Weekly Market Review and Outlook –Dec. 02, 2016

Global Market Review and Outlook
Crude oil prices recorded a mid-week rally, settling at US$54.1/b, up 14.6% W-o-W after OPEC's members struck a deal to cut crude oil production by 1.2m barrels per day on Wednesday. Despite this development, indices in the BRICS, developed and Euro-Asian markets closed in the red while performance in the African markets stayed mixed. Global stocks headed for their first decline since Donald Trump’s election victory last month as investors became more cautious about the outlook of higher U.S rates and potential for rising political risks in Europe.

The US NASDAQ and S&P 500 indices declined 2.7% and 1.1% W-o-W respectively as investors shifted focus towards American payroll reports. The UK FTSE fell 2.0% W-o-W as manufacturing activity recorded an unanticipated decline in November due to weaker pound sterling which is driving prices higher. U.K’s manufacturing PMI fell to 53.4 last month from a reading of 54.2 in October, lower that analyst’s expectation of 54.5 in November.

In the Euro-Asian markets, the European stocks were also down as political uncertainties in Italy continued to weigh on market sentiments. The France CAC fell 1.0% W-o-W while German DAX closed 2.5% lower on account of losses in financial services, utilities and technology sector stocks.  The Hong Kong HANG SENG depreciated 0.7% W-o-W while the Japan NIKKEI emerged sole gainer, up 0.2% W-o-W.

All indices in the BRICS markets closed in the red. The Brazilian IBOVESPA declined the most, down 3.3% W-o-W, this was followed closely by the South African JSE/FTSE, which dipped 2.9% W-o-W. Likewise, the China SHANGHAI composite slipped 0.6%W-o-W even as the Russian RTS and Indian BSE eased 0.3% apiece.

In the African Markets, performance was mixed as the Nigerian All Share Index bucked 6 consecutive weeks of declines, gaining 1.6% W-o-W on account of bargain hunting value counter stocks. Likewise, Egyptian EGX is unrelenting on its gaining streak for the 6th consecutive week, up 1.7% W-o-W. Similar to the previous week, the Ghanaian GSE index depreciated the most, down 4.1% W-o-W while the Kenyan NSE lost 0.5% W-o-W.

Equities Market Review and Outlook
The local Bourse opened the week bearish but trended northwards by mid-week and sustained uptrend till Friday, driving the ASI up 1.6% W-o-W. This bucked 6 consecutive weeks of losses. Interestingly, mid-week rebound in the market coincided with developments in the oil market where OPEC members reached an agreement to cut production by 1.2mb/d. The announcement already triggered a rally in oil prices to US$54.1/b. The uptrend in the ASI also ensured a positive opening for the market into the month of December. In addition, performance was driven by renewed interest in Oil & Gas and Banking stocks with the share prices of MOBIL and GUARANTY appreciating 55.1% and 9.2% respectively. Consequently, the YTD loss eased to 10.1% while market capitalization appreciated N134.3bn W-o-W to settle at N8.9tn. Market activity improved as average volume and value traded surged 287.0% and 54.7% to 495.7m units and N2.0bn respectively.

Performance across sectors was largely bullish as all indices closed in the green save for the Insurance index. The Oil & Gas index appreciated the most, up 0.1% on the back of strong interest in MOBIL (+55.1%) and OANDO (+9.3%). MOBILs gain maybe linked to the recently released regulatory filing of the divestment of ExxonMobil Oil Corporation shares to NIPCO Investment Limited. The filing indicated that the stock was valued at a significant premium to market price. The Banking index followed, up 4bps due to gains in GUARANTY (+9.2%) and ETI (+3.9%). Likewise, the Consumer Goods index was up 1bp against the back drop of price appreciation in NIGERIAN BREWERIES (+1.5%) and NESTLE (+1.2%). On the reverse side, the Insurance index shed 1bp W-o-W on negative sentiments towards MANSARD (+9.0%) and CONTINSURE (+3.0%) while the Industrial Goods index closed flat.

Market breadth (advancers/decliners ratio) was flat at 0.9x (from 0.9x in the previous week) owing to 27 advancing stocks against 29 declining stocks. Top gainers were MOBIL (+55.1%), PORTPAINT (+31.2%) and WEMABANK (+9.6%) while top losers were NEIMETH (-12.0%), UNITYBNK (-10.2%) and HONYFLOUR (-10.1%). In line with our forecast, uptrend observed in the market this week was largely linked to activities of bargain hunters after the market had sustained 6 consecutive weeks of downtrend. Overall, we advise investors to stay invested only in market bellwethers.

