Global Market Review and Outlook
Performance in the global equity indices was mostly bullish this week across regional markets against the backdrop of the ease in political tension in Europe. Oil prices also rebounded at the close of the week from a one-month low on Thursday as investors saw an opportunity for bargain hunting ahead of the May OPEC meeting at which producers could extend output cuts. Investors are quite optimistic on the outlook of a year-long production curb deal, with most analysts expecting the agreement between OPEC and non-OPEC producers, struck at the end of last year, to be extended to the end of the year. In the US, the much-anticipated economic report card for U.S president, Donald Trump, was released today and it showed a smaller-than-expected expansion in the first quarter. The GDP growth rate for Q1 2017 was estimated at 0.7%, 50bps weaker than analysts’ expectation of 1.2%.
In the developed markets, the UK FTSE appreciated 1.4% W-o-W, although the index pulled back gains on Friday after the release of weaker-than-expected Q1:2017 GDP numbers with economic growth slowing to 0.3%. The drag on the GDP was attributed to slower growth of consumer spending and investment uncertainty following the referendum vote. The US NASDAQ and S&P 500 rose 2.5% and 1.7% W-o-W respectively, buoyed by strong Q1 earnings, particularly from energy companies, and results from French election which doused political tension in Europe.
Across the BRICS markets, all indices closed in the green, save for China SHANGHAI COMPOSITE which dipped 0.6% W-o-W as China's biggest listed banks posted results which showed reductions in interest margins. On the bright side, the South Africa FTSE led index gainers, up 3.0% while the Brazil IBOVESPA followed, adding 1.6% W-O-W. Similarly, the Russian RTS gained 0.6% W-o-W as the Russian central bank catalyzed monetary easing, through the one-week auction rate cut by 50 basis points to 9.3%, for the second month. This was in concession to political pressures to cut rates, and the President Putin’s stance on weakening of the ruble through deeper, quicker rates cut.
In the Eurasian region, performance closed bullish as the France CAC 40 index rose 4.2% W-o-W following the victory of Emmanuel Macron, who won first round of the presidential election on April 23. The German DAX, Japan Nikkei and Hong Kong HANG SENG also recorded gains, up 3.2%, 3.1% and 2.4% W-o-W respectively.
Similar to the previous week, performance in the African market stayed mixed as the Nigeria All Share Index closed bullish, up 2.3% W-o-W due to impressive company scorecards for Q1:2017 as well as the launch of the CBN’s Investors' & Exporters' FX window. Likewise, the Ghanaian GSE and Kenyan NSE appreciated 1.0% and 0.9% W-o-W. On the flip side, Egypt EGX 30 dipped 2.9% W-o-W to extend losses to the second consecutive week.
Equities Market Review and Outlook
The local bourse rebounded 2.3% in the last trading week of the month, with gains recorded on 4 out of 5 trading sessions, on account of renewed interest in bellwethers and reactions to positive earnings surprises. Consequently, the benchmark index gained 0.9% MTD in April to settle at 25,758.51 points on Friday, while YTD loss eased to 4.2%. The week had its fair share of positive Q1 earnings, including WAPCO (Gross Earnings up 55.1% to N81.3bn, PAT at N5.2bn), STANBIC (Gross Earnings up 35.2% to N47.0bn, PAT up 100.6% to N16.1bn), GUARANTY (Gross Earnings up 38.8% to N104.7bn, PAT up 61.9% to N41.5bn), ETI (Gross Earnings up 35.8% to N178.4bn, PAT up 34.0% to N18.7bn), FIDELITY (Gross Earnings up 18.8% to N40.8bn, PAT up 20.5% to N4.3bn), UBA (Gross Earnings up 37.5% to N101.2bn, PAT up 31.6% to N22.4bn), ZENITH (Gross Earnings up 48.6% to N147.7bn, PAT up 41.1% to N31.7bn) and ACCESS (Gross Earnings up 38.8% to N115.9bn, PAT up 34.0% to N26.0bn) amongst others, which boosted sentiment in the market. Investors recovered N197.1bn as market capitalization improved to N8.9tn. Activity level also strengthened as average volume and value traded rose 33.7% and 33.2% W-o-W to settle at 266.6m units and N1.9bn respectively.
