Weekly Market Review and Outlook

Global Equities Market Review and Outlook
Oil price rose 5.4% W-o-W after Saudi Arabia hinted oil producers would consider the possibilities of stabilizing oil prices during a meeting next month in Algeria. The Brent was up 4.3% on Thursday after the comment, even as a depreciation in the value of the US dollar at the end of the week sustained the crude oil market rally on Friday. Accordingly, positive sentiment persisted across global equities this week.

In the developed markets, the UK FTSE appreciated 1.8% W-o-W as investors’ confidence further strengthen. US S&P 500 and the NASDAQ closed flattish supported by gains in energy stocks due to higher oil prices. The Europe and Asian markets sustained uptrend, with the Japan Nikkei (+4.1%W-o-W) and German DAX (up 3.3%) leading the charge. Gains in the Japanese market trailed earlier uptrend in the US market and weaker yen during the week, while the DAX was buoyed by better than expected earnings in European heavyweights including Munich Re, Volkswagen AG and Siemens AG. Hong Kong HANG SENG and France CAC also rose 2.8% and 2.0% W-o-W respectively.

Performance across the indices in the BRICS classification also closed higher on stronger oil prices, with the Russian RTS ahead of peers, up 4.1% W-o-W. China Shanghai index followed suit with 2.5% W-o-W. Brazilian IBOVESPA was not left out, 1.7% higher W-o-W, while the Indian SENS and South African JSE Indices gained 0.3% and 1.0% W-o-W respectively.

Performance in the African markets were mixed, with the Egyptian and Ghanaian indices rising for the second consecutive week, up 1.5% and 4.4% W-o-W respectively. While the Nigerian and Kenyan indices stayed bearish, down 0.7% and 0.3% W-o-W respectively.

Weekly Market Review and Outlook
Investor sentiment in Nigerian equities continue to wane, opening the week on a bearish note amid poor earnings scorecards for H1:2016 similar to previous week. The benchmark index declined four out of five trading sessions sliding 0.1% and 0.4% on Monday and Tuesday before rising 0.5% on Wednesday. Market pulled back gains on Thursday and Friday declining 0.5% and 0.1% respectively. Consequently, the All Share Index depreciated 0.7% W-o-W settling at 27,280.95 points as market capitalization pared to N9.4tn after investors lost a total of N61.5bn during the week. Weaker performance for the week was dragged by further sell offs in ZENITH (-4.6%) and NIGERIAN BREWRIES (-1.9%). Activity level saw average volume advance 20.0% while average value declined 17.1% settling at 272.2m units and N2.1bn respectively.
Bearish sentiment was further reflected across sector indicators with the Consumer goods index recording the highest decline, down 1.5% amid losses in HONYFLOUR (-10.7%), 7UP (-9.3%), PZ (-7.7%) and NIGERIAN BREWRIES (-1.9%). The Oil & Gas and Banking indices followed with 1.3% and 0.6% W-o-W decline due to profit taking in OANDO (-6.5%) and MOBIL (-5.0%) as well as losses in DIAMOND (-13.9%) and ZENITH (-4.6%). The Insurance index also eased 0.3% W-o-W. The Industrial Goods sector was the only gaining index for the week, up 0.7% due to interest in WAPCO (+4.2%).
Market sentiment measure by market breadth which settled at 0.5x (same as previous week) stayed soft. 18 stocks advanced during the week while 35 declined. The best performers for the week were NPFMCRFBK (+12.2%), INTBREW (+5.3%), GUARANTY (+4.9%) while CAP (-22.4%), STERLING (-18.8%) and DIAMOND (-13.9%) were the worst performers. Overall performance of in the last few weeks can be attributed to unimpressive H1:2016 results as investors dump equities for attractive primary market issuances in the fixed income space. Barring any earnings surprises from the remaining Tier-1 Banks we expect sentiment in the coming week to be soft.
Money Market Review and Outlook
The week opened with aggregate system liquidity in negative N75.1bn. Consequently, Open Buy Back (OBB) and Over Night (O/N) rates remained in double digits (18.3% and 19.4% respectively) on Monday as a result of liquidity dynamics. System liquidity level remained in negative (-N74.4bn) on Tuesday, thus OBB and O/N rates increased 0.8% apiece to 19.2% and 20.2% respectively, eventually settling at 18.2% and 20.1% by midweek. On Thursday, an OMO maturity of N113.7bn hit the system, accordingly, OBB and O/N rates fell 10.2% and 10.8% to 8.0% and 9.3%. OBB and O/N however surged to 22.5% and 24.8% on Friday, up 3.0% and 4.2% W-o-W as the CBN mopped up N256.4bn in an OMO auction at marginal rate of 18.0%.

