What To Expect From The Markets This Week - 010221

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Saturday, January 30, 2021 08:00 AM / Proshare Content / Header Image Credit: EcoGraphics


  

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Nigeria: Economic Dashboard @ 290121   

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Editor's Note

Source: Proshare Research - January 30, 2021

Nigeria Economy

The Monetary Policy Committee (MPC), of the CBN, voted to unanimously keep the Monetary Policy Rate (MPR) at 11.5%.  It kept other parameters such as Cash Reserve Ratio (CRR), liquidity ratio, and asymmetric corridor unchanged.

Highlights of the Committee's decision

  • MPR was kept at 11.5%
  • The asymmetric corridor of +100/-700 basis points around the MPR
  • CRR was retained at 27.5%
  • Liquidity ratio retained at 30%.


  • Data from the NBS report titled "Selected food price watch data for December 2020" reveals that food prices rose in December 2020 e.g., the average price of 1kg of tomato increased Y-o-Y by +17.51% and decreased M-o-M by +1.92% to N310.1 in December 2020 from N316.16 in November 2020. Also, the average price of 1kg of rice (imported high quality sold loose) increased Y-o-Y by +19.8% and M-o-M rose by +0.175 to N550.94 from N549.98 in November 2020.
  • NBS in its report on 'Company Income Tax by sector' revealed that there was a decline in CIT generated in Q4 2020 by -28.91% Q-o-Q and -18.31% Y-o-Y. The Company Income Tax (CIT) generated in Q4 2020 declined to N295.72bn from N416.01bn generated in Q3 2020 and N362.01bn generated in Q4 2019. The three top sectors with the highest generated amount of CIT were professional services including telecoms N32.17bn, other manufacturing N25.64bn, and commercial and trading generated N19.41bn. On the other hand, the top three sectors with the least generated CIT were the textile and garment industry N104.27m, mining N136.99m, and local government councils N298.73m.

Furthermore, N162bn was generated as CIT locally in Q4 2020 and N63.52bn was generated as foreign CIT payment while the balance of N70.2bn was generated as CIT from other payments.

  • NBS "Sectoral distribution of Value Added Tax" (VAT) data for Q4 2020 reflected that the sum of N454.69bn was generated as VAT in Q4 2020 as against N424.71bn generated in Q3 2020 and N308.48bn generated in Q4 2019 representing a +7.06% increase Quarter-on-Quarter and +47.39% increase Year-on-Year. Professional services generated the highest amount of VAT with N42.38bn generated and closely followed by other manufacturing generating N39.45bn, commercial and trading generating N21.15bn while mining generated the least and closely followed by pioneering and textile and garment industry with N58.88m, N185.72m, and N353.75m generated, respectively.


Out of the total amount generated in Q4 2020, N212.52bn was generated as Non-Import VAT locally while N143.35bn was generated as Non-Import VAT for foreign. The balance of N98.81bn was generated as NCS-Import VAT.


Global Economy

  • According to China's National Bureau of Statistics (NBS), Chinese industrial firms recorded growth in their profits for straight eight months. This indicates that there was a quick rebound in the Chinese manufacturing sector from its COVID-19 slump.  After a rise in profit by +15.5% in November, profits rose further by +20.1% Y-o-Y in December to 707.11bn yuan (US$109.40bn).
  • The International Monetary Fund in its latest World Economic Outlook, forecast that the global economy will grow by +5.5% in 2021. This represents an increase of 0.3 percentage point from October's forecasts. Also, it forecast that global GDP would expand by +4.2% in 2022.
  • The Kenyan economy entered its first recession in at least two decades in Q3 2020. Its GDP contracted by -1.1% Y-o-Y, after contracting by -5.5% in Q2 2020. Some of the major highlights from its GDP figures reveal that its agricultural sector grew by +6.3% while education and accommodation & food services contracted by -42% and -58% respectively.
  • Following the conclusion of its two-day meeting, the US Federal Reserve kept its benchmark interest rate anchored near zero. Furthermore, it noted that there will be continuous purchases of at least $120bn bonds a month.
  • Data from China's Ministry of Human Resources and Social Security reveals that in the Chinese government's fourth-quarter list of 100 jobs with the greatest labour shortages, manufacturing related positions accounted for 36, or more than a third of the list. Topping the list were marketing personnel followed by sanitation workers and security guards.