Sector performance was mixed but largely bullish as the Banking and Industrial Goods index added 6.1% and 4.8% W-o-W on the back of renewed interest in STANBIC (+34.6%), UBA (+12.4%), ASHAKACEM (+15.6%) and WAPCO (+10.7%). The Oil & Gas index trailed, accumulating 2.5% W-o-W owing to gains in OANDO (+8.6%) and MOBIL (+2.5%). Conversely, the Insurance Index depreciated 0.2%, due to negative sentiment towards CONTINSURE (-9.0%) and AIICO (-3.6%), while decline in UNILEVER (-10.4%) and NESTLE (-3.1%) dragged the Consumer Goods index 0.1% lower.
In line with market performance, market breadth (advancers/decliners ratio) remained strong at 1.3x (from 0.7x in the previous week) as 33 stocks appreciated this week while 26 declined. STANBIC (+34.6%), LIVESTOCK (+23.3%) and ASHAKACEM (+15.6%) topped gainers’ list while FBNH (-12.2%), DIAMONDBNK (-11.2%) and CONTINSURE (-9.0%) led the losers’ chart. The current bullish run in the Nigerian equities market is largely attributable to the impressive Q1:2017 corporate earnings releases as well as the launch of the CBN’s Investors’ & Exporters’ FX window which resulted in renewed optimism in equities as the window is expected to boost inflow from foreign investors. We expect some profit-taking in the coming week but we have a positive short-term perspective for equities.
Money Market Review and Outlook
Financial system liquidity remained tight on majority of the trading sessions this week, as system liquidity opened in deficit on all trading days save for Friday when the inflow from the maturing N480.0bn APR 2017 bond and N53.0bn OMO maturity – which hit the system on Thursday -reflected on opening balance of DMBs. Despite the tight liquidity, Open Buy Back (OBB) and Overnight (OVN) lending rates trended southward on all trading sessions but Monday when it rose 4.2 and 5.0 percentage points to close at 31.7% and 34.7% due to the CBN’s primary market activities. OBB and OVN rates dipped marginally to 31.7% and 33.7% on Tuesday and trended in the same direction till end of the week. OBB and OVN rates eventually settled at 4.0% and 4.8% on Friday, down 23.5 and 24.9 percentage points respectively W-o-W.
Activities in the treasury bills market was largely bullish this week as average yield trended lower on 3 of 5 sessions. Expectations of inflow from maturing bond and OMO instruments buoyed sentiment as investors keyed into Treasury Bills across tenors at the start of the week, leading to a 15bps decline in average rate at the end of the first 2 trading sessions. Average rate further dipped 31bps to 18.1% by midweek. However, owing to selloffs in the MAY 2017 and the NOV 2017 bills, average rate rose 92bps on Thursday and settled at 18.3% on Friday, down 12bps W-o-W.
In the week ahead, we expect debits from successful bids at FX whole sale intervention auctions as well as OMO auctions to drag liquidity. The CBN will also be conducting a T-bills auction of net N150.6bn but its impact on liquidity is expected to be taped by a scheduled maturity of the same amount. Accordingly, we expect money market lending rates to trend northward from current levels.
Foreign Exchange Review and Outlook
Activities kicked off at the newly launched Investors and Exporters FX window this week with indicative opening and closing rates available on the FMDQ website trending close to parallel market rates on all trading days of the week. Indicative NAFEX rate opened on Monday at N372.89/US$1.00 and depreciated 1.6% to close at N379.04/$1.00 at the end of the week.
