Weekly Market Review and Outlook –July 22, 2016

Global Market Review and Outlook
Performance across the global markets under our coverage was mixed as most indices in the developed market closed higher as against performance in the BRICS and African markets. The US S&P 500 and NASDAQ improved 0.1% and 1.0% W-o-W respectively on the back positive earnings releases of some listed companies. Similarly, the UK FTSE rose 1.0% W-o-W.

In the European Markets, the positive sentiments were sustained as the German DAX and France CAC rose 0.7% and 1bp W-o-W respectively. Positive sentiments filtered into the Asian Markets as the  Japan Nikkei improved 0.8%W-o-W on account of the weakening Yen and expectations of further stimulus measures from government which lifted the risk appetite of the investors, while the Hong Kong Hang Seng advanced 1.4% W-o-W.

All Indices in the BRICS region closed in the red save for the Brazilian IBOVESPA and Russian RTS which gained 1.9% and 0.1% W-o-W. The Chinese Shanghai Composite was the worst performing index for the week, down 1.4% W-o-W as investors took profit in stocks that had appreciated significantly in the month while the South African Market followed declining 0.4% W-o-W. The Indian BSE Sens also fell 0.1% W-o-W.

All indices in the African Market declined, save for the Ghana composite which improved 0.1% W-o-W. The worst performing index was the Nigerian ASI which lost 4.0% W-o-W on account of profit taking by investors, the Kenya NSE 20 followed, declining 2.3% W-o-W, while the Egyptian EGX 30 slid 1.9% W-o-W.

Weekly Equities Market Review and Outlook
The local bourse opened the week on a bearish note as the benchmark index declined 0.2% as investors took profit in large-cap stocks. The market extended decline for the rest of the week, dipping 0.9% and 0.8% from Tuesday to Thursday before closing 1.2% lower on Friday amid poor Q2:2016 numbers as well as influx of profit warnings and notifications of late filings. Therefore, the NSE ASI slumped 4.0% W-o-W to settle at 27,659.44 points. Market capitalization pared by N393.6bn during the week to settle at N9.5tn, thus YTD return worsened to -3.4%. Activity level in the market was mixed as average volume traded declined 6.2% W-o-W to close at 255.7m units and value traded rose 24.6% W-o-W to close at N2.1bn respectively.

Performance by sectors was broadly bearish with all sector indicators closing in the red except Consumer Goods index which appreciated 0.9% W-o-W on the account of gains in NIGERIAN BREWERIES (+3.0%). The Banking index led sector decliners, down 7.3% W-o-W as a result of declines in ETI (-15.4%) and GUARANTY (-7.8%). The Industrial Goods index followed closely, depreciating 7.1% on the back of losses in WAPCO (-10.4%) and DANGCEM (-5.5%). Similarly, the Insurance and Oil & Gas indices declined 3.1% and 0.9% respectively against the backdrop of losses in CUSTODYINS (-9.5%), CONTINSURE (-7.8%), OANDO (-25.6%), and ETERNA (-5.0%).

Expectedly, market sentiments softened as market breadth (Advancers/Decliners ratio) settled at 0.3x (from 0.6x in the previous week). 15 stocks advanced while 44 declined. The best performers for the week were SKYEBANK (+41.7%), FO (+8.1%), and PREMBREW (+5.0%) while OANDO (-25.6%), LIVESTOCK (-17.8%) and STANBIC (-16.1%) were the worst performers. Without ruling out speculative positioning in value stocks, performance in the coming week may worsen amid further influx of Q2:2016 earnings.

Money Market Review and Outlook
Rates in the money market remained in the double digit band and trended higher on all days of the week due to tighter system liquidity. On Monday, aggregate system liquidity opened lower at about N188.2bn from N269.8bn on Friday, thus Open Buy Back (OBB) and Overnight (O/N) rates settled at 17.0% and 19.0% respectively. With no major inflow or outflow from the system on Tuesday the OBB rose 1.0% to settle at 18.0% while the O/N rate marginally eased 8bps to 18.9%. On Thursday, the over allocation at the T-bills auction offset the expected impact of the N131.5bn OMO maturity thereby reducing liquidity levels and driving OBB and O/N rates 1.4%  and 1.3% northwards to 19.4% and 21.2% respectively. Liquidity levels improved on Friday, thus rates eased to 16.6% and 17.6%. As a result, OBB and O/N rates declined W-o-W, down 4.2% and 5.2% to 16.6% and 17.6% respectively.

Trading in the T-bills market opened the week on a bearish note on account of lower liquidity in the system as well as investors expectation of higher stop rates at the T-bill auction on Wednesday. On Monday average T-bills rates settled at 13.5% sustaining the trend on Tuesday as average rates rose 0.5%. On Wednesday, there was a T-bills maturity of N36.9bn (91 Days), N39.2bn (182 days) and N52.0bn (364 days) however the same amount was scheduled to be rolled over and all instruments were oversubscribed at the auction but the 364 days instrument was over allotted at N129.0bn. Consequently, average rates at T-bills market rose to 14.7% on Thursday. Average rates rose 3.1% W-o-W to settle at 14.7%.

In the coming week, there is an OMO maturity worth N50.0bn is expected to hit the system on Wednesday, however, we expect money market rates to remain within the double digit levels amid expectation surrounding the MPC meeting scheduled for Monday and Tuesday.

Foreign Exchange Review and Outlook
The volatility which began in the market last week persisted this week as the local unit weakened on all but one trading day of the week. The depreciation of the currency that was recorded this week is tightly linked to the cessation of FX intervention by the CBN during the week until Friday.

At the interbank market, the naira weakened on all trading days of the week save for Wednesday. On Monday, the domestic currency traded at N292.15/ US$1.00. On Tuesday, the naira further depreciated to N294.57/ US$1.00 but appreciated mildly to N294.23/ US$1.00 on Wednesday. On Thursday, there was another massive depreciation at the spot market as the naira fell to N310.43/ US$1.00 before strengthening to N305.25/US$1.00 on Friday. Parallel market rate waned throughout the week, down 3.6% W-o-W from N365.00/ US$1.00 last Friday to N378.00/ US$1.00 by the end of the week.

In the week ahead, we expect the Apex Bank may carry out interventions and clear up some of the pent up FX demands to soften the pressured rates at the interbank market amidst MPC expectation.

Bond Market Review and Outlook
Sentiments in the Bonds market were rather bearish this week as investors sold off across board. Average yields rose 30bps across benchmark instruments to close at 14.9% on Monday. On Tuesday, the sell offs in the market moderated with increased buying interest in the mid to long tenured instruments driving average yields marginally down 3bps. On Wednesday, the sell offs in the market continued especially at the shorter end of the curve as average yield across benchmark instruments rose 17bps to 15.0%. Likely linked to the T-bills auction on Wednesday which signaled a better investment opportunity for investors. On Thursday, investor sentiment further waned as average yields increased 29bps to close at 15.3%. However, downtrend was bucked on Friday as average yields across benchmark instruments fell 6bps to settle at 15.3%. Consequently, average yield for the week rose 0.7% to 15.3%.

In the Eurobonds Market, sentiments towards Sub-Saharan sovereigns was mixed. The Nigerian Eurobonds recorded increased sell offs as yields rose across instruments. On the flipside, buying interest in the South African sovereign Eurobonds persisted and are currently the best performing instruments for the year.

Performance in coming week is expected to be driven by the outcome of the MPC meeting scheduled for Monday and Tuesday.