Weekly Market Review and Outlook

Global Equities Review and Outlook
Performance of equity markets globally was broadly bearish this week on the back of risk-off trading which followed North Korea’s completion of her 6th and most powerful nuclear test on Sunday. The U.S. has reiterated that it does not completely rule out a military response to North Korea’s missile threats and has also made an appeal to the UN Security Council to impose an oil embargo on North Korea, ban its exports of textiles & hiring of North Korean labourers abroad as well as subject leader Kim Jong Un to an asset freeze and travel ban. Oil prices also spiked during the week following a tightening in oil supply resulting from the reopening of some refineries hitherto shutdown in areas along the path of Hurricane Harvey. Brent Crude hit a 21-week high of US$54.46/b.

In the developed markets, performance was bearish as all indices closed in the red. The US S&P 500 and NASDAQ fell 0.6% and 0.8% W-o-W amid geopolitical tensions, policy uncertainty and recent hurricane disasters – Harvey and Irma - hampering economic activities in the country. Likewise, UK FTSE declined 1.0% W-o-W after tensions were raised by a leaked government document which hinted that Britain is considering measures to restrict immigration for all but the highest-skilled EU workers.

In the Eurasian markets, all indices closed lower save for the German DAX which climbed 1.3% W-o-W after Merkel made a move to end the Turkey’s EU membership talks. The Japan NIKKEI declined the most, down 2.1%W-o-W while the Hong Kong HANG SENG and France CAC 40 dipped 1.0% and 0.2% W-o-W respectively.

Across the BRICS markets, performance was mixed as 2 of 5 indices trended upwards. Brazil IBOVESPA advanced the most, up 1.9% W-o-W after the country passed a bill to reduce the huge array of political parties that have made it hard to govern the country and contributed to corruption. In the same vein, the Russia RTS improved 0.3% W-o-W. On the other hand, the South Africa FTSE/JSE and the India BSE dipped 1.4% and 0.6% respectively while the China SHANGHAI COMPOSITE fell 0.1% W-o-W.

In the African market, performance was largely positive as all indices trended northward save for the Ghana GSE which closed the week 0.3% lower. Egypt EGX led gainers, up 3.2% W-o-W while the Nigerian All Share Index trailed, advancing 1.3% W-o-W on the back of bargain hunting in value stocks. Likewise, the Kenya NSE 20 also closed the week 0.9% higher to pare losses from sell-offs which followed the Kenyan Supreme Court ruling on a new presidential election.

Equities Market Review and Outlook
Contrary to the bearish sentiment on the local Bourse in the last week of August, which culminated in a 3.3% decline in the All Share Index (ASI) despite impressive H1:2017 corporate scorecards releases, sentiment improved this week as the ASI rose by 1.3% W-o-W on the back of bargain hunting in large-caps such as DANGCEM (+4.9%) and investors reaction to GUINNESS (+27.6%) impressive FY:2017 earnings. Consequently, YTD gain of the benchmark index rose to 33.8% while market capitalization advanced N156.0bn to close at N12.4tn. Activity level however softened as average volume and value traded eased 0.4% and 11.2% W-o-W to 152.5m units and N3.1bn respectively.

Performance across sector indices was largely negative as 4 of 5 indices closed in the red. The Consumer Goods index was the lone gainer, up 2.0% W-o-W due to strong buying interest in GUINNESS (+27.6%) and rally in NIGERIAN BREWERIES (+2.5%). GUINNESS released its FY:2017 result on Tuesday which beat market expectation; Gross Revenue and PAT rose 23.5% and 195.4% to N125.9bn and N1.9bn while the brewer declared a final dividend 67kobo/share. On the flip side, the Oil & Gas index plunged 3.8% W-o-W on account of sell-offs in SEPLAT (-6.6%) while the Banking index slid 1.0% due to losses in UBA (-3.2%) and GUARANTY (-1.7%). Likewise, the Industrial Goods index closed 1.0% lower as WAPCO declined 7.4% W-o-W. Price depreciation in LINKASSURE (-4.5%) dragged the Insurance index 0.1% lower W-o-W.

Despite the improved market performance, investor sentiment stayed soft as market breadth (advancer/decliners’ ratio) stood at 0.9x (against a previous 0.8x) - 28 stocks advanced while 32 declined. The best performing stocks for the week were GUINNESS (+27.6%), CAVERTON (+6.3%) and CILEASING (+6.0%) while STERLING (-7.5%), WAPCO (-7.4%) and SEPLAT (-6.6%) declined the most. Given the performance of the equity market has been underwhelming in the past three weeks, we believe there are still opportunities for bargain hunting across sectors. However, the moderation in trading activities in the past weeks suggests appetite may have cooled from the peak of the excitement which trailed the opening of the I&E FX window. Hence, we expect the market to trade sideways in the short term - pending filings for 9M:2017 results - even as we retain our positive view for equities in the medium term.
Money Market Review and Outlook
System liquidity opened the week higher at N86.1bn from N57.3bn recorded in prior week’s close. In spite of this, OBB and OVN rates at the close of trade rose to 12.2% and 12.7% (from 7.3% and 8.4% respectively in prior week) respectively. This was on the back of CBN’s US$100.0m SMIS auction and OMO sales worth N1.9bn held on same day. The uptrend continued on Wednesday as the CBN conducted another OMO mop up squeezing N39.9bn from the system. As a result, OBB and OVN rates inched 1.8 and 1.7 percentage points higher to 10.3% and 11.0% respectively. However, by Thursday, rates moderated to 8.8% and 9.9% respectively on account of OMO maturity worth N135.0bn which more than offset N60.3bn debit in OMO sales. The CBN held another round of OMO and SMIS FX sales on Friday which led to a spike in money market rates; hence, OBB and OVN rose to 29.2% and 30.9% respectively by close of week, indicating a 21.8 and 22.5 percentage points increase W-o-W.

