Weekly Market Review and Outlook

Global Equities Review and Outlook
Following a 2-day meeting, the US FED expectedly voted to keep its benchmark interest rate unchanged at 1.00%-1.25%. The Fed’s statement after the meeting however hinted on one more rate hike in 2017 and guided on plans to begin unwinding its Balance sheet starting from October 2017. Also, ahead of the OPEC meeting in Vienna scheduled for today, global oil prices have continued to trade above US$55.00/b as oil traders await the outcome of the meeting.

Notwithstanding, performance of global equity indices under our watch was largely positive as 10 of 16 indices closed the week in the green. In the developed markets, performance was mixed, with the US NASDAQ down 0.4% WTD as of writing while the S&P 500 traded flat WTD after reaching an all-time high earlier in the week. The low investor appetite is majorly attributable to unexpectedly hawkish statement from the US Fed as well as increasing tension between North Korea and the United States. Sentiment in the UK was however bullish, with the UK FTSE up 0.7% WTD as investors anticipate a reconciliatory speech from Prime Minster Theresa May in Florence.

Performance in the Eurasian region was positive as indices under our coverage closed in the green. Despite rising North Korean threats, the Japan Nikkei led advancers with a WTD return of 1.9% while the France CAC posted gains of 1.4% WTD. Ahead of the German 2017 election scheduled to hold on Sunday, the German DAX as of writing is up 0.9% WTD.

Sentiment was mixed across BRICS markets, with the South African FTSE/JSE up 0.3% W-o-W as the South African Reserve Bank voted to keep its benchmark rate unchanged at 6.75% amid higher inflation expectation. Likewise, the Russia RTS followed with 0.1% gain WTD. The India BSE SENS fell 1.1% WTD while the Brazil Ibovespa lost 0.2% WTD despite recent gains in oil prices. The China SHANGHAI closed flattish WTD.

In the African Region, performance was mixed as 2 of 4 indices trended northward W-o-W. The Egypt EGX 30 advanced the most, up 1.9% while the Nigerian All Share Index rose 0.6% on account of bargain hunting in stocks which had previously declined. On the contrary, the Ghana GSE COMPOSITE shed 1.3%W-o-W while the KENYA NSE 20 lost 0.2% as Kenyan electoral commission rescheduled the Presidential poll for October 26.

Equities Market Review and Outlook
In line with expectation, the local Bourse advanced this week as the All Share Index (ASI) gained 1.4% W-o-W to close at 35,488.81 points while YTD gain expanded to 32.1%. Likewise, market capitalization added N165.8bn to close at N12.2tn. Activity level also improved as average volume and value traded strengthened 23.0% and 17.5% W-o-W to 219.2m units and N3.6bn respectively. Nonetheless the positive close of the benchmark index and strong activity level, sentiment was mixed during the week as the ASI rose on 2 of 5 sessions. The week started off on a negative note, with the ASI closing lower on the first two trading sessions (down 38bps and 8bps respectively) as investors continued to book profit in large caps across sectors. By Wednesday, the ASI rebounded 1.0% on account of a rally in DANGCEM. However, the market pared gains on Thursday (down 5bps) as investors quickly booked profit in DANGCEM. Friday saw a positive close as investors positioned in previous decliners.

Sector Performance was mixed as 3 of 5 indices rose W-o-W. The Industrial Goods index led gainers, up 2.9% W-o-W on account of appreciation in DANGCEM (+3.5%) and WAPCO (+3.0%). The Banking index closely followed, rising 2.4% W-o-W as a result of an uptick in GUARANTY (+7.0%) while the Insurance index climbed 1.4% W-o-W due to gains in LINKASSURE (+15.8%) and CONTINSURE (+9.8%). Conversely, losses in SEPLAT (-6.4%) OANDO (-3.6%), DANGFLOUR (-3.9%) and NIGERIAN BREWERIES (-2.3%) dragged the Oil & Gas and Consumer Goods indices 3.0% and 0.2% lower W-o-W.

Investor sentiment as measured by market breadth retreated to 0.5x (against 0.6x recorded last week) as 18 stocks advanced against 39 that declined. The best performing stocks were LINKASSURE (+15.8%), CONTINSURE (+9.8%) and CILEASING (+5.8%) while NEIMETH (-15.8%), CAVERTON (-9.2%) and UNITY (-7.1%) were the worst performers. Pending the start of Q3:2017 earnings season, market will likely continue to trade sideways. However, with the Quarter drawing to a close next week, we expect the local Bourse to close positive as fund managers rebalance portfolios.

Money Market Review and Outlook
Even as liquidity levels stayed tight all through the week, money market rates traded within a tight band between Monday and Thursday but surged on Friday. In addition, despite system liquidity in deficit on all trading days of the week, the Apex bank continued with its daily OMO mop-ups which took place on four days of the week. On Monday, Open Buy Back (OBB) and Overnight (OVN) rates eased marginally to 10.3% and 11.4%  from 11.3% and 12.2% respectively due to inflow of bond coupon payment which offset wholesale FX auction announced same day. In addition, the CBN conducted an OMO auction in which a total of N60.0bn was offered but subscription stood at N17.6bn which was allocated in full. OBB and OVN trended lower on Tuesday to 9.5% and 10.3% respectively as system liquidity improved due to refund from retail SMIS auction. Similar to Monday, another OMO auction was floated in which N60.0bn was offered while total subscription and allocation stood at N14.9bn. Rates eased further on Wednesday but closed higher on Thursday at 10.7% (OBB) and 11.6% (OVN) as debits for the T-bills PMA (N215.9bn) held midweek and OMO auction (N207.7bn) offset the impact of the OMO maturity (N140.0bn). OBB and OVN surged to 35.0% and 38.0% at the close of the week, up 23.7% and 25.8% W-o-W respectively.