At the Interbank market, the Apex Bank continued FX sales in order to boost liquidity for visibles and invisibles FX demands with data showing that the CBN auctioned US$250.0m at the Special Wholesale Intervention auctions during the week. As a result, interbank rate remained steady, opening the week at N305.90/US$1.00 before appreciating to N305.85/US$1.00 towards the end of the week. However, despite the FX sales by the Apex Bank at the official windows, rate at the parallel market depreciated this week, opening the week at N388.00/US$1.00 but depreciated to N390.00/US$1.00 on Friday.
At the Naira-Settled OTC FX Futures market, trading activities were suspended till mid-week owing to the establishment of the Investors & Exporters FX window and subsequent revision of the Futures market settlement framework. Upon resumption of trade, prices of all open contracts were reviewed upward to rates closer to prevailing FX market rates. As scheduled, the April 26 2017 contract – with open value at US$965.29m – matured on Wednesday and was settled by the CBN. The CBN replaced the matured instrument with a new April 25, 2018 contract (total subscription at US$220.6m as at 28/04/2017). As a result of the maturity, the total value of open contracts fell from US$4.2bn at the end of last week to US$3.4bn on Friday.
Next week, we expect rates at the official market to trade at current levels on the back of sustained interventions by the Central Bank. However, we do not rule out a further depreciation in rates at the Investors & Exporters Window as investors test the liquidity and depth of the window.
Bond Market Review and Outlook
Activities in the local bond market was mixed as selloffs towards the end of the week offset the buy sentiment at the start. The week opened on a bullish note as investors keyed into debt instruments across tenors. We particularly observed interest in the JUN 2019, JUL 2021, JAN 2026 and MAR 2036 instruments on Monday, resulting in a 16bps, 27bps, 22bps and 17bps decline in respective yields and moderation in average yield across benchmarks by 11bps to close at 16.1%. Despite a reduction in market activities on Tuesday, buy interest in the FEB 2020, JUL 2020 and JUL 2034 ensured a 7bps decline in average yield to 16.0%. The buy sentiment was however short-lived as bearish sentiment filtered into the market on Wednesday on the back of selloffs in JUL 2030 and FEB 2020. As a result, average yield rose 2bps to close at 16.0%, with sell sentiment continuing on Thursday – despite system liquidity being boosted by the inflow from maturing N480.0bn APR 2017 bond. This resulted in a 6bps uptrend in yields across tenors to close at 16.1%, eventually settling at 16.0% on Friday, down 16bps W-o-W.
We believe improved liquidity level contributed to the bullish sentiment in the local debt market this week but anticipate a reversal in next week’s trading sessions as the CBN mops up liquidity whilst investors also redirect attention towards the primary market auctions in the money market.
In the Eurobonds market, performance across the Sub-Saharan sovereigns was mixed this week as South African sovereign Eurobonds (average yield up 1bp W-o-W) were unable to sustain last week’s bullish sentiment whilst investors also sold off on the Ghanaian sovereigns (average yield up 22bps W-o-W). On the flip side, we observed sustained interest in the Nigerian sovereign Eurobonds, probably attributable to the gains recorded in the operations of the country’s FX market, resulting in a 22bps W-o-W decline in average yield across the 4 outstanding bonds. Similarly, average yield on the Zambian, Kenyan and Ivory Coast sovereigns dipped 56bps, 14bps and 19 bps W-o-W respectively.
The Nigerian corporates Eurobond market was overwhelmingly bullish as yield fell on all instruments save for the ACCESS 2017 instrument (up 49bps W-o-W). DIAMOND 2019 – best performer YTD – enjoyed significant buying interest as YTM contracted 1.2% W-o-W. Similarly, the FBN 2021 (down 90bps W-o-W), FIDELITY 2018 (down 11bps W-o-W), GUARANTY 2018 (down 17bps W-o-W) and the ACCESS 2021 (down 54bps W-o-W) enjoyed positive sentiment. We expect that the largely positive earnings scorecards of the issuers released during the week as well as subtle improvement in macroeconomic fundamentals buoyed investor sentiments in these notes.