What To Expect From The Markets This Week - 281019

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Saturday, October 26, 2019 07:55 AM / Proshare Content


Nigeria: Economic Dashboard @ 251019  

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Editor's Pick 

Source:  Cordros Weekly Economic and Market Report - Oc-tober 25, 2019

 

Global economy
 

Economic activities improved in the U.S, according to data from the Purchasing Managers' Index (PMI) for October, which unexpectedly widened by 0.2 points to 51.2 index points. Faster increases were recorded across both the Manufacturing PMI (+0.4 points to 51.5), which hit a 6-month high, and the Services PMI (+0.9 points to 50.9). The improved business activities and confidence in the manufacturing sector were driven by improved demand and recovery in global trade. Similarly, strong domestic consumption, which boosted business investments, aided the Services PMI in the period. Looking ahead, we expect festive induced demand in the last two months of 2019 to drive improved PMI readings.
 
According to Japan's Ministry of Finance, the trade balance swung into deficit territory in September from a surplus position in the corresponding period in the prior year. From a year ago, exports dipped by 5.2% y/y to a 9-month low, amidst slowing external demand due to continued global trade protectionism. To buttress the point, combined exports to the US and China, which constitutes c.36.0% of Japan's exports, declined by 14.6% y/y. Further worsening Japan's export position, was a 15.9% y/y decline in exports to South Korea, given the continued trade conflict between the two countries.  Elsewhere, imports dipped by 1.5% y/y. Slowing external demand - as highlighted by the IMF's cut in its global growth forecast - will continue to weigh on Japan's exports. Also, imports of consumer goods are likely to have fallen after the Oct 1. sales tax hike due to a reduction in consumer spending. However, in our view, this should cushion the blow to net exports.
 
Global markets
 
This week, the troika impact of positive macroeconomic readings, the expectation of a rate cut by the US Fed, and a softer trade war undertone between the US and China, aided appetite for risk assets across the globe. Also, save for Amazon Co. which recorded a decline in earnings in two years, the earnings releases across most advanced markets remain largely positive, thus, supporting risky assets accumulation. For clarity, the US (DJIA: +0.1%, S&P: +0.8%), European (FTSE: +1.9%, Euro Stoxx: +0.9%), and Asian (CSI 300: +0.7%, Nikkei: +1.4%) markets were all on the verge of recording positive weekly returns at the time of writing. Further afield, both the Emerging (MSCI EM: +1.7%) and Frontier (MSCI FM: -0.7%) Markets rode the wave of the positive global sentiments as the South Korea (+1.3%), Brazil (+2.2%), Kenya (+1.2%), and Romania (+1.2%) markets all recorded gains.
 
Nigeria
 
Economy
 
According to the NBS's debt report, Nigeria's total debt as of Q2-19 grew faster by 3.0% q/q to NGN25.70 trillion (Q1-19: +2.3% q/q), taking the nation's debt as a percentage GDP to 19.9%. The increase stemmed from both domestic and foreign debt which grew by 1.7% and 5.9%, respectively, with the ratio of domestic and external debt as proportions of total debt settling at 67.6% and 32.3% respectively, at the end of the period. Despite the marginal increase in the total national debt, we noted a sharp expansion in the debt level of states, which increased by 32.9% q/q to NGN5.26 trillion. We continue to hold a negative view towards the widening debt profile given the (1) weakened revenue of the government amidst an inability to effectively diversify and expand its revenue base, and (2) weakened internally generated revenue of state government. 
 
According to the recently released ease of doing business index by the world bank, Nigeria rankings advanced to 131st in the world and 17th in the Sub-Saharan Africa (previously 156th and 22nd, respectively), with the latter being the highest level achieved since 2013. Whilst the survey projects a rosy picture, we believe that the index fails to capture the true state of things, given that the survey was conducted only among locally-owned limited liability companies in Lagos and Kano. Similarly, the basis for defining easy access to credit, in which Nigeria was ranked 15th globally, is only limited to the strength of credit reporting in the country and the effectiveness of its collateral laws. Nonetheless, at the 131st position globally, there is a need for concerted efforts by stakeholders, especially the government, to continue to build strong business-friendly institutions to further ease the costs of running a business in Nigeria.
 
