Weekly Market Review and Outlook

Global Market Review
During the week, the US Fed’s Federal Open Markets Committee (FOMC) hiked interest rates by 25bps and indicated the likelihood of three further rate hikes in 2017. Accordingly, the US dollar as well as U.S. stocks strengthened as the prospect of higher interest rates outlook became more apparent.

The S&P 500 and the NASDAQ advanced 0.2% apiece, sparked by the US Fed’s decision. The UK FTSE also jumped 1.5%. In the Euro-Asian region, European shares also rallied on the Fed’s decision on interest rates. The Japanese NIKKEI was up 0.2% as gains in automobile & parts, precision instruments and warehousing sectors led share higher while Germany stocks appreciated 2.0% as Technology, Basic Resources and Pharmaceuticals & Healthcare sectors led gains. On the flip side, the Hong Kong HANG SENG tumbled 4.6% W-o-W.

Performance in the BRICS region was mixed with the Russian RTS surging 3.1% W-o-W. Indian stocks added 0.8% W-o-W while the Brazilian IBOVESPA and South African FTSE lost 2.5% and 2.4% W-o-W. In the African Markets the Ghanaian GSE and Nigerian All Share index closed higher W-o-W, up 5.4% and 3.4% W-o-W as oil prices rallied during the week. Similarly, the Egyptian stock market rebounded, adding 0.2% W-o-W.

Equities Market Review and Outlook
The local bourse recorded gains for the third consecutive week after its bearish run in the month of November. Driven by interest in SEPLAT (+20.6%), GUARANTY (+9.3%) and DANGCEM (+6.3%), the benchmark index surged 3.4% W-o-W settling at 26,707.10 points as oil prices rallied above US$50.00/b during the week. Accordingly, the YTD loss eased to -6.8% while market capitalization improved by N306.0bn W-o-W to settle at N9.2tn. Activity level also improved as average volume and value traded rose 131.4% and 47.9% to 414.1m units and N3.1bn.

Similar to the previous week, performance across sectors was mixed with the Oil & Gas index appreciating the most, up 7.4% on account of renewed buy sentiment in SEPLAT (+20.6%) and FORTE (+9.4%). The Banking index trailed (+6.3%), driven by gains in ETI (+21.1%) and GUARANTY (+9.3%). Similarly, the Industrial Goods index added 3.5% as a result of upsurge in DANGCEM (+6.3%) and CCNN (+5.0%). On the flip side, declines in NIGERIAN BREWERIES (-2.1%) and UNILEVER (-12.1%) dragged the Consumer Goods index 1.7% lower while the Insurance index dipped 0.5% against the backdrop of losses in MANSARD (-4.1%) and WAPIC (-2.0%).

Investors sentiment strengthened as market breadth (advancers/decliners ratio) improved to 2.3 (from 0.8x in the previous week) as 52 stocks advanced against 23 decliners. Top gainers were HONYFLOUR (+24.5%), ETI (+21.1%) and SEPLAT (+20.6%) while the worst performers included PORTPAINT (-13.5%), UNILEVER (-12.1%) and FIDSON (-8.6%). We expect short term uptrend to persist as global oil prices stabilize above US$50.00/b.

Money Market Review and Outlook
OBB and OVN opened the week at 3.3% and 3.8% respectively but trended higher throughout the week falling marginally on 1 out of 4 trading sessions. System liquidity remained tight throughout the week as the CBN continued to mop up liquidity via OMO auction worth N43.4bn on Tuesday. A Bond auction conducted by the Debt Management Office (DMO) on Wednesday also ensured a N69.2bn debit from the system. On Friday, OBB and OVN rates closed the week at 3.9% and 4.4% representing a 50bps and 25bps increase W-o-W respectively.

Sentiment in the Treasury bills market was broadly bullish as average yields trended lower on 3 out 4 trading sessions. Rates opened the week on a bullish note with average yields declining 1.7%, this was extended to the next session as average yields closed 1bps lower. Thursday’s session saw a reverse with average yields climbing 15bps and eventually closing the week at 16.2% bringing W-o-W change to -1.6%. During the week the CBN conducted an NTB auction which saw investors show preference for the longer dated instrument - 364 days tenor (oversubscribed by 1.7x) with the other two tenors under subscribed. The Apex bank allotted N39.0bn of the 91-Day, N23.0bn of the 182-Day and N85.5bn of the 364-Day at stop rates of 14.0% 17.5% and 18.6% respectively. Next week, we expect a somewhat bearish outing for the market.

Foreign Exchange Review and Outlook
It was a quiet week at the Foreign exchange market given all segments of the market closed flat W-o-W. The CBN spot rate traded at N305.00/US$1.00 on all 4 trading sessions of the week while parallel market rates remained stable at N485.00/US$1.00. As with the current trend the CBN continued with its daily intervention on all trading sessions, sustaining its daily sales of US$1.5m at N305.00/US$1.00 throughout the week. The spread between the Interbank this week stands at N180.00/US$1.00.

At the FMDQ OTC FX Futures market, the value of opened contract closed the week higher at US$3,879.1m from the previous week’s close of US$3,852.1m. The recent NGUS NOV 2016 contract witnessed increased participation this week with an open value of US$133.06m from a previous value of US$113.56m. Next week the NGUS DEC 21 2016 contract will be maturing, we expect this to be replaced with a new instrument with total value of US$1.0bn

In the week ahead, we expect the Apex Bank to continue its daily spot market intervention, with rates at the interbank market remaining at current levels. While in the absence of any developments we expect activities at the Parallel market to trade within a tight band.

Bond Market Review and Outlook
Bond market performance was majorly mixed this week as average yield trended lower on 2 out of 4 sessions. Meanwhile, the National Bureau of Statistics (NBS) released November 2016 inflation figures with Headline inflation rate rising to 18.5% (from 18.3% as at October 2016). The market opened bearish on Tuesday with average yield rising 30bps higher but staged a comeback by mid-week with average yield easing on Wednesday (15.8%) and Thursday (15.7%) before settling at 15.8% on Friday indicating a flattish W-o-W close.
The Debt Management Office (DMO) conducted its last bond auction for the year on Wednesday, allotting N3.2bn of the JUL 2021, N25.0bn of the JAN 2026 and N41.0bn of the MAR 2036 at marginal rates of 15.9%, 16.2% and 16.4% respectively. Investors showed strong demand for the JAN 2026 and MAR 2036 as both instruments were oversubscribed by N13.5bn and N17.1bn respectively. Interestingly, the DMO over allotted the MAR 2036 issue by N6.0bn though fully allotted the N25.0bn offered for the 2026 issue. The JULY 2021 issue remained largely under-subscribed due to low demand as subscription level stood at N12.2bn as against the N25.0bn offered. Eventually; the DMO allotted only N3.2bn of the instrument.

As investors continue to forecast lower inflation rate in 2017- given moderation in M-o-M CPI growth. We expect sentiment in the local bonds market to remain bullish in the week ahead.