Activities in the Treasury Bills market were bullish during the week as rates moderated on account of relative improvement in system liquidity. Average rate across benchmark tenors opened the week at 18.1%, 13bps lower than previous week’s close of 18.2% and further declined by 15bps to 17.9% on Wednesday as buying interest was witnessed across tenors. Buying interest continued into Thursday’s trading session as average rate further declined 12bps to settle at 17.8%. Average rate eventually closed the week at 17.8%, indicating a 38bps decline W-o-W.

In the week ahead, we expect money market rates to trend in line with system liquidity dynamics. There will be an OMO maturity of N159.68bn which we expect the Apex Bank to mop up via new OMO issuances.

Foreign Exchange Review and Outlook
In line with recent trend, rates in different segments of the foreign exchange market remained stable ex - interbank market segment. The Apex Bank conducted its weekly SMIS sales, offering US$100.0m for spot and short tenored forwards not exceeding 60 days at a rate of N330.00/US$1.00 whilst also continuing with daily interventions at the Official market. As a result, rate at the Official segment of the market traded tight within N305.90/US$1.00 - N305.95/US$1.00 and closed the week at N305.95/US$1.00.

Notwithstanding, at the Interbank segment, FX rate was mildly volatile as the Naira opened the week at N359.24/US$1.00, 1.0% lower than prior weeks close of N355.49/US$1.00. Interbank spot rate depreciated further on all trading days, closing at N359.29/US$1.00 on Wednesday and N363.50/US$1.00 on Thursday before making a rebound on Friday to settle at N357.79/US$1.00. Contrarily, at the Parallel market, the naira traded flat at N365.00/US$1.00 all week. Meanwhile, this week’s turnover at the I&E Window as of writing stood at US$473.85m while the Naira strengthened marginally at the window. The FMDQ NAFEX rate opened the week at N359.83/US$1.00 and gained 0.1% to close at N359.50/US$1.00.

At the FMDQ OTC FX Futures market, total value of open contracts closed the week higher at US$2.6bn. The soon to mature NGUS SEP 2017 contract remains the most subscribed instrument with total value of US$383.30m at a price of N358.50/US$1.00 whilst the NGUS MAY 2018 is the least with total value of US$42.17m at a price of N362.50/US$1.00.
In the coming week, we expect the CBN to sustain interventions at different segments of the FX market and Naira to remain stable against the Greenback.
Bond Market Review and Outlook
Sentiment was largely bullish in the local bond market this week as average yield on benchmark bonds moderated on 3 of 4 sessions. However, most instruments traded flattish, hence the bond yield curve barely changed relative to previous week. Average yield on benchmark bonds opened the week lower at 16.6%, 4bps lower than prior week’s close due to buying interest at the longer end of the curve. The market stayed bullish on Wednesday as yields further moderated 9bps on average. By Thursday, sentiment turned bearish on profit taking on long-dated instruments - JULY 2034, MARCH 2036 and APRIL 2037; hence yields rose 4bps to settle at 16.6% and remained at same level on Friday, implying a 1bps decline W-o-W.

Performance across the Sub-Saharan Africa sovereign Eurobonds was positive this week as yields closed lower on all SSA instruments within our coverage. Yields declined 7bps, 58bps, 10bps, 6bps, 9bps, 4bps and 17bps on average across Nigerian, Ghanaian, Gabonese, Ivory Coast, Kenyan, Zambian, Senegalese and South African sovereign instruments we track. The bullish performance was on the back of dovish comments from the European Central Bank (ECB) and US Fed officials which spurred bullish bets on bonds in developed markets.

Similarly, performance of Nigerian corporate Eurobonds market was bullish as yields fell on all instruments save for the FIRST BANK 2021 (up 4bps W-o-W to 10.7%). Buying interest was seen mostly on the ACCESS 2021 senior bond (down 45bps W-o-W to 7.4%) and the ACCESS 2021 subordinated bond (down 35bps W-o-W to 8.5%). YTD, all instruments have returned positive with DIAMOND 2019 leading the pack with a return of 21.9% followed by the FIRST BANK 2021 with YTD gain of 19.1%.