Capital markets
 
Equities
 
The Nigeria equities market extended its decline amidst mixed earnings performances and continued risk-off sentiments. Thus, after recording losses on 4 trading days during the week, the benchmark index dipped by 0.4% w/w to 26,348.73 points - lowest since 5th May 2017 -, with the MTD and YTD losses increasing to -4.6% and -16.2%, respectively. Performance across the sectors was broadly weak, with the Industrial Goods (-1.5%), Insurance (-1.7%), Consumer Goods (-0.6%), Banking (-0.4%) and Oil & Gas (-0.3%) indices all closing in the red. 
 
In our view, the trend witnessed through the year is likely to persist through the final quarter of the year, although we expect pockets of gains over the final months of the year as fund and portfolio managers realign portfolios prior to the start of 2020. Nonetheless, we note that valuations remain attractive driven by price deterioration throughout the year. Hence, we advise long-term investors to take positions in the market, given currently attractive valuations.
  
Money market
 
System liquidity was boosted by inflows from FAAC disbursements to state and local governments (NGN379.22 billion), bond maturities (NGN233.90 billion), OMO maturities (NGN366.06 billion), and retail FX refunds (c.NGN340 billion). However, outflows from two OMO auctions (NGN591.03 billion), Treasury bonds auction debit (NGN139.81 billion) and retail FX auction kept a lid on liquidity, leading to a 579 bps w/w expansion in the overnight (OVN) rate to 6.9%.
 
In the coming week, OMO maturities worth NGN308.67 billion are expected to hit the system on the 31st of October. Given that we do not expect the CBN to intervene in the market with the same frequency over the coming week, we expect the OVN rate to settle lower week on week.
 
Treasury bills 
 
Trading in the Treasury bills market was bearish amidst an increase in OMO activities by the CBN. Consequently, the average yield rose by 33 bps w/w to settle at 12.8%. Sell pressures were spread across the entire curve, with the 20DTM (+128bps), 146DTM (+111bps), and 251DTM (+95bps) recording the most significant expansions. The market was characterised by a flurry of CBN directives this week - (1) restricting OMO auction bids to fully funded participants, and (2) restricting local individuals and corporates (including non-bank financial institutions) from buying OMO bills in both the primary and secondary markets. 
 
Though we await more clarity on the implementation of the CBNs directives, we expect that effect will be increased secondary market demand, especially from PFAs. Consequently, we expect yields to settle lower week-on-week. At the NTB PMA next week, the CBN is expected to offer NGN132.55 billion worth of bills to investors.
 
Bond 
 
Trading in the Treasury bonds secondary market was bullish as market players looked to (1) reinvest proceeds from the OCT-2019 bond which matured on Wednesday, and (2) cover lost bids from the primary market auction (PMA) which was oversubscribed. Consequently, the average yield across instruments pared by 10 bps to settle at 14.0%. Buying interest was concentrated at opposite ends of the curve, with the JUL-2021 (-54 bps) and APR-2049 (-26 bps) instruments recording the largest yield declines. At the PMA, the DMO allotted a total of NGN139.81 billion (plus an additional NGN3.00 billion in non-competitive allotments) in bonds to investors.  Demand was strong (bid-to-cover: 1.85x), following the bond maturity, and was largely skewed towards the 10-year offering (bid-to-cover: 2.40x). As a result, stop rates declined by 19bps on average, compared to the previous auction, across the three offered tenors.
 
We expect recent developments in the Treasury bills space to provide active trading at the bond market as investors' look for alternatives. Additionally, market players will look to invest an expected NGN59.12 billion in coupon payments. In effect, yields are expected to trend downwards.
 
