Gabon 2017 (-12bps), Nigeria 2018 (-9bps), Senegal 2021 (-6bps) and South Africa 2020 (-2bps), declined W-o-W. Nigeria’s 2032, 2023 and 2021 bond yields rose 6bps, 4bps and 3bps to 6.5%, 5.1% and 4.3% respectively. Although we do not expect this bearish performance to be sustained, we believe investors will be looking towards the conclusions of the US FOMC meeting in the coming week.
Performance across the Nigerian Corporate Eurobonds was mixed this week. FIRST BANK 2020 received the most buy interest (down 0.5% W-o-W to 9.0%) followed by the ACCESS 2021 (down 0.1% W-o-W to 7.3%). On the other hand, the largest DIAMOND 2019 and UBA 2022 bond yields rose 6bps apiece W-o-W to 13.8% and 7.7% respectively. DIAMOND 2019 and FIRST BANK 2021 are the best performing this year with YTD returns of +21.8% and +19.1% respectively.