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Commodities Market

Weekly Review and Outlook

Energy

  • Oil prices climbed rose about 1% on Monday as optimism around stimulus plans and some supply concerns boosted futures, but demand worries prompted by coronavirus lockdowns limited gains.
  • By Wednesday, oil price steadied, despite a massive drawdown in U.S. crude inventories, as ongoing concerns about the coronavirus pandemic tempered buying interest.
  • On Thursday, oil prices eased as the market focused more on concerns that delays to vaccine rollouts and fresh travel curbs could depress demand than the impact of a weaker dollar and a big U.S. crude inventory drawdown.
  • Brent had a weekly growth of +0.61% (see Table 1).

Metals

  • Gold prices edged lower on Wednesday, weighed by a firmer dollar, as markets awaited the U.S. Federal Reserve's monetary policy decision and developments around a stimulus package in the world's largest economy.
  • Gold appreciated by +0.28%, while Silver also grew by +6.01% W-o-W (see Table 1).

Agriculture

  • Cocoa prices appreciated by +1.4% this week.
  • Corn prices inched up by +5.03% W-o-W while Sugar depreciated by -0.25% (see Table 1).


Table 1Weekly Change in Commodity Prices

Commodity

29-Jan-21

22-Jan-21

31-Dec-20

Weekly Chg

YTD Chg

Brent

55.92

55.58

51.8

0.61%

7.95%

Gold

1857.38

1852.16

1898.67

0.28%

-2.17%

Silver

26.98

25.45

26.4011

6.01%

2.19%

Cocoa

2531

2496

2597

1.40%

-2.54%

Corn

543.25

517.25

484

5.03%

12.24%

Sugar

15.78

15.82

15.28

-0.25%

3.27%

Source: Bloomberg, Proshare Research

*Data for 29th Jan 2021 is as of 5:23 pm (Nigerian Time)

 

Outlook

  • In the coming week, oil prices are expected to be little changed as demand concerns caused by new coronavirus variants and slow vaccine rollouts offset a cut in Saudi Arabian oil supply and falling U.S. oil inventories.
  • Gold prices are expected to be depressed in the coming week, with higher yields and strengthening U.S. dollar expected to weigh on the yellow metal.
  • Hedge selling related to trade in Ivorian cocoa in the physical market is expected to exert downward pressure on cocoa in the coming week as well as a slowdown in demand driven by COVID-19 pandemic.
  • Sugar prices to rise next week after cane field yields and the rate of sugar extracted fell in key states in India.

Corn prices to be bullish in the coming week, as China goes on pricey corn shopping spree amid thin local supply.


Fixed Income and Money Market 

 

Money Market

Robust system liquidity estimated at N575.92bn at the start of the week pushed money market rates lower. However, funding obligations and OMO bill auction pushed rates higher despite robust system liquidity for most of the trading session in the week. However, at the close of the trading session in the week, Open Buyback (OBB) closed at 10.50% while Overnight (O/N) rates closed at 11.00% indicating a Week-on-Week (W-o-W) significant rise of +5.0% for OBB and +4.76% for O/N rates.

 

Money Market Rate

 

22-Jan-21

29-Jan-21

% Change

OBB

10.00%

10.50%

+5.0%

O/N

10.50%

11.00%

+4.76%

Source: FMDQ, Proshare Research


Rates are expected to trend lower in the absence of funding obligations.

 

Treasury Bills Market

The overall trading session of the Nigerian Treasury Bills market (NTB) for the week was bearish. At the start of the week average benchmark yield fell marginally 1bp to settle at 0.55%.

 

At the close of the week, the average benchmark yields for the T-bills significantly rose W-o-W by +101.92% to close at 1.05% while OMO bills also rose significantly by +81.32% to close at 1.65%. Yields for the CBN Special Bill was flat to close at 0.52% at the close of the week.

 

Average Benchmark Yields

22-Jan-21

29-Jan-21

% Change

T. Bills (%)

0.52

1.05

+101.92%

OMO Bills (%)

0.91

1.65

+81.32%

SPEB

0.52

0.52

-

Source: FMDQ, Proshare Research

 

The CBN issued a total of N145bn at the OMO bills auction in the week. All tenors were oversubscribed, 89-day tenor was oversubscribed by +47.5%, while 180-day and 362-day were oversubscribed by +13.33% and +34.81% respectively.

 

OMO Bill Auction Results

Tenor

Amount Offered (N'bn)

Total Subscription (N'bn)

Amount Allotted (N'bn)

Stop Rate (%)

89 day

20.0

                              29.5

                    20.0

1.51

180 day

15.0

                              17.0

15.0

4.34

362 day

110.0

148.29

110.0

5.74

Source: CBN, Proshare Research


Participation in the NTB market is expected to be quiet as depressed yields persist.