Foreign exchange

Amidst weakened foreign inflows and continued naira assets sell-offs by offshore investors, Nigeria's FX reserves declined by USD23.20 million WTD to USD40.72 billion (24 Oct 2019) - the lowest level since 2nd Feb 2018. The CBN sustained its weekly FX intervention, selling USD210.00 million across the different segments of the FX market - USD100.00 million to the Wholesale segment, USD55.00 million to the SMEs segment, and USD55.00 million to the Invisibles segment. Consequently, the naira appreciated by 0.03% w/w to NGN362.11/USD at the I&E window but closed flat at NGN360.00/USD at the parallel market. Elsewhere, total turnover at the I&E window declined by 31.0% WTD to USD513.96 million, with trades executed within the NGN360.00 - 363.00/USD band. In the Forwards market, the naira weakened across all contracts - 1-month (-0.1% to NGN365.36/USD), 3-month (-0.1% to NGN371.86/USD), 6-month (-0.3% to NGN382.31/USD) and 1-year (-0.4% to NGN408.77/USD). 

Despite the continuous depletion of reserves amidst sell-offs by off-shore investors, our estimate suggests no naira devaluation in 2019, as we expect CBN's sustained intervention to keep the naira to remain resilient in the short to medium-term. 

 

 

 

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Monday, October 28, 2019

 

The Nigeria Fintech Week will on this day commence its conference with the theme "Surviving with Fintech Innovation" at the Landmark Event Centre, Water Corporation Drive, Victoria Island, Lagos.

 

The International Ombud Expo will kickstart on this day with the theme "Extending the Ombud Frontiers: Better Governance, Enhanced Performance" at the Sheraton Abuja Hotel, while the 7th Edition of Real Estate Development Summit West Africa will hold at the Eko Hotels & Suites, Lagos.

 

 

Tuesday, October 29, 2019

The Nigeria Fintech Week's main conference will hold on this day, just as the Securities & Exchange Commission launches its Fintech Roadmap.

 

The Budget Office of the Federation (BOF) in collaboration with the International Budget Partnership (IBP) will this day commence its Consultative Forum on Fiscal Realism In Nigeria at the Transcorp Hilton Hotel, Abuja

 

The World Safety Organization will on this day kickstart its National Conference and Awards at the LCCI Conference and Exhibition Centre, Lagos, while the National Environmental Standard and Regulations Enforcement Abuja will hold "The 13th NATIONAL STAKEHOLDERS' FORUM" with the theme  Water Pollution: Innovative Solutions For Environmental Compliance, Monitoring & Enforcement at Nicon Luxury Hotel, Abuja.

 

The Continental Reinsurance Plc will on this day hold its Court-Order Meeting at Victoria Crown Plaza (VCP) Hotel, Victoria Island, Lagos.

 

 

Wednesday, October 30, 2019

Continental Reinsurance Plc will on this day hold its Annual General Meeting at Victoria Crown Plaza (VCP) Hotel, 292B, Ajose Adeogun Street, Victoria Island, Lagos, while the 4th Africa Oil & Gas Talent Summit 2019 will hold on the same day at the Four Point by Sheraton, Victoria Island Lagos.

 

The Phillips Consulting Webinar Series on "Digital marketing: Positioning Your Brand Online" will hold on this day.

 

 

Thursday, October 31, 2019

DealHQ will on this day hold its First Enterprise Roundtable Session with the theme "Building Sustainable Enterprises through Adaptive Corporate Governance Practices" at the HQ, 3B Dr. Omon Ebhomonye Street, Lekki Phase 1, Lagos, while the Vatebra Tech-hub Powered by Bank of Industry  will on this day hold the "Finland-Nigeria Startup Ecosystem Meetup" at Vatebra Tech Hub, Ajah Royal Office Building, Ajah.

 

 

Friday, November 01, 2019

The 2019 Nigeria Creativity Festival will hold on this day at Federal Palace Hotel, 6-8 Ahmadu Bello Way, while the Chellarams Plc will on the same day hold its Annual General Meeting at Golden Tulip Hotels, Festac -Amuwo Odofin Link Road, Mile II, Lagos.

 


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Check out our Events Calendar for event details and follow us on WebTVAPP and Social Media for updates as the week unfolds. Yours to Serve!

 

 

 

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