Money Market Review and Outlook
Money market rates traded within a tight band this week as system liquidity remained mostly tight. The market opened with a net negative balance of about N97.0bn due to CRR maintenance outflow from the system last week. During the week, market activity was largely driven by the impact of N201.1bn FAAC inflow which boosted market liquidity. However, OMO sales worth N8.3bn, NTB settlement of N177.0bn and CRR deductions all moderated the impact of FAAC inflow leaving system liquidity balance at N100.0bn on Thursday. Accordingly, OBB and OVN rates closed the week at 10.0% and 10.5% on Friday, down 2.1% and1.9% W-o-W.

In the treasury bills market, average T-Bills rate declined 3.4% W-o-W, as bullish sentiment in secondary market bills drove yield northwards on increased liquidity due to FAAC inflow. On Wednesday, the CBN auctioned a total of N149.6bn worth NTB instruments. The PMA was oversubscribed to the tune of N193.2bn but only the offered amount was allotted to successful bidders at stop rates of 13.9%, 17.5% and 18.7% for the 91 day, 182 day and 364 day bills respectively. Against our expectation, secondary market instruments witnessed significant interest as investors channelled unmet demand from the PMA into secondary market whilst leveraging on attractive yield in the secondary market.

In the week ahead, we expect performance to be mostly soft in the absence of a significant inflow while interest in the money market remained largely focused on short dated instruments.

Foreign Exchange Review and Outlook
Activities in the currency market was broadly stable this week as the CBN continues its US$1.5m daily dollar sales throughout the week as observed last week. FX sales to banks were crossed at a fixed rate of N304.5/US$1.00 from Monday to Friday while interbank market rate held steady at N305.00/US$1.00 from Monday Friday save for Wednesday when interbank closed at N305.25/US$1.00.  At the parallel market however, the local unit continues to trade with significant spread (within a range of N170-N177) to the greenback as supply constraints and control measures drive rates higher. The naira closed week at N482.00/US$1.00 in the parallel market compared to N475.00/US$1.00 on Monday, depreciating 1.5% W-o-W.

At the FMDQ OTC derivatives market, the value of FX futures opened contract closed the week at US$3.8bn higher than US$3.6bn in the previous week. The NGUS NOV 2017 contract which replaced the 2016 equivalence   improved from US$89.50m last week to US$100.00 at the close of the week at a contract price of N262.00/US$1.00 as buyers take advantage of the attractive hedging opportunities presented by the instruments compared to contracts with higher prices. Meanwhile, the NGUSOCT 2017 contract currently presents the most attractive hedging opportunity at a contract price of pf N260.00/US$1.00.

In a related development, Nigeria external reserves rose 3.3% in the month of November from US$23.9bn to US$24.7bn. We believe this is positive for the capacity of the CBN to sustain its daily dollar sales even as the recent output deal reached by OPEC members signals further improvement. However, unresolved crisis in the Niger-Delta remains a drag to accretion. We expect interbank market rate to remain largely stable in the coming week as the CBN continues its daily US$1.5m FX sales to banks.
 
Bond Market Review and Outlook
Performance in the domestic bonds market was largely bearish for the week as average yield across benchmark bonds rose 0.4% W-o-W settling at 17.1% on Friday.  Average yield rose 10bps successively from Monday to Wednesday as sell pressure persists across tenor amid OMO mop up by CBN. However, yield dropped 10bps on Thursday on improved demand mostly for the 2026 and Mar 2036 instruments. We believe this may be linked to unmet demand for the T-Bills at the PMA held by the CBN on Wednesday where subscription stood at N193.2bn relative to sum allotted of N149.6bn.
 
In the Eurobonds market, sovereign instruments across SSA closed mostly bearish with average yields in Nigeria , Ghana, Gabon, Kenya, Zambia and South Africa closing 2bps, 23bps, 1bps, 4bps, 5bps and 1bps higher W-o-W respectively. Poor sentiment in the region remained driven by macroeconomic risks bothering on currency market illiquidity and lower commodity prices which continue to impair fiscal capacity. Investors continue to price Sovereign Bonds in South Africa at significant premium to par while Zambia 2022, Gabon 2024 and Ghana 2023 & 2026 trade at attractive discounts of US$85.47, US$87.44, US$93.20 and US$97.58 respectively.

Performance in the local Corporate Eurobond segment however stayed bullish with average yield dropping 6bps W-o-W. DIAMOND 2019 and FIDELITY 2018 with “B-“credit rating still present considerable discount prices at US$76.7 and US$84.01. We expect activities in the bond market to stay majorly stable in the week ahead.

Afrinvest

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