Activities in Treasury Bills market was mixed. Average T-bills rate dropped 0.4% to close at 17.0% on Monday as a result of increased buying interest in the market. With liquidity levels at negative N74.4bn on Tuesday, average T-bills rate inched 0.1% higher to close at 17.1%. On Thursday, average rate dropped 0.1% to settle at 17.0% as a result of an OMO maturity of N113.7bn which increased system liquidity levels. Average rate inched 0.1%, up on Friday to close the week at 17.1% (down 0.3% W-o-W). The auction was 5 times oversubscribed with bids ranging from 17.0% to 18.0%. The stop rate at the auction was 18.0% and as a result all subscriptions were successful.

Next week, we expect money market rates to gyrate around liquidity dynamics. There is a net T-bills maturity of N62.4bn next Wednesday but its impact on liquidity levels is expected to be tapered by the rollover of N112.4bn in a scheduled T-bills auction next week.

Foreign Exchange Market Review and Outlook
The liquidity crunch in the foreign exchange market continued this week as the local unit further depreciated W-o-W. At the interbank, spot rate hovered between N312.00/US$1.00 and N317.00/US$1.00 from Monday to Thursday. However, intraday spot rates rose as high as N320.00/US1.00 and N327.00/US$1.00 on Tuesday and Thursday before the Apex Bank intervened with dollar supply on both days. The interbank spot rate closed at N332.07/US$1.00 on Friday.

Compared to last week, the Naira/Dollar exchange rate was less volatile at the parallel market, trading at N395.00/US$1.00 all week save for Wednesday and Friday when it traded at N394.00/US$1.00 and N397.00/US$1.00. Sentiments in the futures FX market also weakened this week as the 1-Year forward rate depreciated to N349.30/US$1.00 from N345.42/US$1.00 last week.

We believe the exchange rate will remain pressured in the interim until autonomous players return to the market to relieve the CBN of its role of major dollar supplies at the interbank. We are of the view that the depreciation of the naira, the reforms in the FX market coupled with current attractive yield environment should buoy foreign investor sentiment in Nigerian assets and aid the vital return of foreign capital to the market.

Bond Market Review and Outlook
As opined in our previous report, activities in the domestic bonds market remained soft this week. Average yield across benchmark bonds declined on all trading days except Friday. On Monday, average yield dropped 0.1% to 15.2% (from 15.3% on previous Friday) as the FGN MAR 2036 saw buying interest despite overall quietness in the market. Average yield further waned 0.1% on Tuesday to 15.1%. On Thursday, average yield settled at 15.0% with increased activity observed at the short end of the curve. However, average yield rose 0.1% to close at 15.1% on Friday, down 0.2% W-o-W.

In the Eurobonds market, the Nigerian corporate Eurobonds experienced mixed performance. Contrary to recent weeks when the Fidelity 2018 (Mid yield 21.2%, down 0.7% W-o-W) experienced bearish sentiments, the instrument enjoyed strong buying interest amidst bargain hunting. The instrument is currently trading at 78.8% of par. Similarly, the Access Bank 2017 Eurobond (Mid Yield 6.9%, down 0.4% W-o-W) and GTBank 2018 Eurobond (Mid yield 6.1%, down 0.1% W-o-W) also enjoyed buy sentiment during the week. However, buying interest in the Zenith Bank 2019 Eurobond (Mid-yield 7.7%, up 0.3% W-o-W) eased this week.

Improved buying interest were also observed across the Sub-Saharan sovereign (SSA) Eurobonds as a result of appreciating commodity prices with YTD return at +7.2% buoying buy sentiments in emerging markets instruments. Yields declined on all SSA sovereign bonds save for the South African 2017 which rose 0.5% W-o-W. Contrary to previous week, buy sentiment returned to the Nigerian 2023, 2021, and 2018 sovereign Eurobonds with yields declining 0.3%, 0.3% and 0.4% W-o-W respectively. Nonetheless, the South African 2041 sovereign bond commands the highest YTD return settling at +21.7%.

In the week ahead, we expect activities in the local bonds market to strengthen as investors reposition their portfolios ahead of the Debt Management Office (DMO) monthly Primary Market Auction (PMA). The DMO is scheduled to auction N40.0bn, N30.0bn and N40.0bn of the JUL 2021, JAN 2026 and MAR 2016 bonds on Wednesday 17th August, 2016.