Activities in the Treasury bills market stayed soft this week on account of the weaker liquidity levels. On Monday, average rate on benchmark tenors settled at 17.6%, marginally down 1bp from the preceding Friday, as buy sentiment on shorter tenored instruments offset the impact of sell offs recorded across longer-dated bills. On Wednesday, there was a T-bills maturity of N140.9bn which was rolled over at the PMA. The CBN offered N28.1bn of the 91-Day (subscription: N23.3bn, Allotment: N22.8bn), N23.7bn of the 182-Day (subscription: N33.2bn, Allotment: N24.7bn) and N89.1bn of the 364-Day (subscription: N502.9bn, Allotment: N168.4bn) instruments at marginal rates of 13.2%, 16.8% and 17.0% respectively. Due to lower stop rates at the T-bills PMA and excess subscription for longer dated bills offered, sentiment was bullish on Thursday as average rate eased to 17.4% but increased to 17.5% on Friday, down 0.2% W-o-W.

In the coming week, we expect rates to remain at similar levels as an OMO maturity worth N123.5bn hits the system although we believe the CBN will continue with its OMO mop up.

Foreign Exchange Review and Outlook
The Naira strengthened at all segments of the FX market this week as the CBN sustained pace of intervention while foreign investors positioned at primary market sale of T-bills held mid-week. At the official market, the CBN continued with its weekly SMIS sales worth US$100.0m for spot and short tenured forwards under 60 Days while the Official rate improved from N305.95/US$1.00 the preceding Friday to N305.90/US$1.00 on Monday before eventually closing the week at N305.85/US$1.00. This implies a marginal 3bps appreciation W-o-W. Similarly, at the interbank market, the domestic currency depreciated from N354.99/US$1.00 on Monday to N356.99/US$1.00 on Wednesday, but strengthened to N353.50/US$1.00 by the close of the week, up 0.4% W-o-W. At the parallel market, the naira exchanged for N369.70/US$1.00 on Monday, strengthened to N367.00/US$1.00 on Tuesday and traded flattish till the end of the week, up 0.5% W-o-W. Activities at the I &E window improved during the week as total market turnover improved to US$959.4m (as of Thursday 21st September) from US$803.1m in the prior week while NAFEX rate strengthened to N360.39/US$1.00 from N360.25/US1.00 last week. The surge in activity level at the window reflects offshore investor interest in T-bills PMA held on Wednesday.

In the FMDQ OTC Futures market, the total value of open contracts fell by US$68.2m to settle at US$2.6bn this week. The SEP 20 2017 instrument worth US$383.3m matured during the week and was replaced with the SEP 26 2018 instrument. The most subscribed instrument is the DEC 27 2017 (US$372.4m) which currently trades at N356.91/US$1.00 while the least subscribed is the MAY 30 2018 (US$52.2m) which trades at N359.41/US$1.00.

Despite the spate of FX interventions by the CBN, the external reserves have remained on the uptrend, reaching a 31-month high of US$31.9bn on 14/09/2017. This accretion to the reserves has been largely due to the stability in oil prices as well as improved production volumes and we believe this will give the CBN more impetus to continue with its interventions. In the coming week, we expect rates to remain stable at the various segments of the market, even as we look towards possible discussions on FX market at the MPC meeting.

Bond Market Review and Outlook
The bullish sentiment in the domestic bond market which has lasted for two weeks extended to this week’s trading sessions with increased buying interest observed across tenors. Earlier in the week, market performance was characterised by sell offs across tenors before the trend was reversed by mid-week and sustained till the end of the week. Activity on the first trading the day of the week was soft as average yield across Benchmark bonds opened the week flat at 16.3% (same as the preceding Friday) as buy interest in the JAN 2022 instrument (-8bps) was broadly offset by sell offs in the MAR 2027 (+8bps) instrument. Average yield marginally increased 1bp on Tuesday as sell sentiment on the JUN 2019 (+7bps) and APR 2037 (+5bps) bonds outweighed interest in the JAN 2022 (-5bps) instrument. However, performance was bullish on Wednesday and Thursday due to improved Investor appetite on account of the expectation of lower stop rates at the T-bills PMA executed on Wednesday; hence, we observed increased buying across the yield curve which drove yields 6bps downward on average on Wednesday and a further 15bps on Thursday to eventually settle at 16.1%. The bullish trend lingered into Friday as average yield closed the week at 16.1%, down 0.5% W-o-W. In the coming week we expect to see a bearish performance at the start of the week as investors free up funds to partake in the September Bond auction.

The bearish performance witnessed across SSA Eurobonds was sustained this week as US Fed Chairman guided on one additional rate hike in 2017 and released measures to unwind its US$4.5tn balance sheet. Consequently, yields rose across all trading SSA Eurobonds, save for the GHANA 2017 (-2.6%) and GABON 2017 (-0.4%). The largest sell offs were recorded in the ZAMBIA 2024 (+28bps), ZAMBIA 2022 (+27bps) and SOUTH AFRICA 2019 (+24bps) Eurobonds. The NIGERIA 2023, KENYA 2024 and ZAMBIA 2024 remain the best performing YTD with returns of 9.1%, 8.5% and 8.0% respectively.

Similarly, performance across the Nigerian corporate Eurobonds was bearish as sell offs were recorded across all instruments save for the ZENITH 2019 (down 10bps W-o-W to 5.1%), GUARANTY 2018 (down 1bp W-o-W to 4.2%) and ZENITH 2022 (down 1bp to 6.5%). As the market continues to price-in monetary policy expectation on valuation, we expect performance to remain bearish in the near term.