 

FGN Bond Market

The overall trading session for the FGN Bond market for the week was bearish. Overall average benchmark yields closed at 4.12% for the week which increased W-o-W by +19.81% with sell interest seen across all tenors.

 

Average Benchmark Yields

 

22-Jan-21

29-Jan-21

% Change

Short Tenor (%)

1.56

1.88

+20.51

Mid Tenor (%)

4.29

6.08

+41.72

Long Tenor (%)

8.56

9.52

+11.21

Source: FMDQ, Proshare Research


Total Nigeria Plc successfully issued and quoted N15bn Series 1 and Series 2 Commercial Paper under its N30bn CP programme.

 

Also, Flour Mills of Nigeria Plc successfully concluded the issuance of N29.8bn Series 4 (Tranche A & B) bonds under the N70bn bond issuance programme which was listed both on the NSE and FMDQ.

 

We expect the market to trend on a quiet note as yield opportunities thin out.

 

FGN Eurobond Market

The overall trading session in the FGN Eurobond market for the week was mixed. At the beginning of the week, average benchmark yields fell by 4bps to 5.60%. This was driven by an uptick in crude oil prices in the week. This was despite rising cases of COVID-19 infections.

 

The DMO announced in the week that Nigeria's 6.75% USD500m January 2021 Eurobond which matured on January 28, 2020 will be redeemed. DMO stated that funds had been made available by the Federal Government of Nigeria to repay the principal sum of USD500m and final interest payment due to the Eurobond

We expect the market to continue the to react to news on Oil prices and COVID-19 cases.

 

Foreign Exchange Market

It was a bearish market for the Naira this week against major currencies and at the different windows. The Naira closed flat against the USD both at the I & E FX window and the BDC market while at the BDC market it closed flat for the week.

 

The Naira closed the week at $/N394.13 at the I&E FX window, at the NAFEX (spot market) it closed at $/N393.65, and at the BDC market, it closed at $/N477, £/N648, and Euros/N579. 



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Nigerian Capital Market

  • Investor Sentiment on the market was positive this week as the Nigerian Bourse closed with a growth of +3.44% as investors gain N737.94bn in Market capitalization W-o-W. YTD return and market capitalization currently stands at +58.01% and N22.19trn.

  • The volume and value of stocks traded on the exchange this week advanced by +13.26% and +29.96% respectively. A total turnover of 2.57bn shares worth N27.88bn in 31,466 deals was traded this week by investors on the floor of the Exchange; The most traded stocks by volume were TRANSCORP, UBN and ZENITHBANK, and  accounting for 633.26m shares worth N5.63bn in 3,947deals, contributing 24.64% and 20.20% to the total equity turnover volume and value respectively.

  • Performance across sectors was broadly positive for the week, NSE Oil & Gas was the highest decliner for the week with a loss of -7.25%, NSE Insurance, NSE Banking, NSE Consumer goods, NSE-30 and NSE-IND advanced this week by +1.70%, +3.33%, +1.28%, +2.21% and, +1.45% respectively.

 

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Chart 1: Movement of NSEASI Index Points 22 Jan.2021 - 29 Jan.2021

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NASD OTC

 

The NASD OTC Security Index (NSI) and Market Capitalization closed the trading week with a negative movement in Market capitalization and NSI. The NSI and Market capitalization closed the week at 725.39 points and N520.48bn with a decline of -1.63% and -1.63% respectively.

 

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Dangote and Toni Index 

 

Dangote Index closed the week positive at 126.01 basis points from 124.73 basis points recorded the previous week, a growth of +1.03%. DANGCEM and DANGSUGAR recorded a growth in share price by +0.85% and +5.20% respectively while NASCON  closed dipped by -5.81% WoW. DANGSUGAR recorded the highest growth W-o-W.

 

Table 2: Dangote Index W-o-W Change

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Furthermore, the Toni Index closed positive at 109.49 basis points from 107.02 basis points recorded the previous week, a W-o-W growth of +2.31%UBA and UBCAP closed the week positive with +4.02% and +8.26% respectively. TRANSCORP and AFRIPRUD closed negative with -10.53% and -1.13% respectively while TRANSCOHOT closed flat WoW.

 

Table 3: Toni Index W-o-W Change


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Outlook

The monetary policy committee (MPC) meeting was held during the week and voted unanimously to hold its policy rate at 11.50% and left its other parameters unchanged.


The equities market was bullish during the week, we expect the market to sustain the momentum as investor sentiment remains positive in the equities market.


In addition, we expect investors to be cautious as companies release their fourth quarter earnings.



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