What To Expect From The Markets This Week - 041119


Saturday, November 02, 2019 07:40 AM / Proshare Content

Nigeria: Economic Dashboard @ 011119  

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Source:  Cordros Weekly Economic and Market Report -November 01, 2019


Global Economy

Amidst the continued trade tension, US GDP grew at an annualised rate of 1.9% -- the slowest since Q4-18, which was slightly below the 2.0% y/y pace recorded in the second quarter and higher than the 1.6% y/y consensus estimate. Sifting through the breakdown, we highlight that the slower growth emanated from weakened domestic consumption (+2.9% y/y) -- 60% of US's GDP - which slowed markedly from the 4.6% y/y recorded in the prior quarter. Similarly, government consumption expenditure (+1.8% y/y), dipped marginally from 1.9% y/y recorded in the prior quarter, while domestic investment (-1.5% y/y) continued its descent, amidst weakened business investment (-15.3% y/y). While consumer spending growth is likely to remain modest, thanks to the still-strong labour market, we highlight the slowing business and manufacturing sectors as the key downside risk to growth over the next few quarters.

 In line with market expectation, the US Federal Reserve cut the benchmark interest rate by 25bps to a range of 1.5% to 1.75% -- the third cut in 4-month. The cut is a response to the continued slower domestic growth (Q3-19: 1.9% y/y, the slowest since Q4-18) and weakened global growth (3.0% projection by IMF).  Given the (1) strengthened US's inflation (Sept: 1.7% y/y), which is slightly lower than the 2% fed target, (2) still strong consumer spending (Sept 2.9% y/y), and (3) trade talk progress between US and China, the US Fed's forward guidance is to keep rate at current levels in the short to medium term. Our view aligns with the committee, as we expect the US monetary policy undertone to remain soft given depressed growth.

Global Equities

Save for the slight pullback in the Euro Area (FTSE: -0.6%, Euro Stoxx: -0.3%), global equities market sustained its decent run from the previous week following packs of gains recorded across most of our coverage universe. For one, the market welcomed another rate cut by the US Fed which is expected to help limit the impact of trade tension on US economic growth. Beyond that, better than expected economic data in China also helped bolster appetite for risk assets over the week. Evidently, the US (DJIA: +0.1%, S&P: +0.8%) and Asian (CSI 300: +0.7%, Nikkei: +1.4%) markets look set to close in the positive terrain, at the time of writing. Further afield, even as the Frontier market (MSCI FM: -0.0%) was flat, Emerging market (MSCI EM: +1.7%) recorded weekly gains, buoyed by strong performance in China and India (+2.8%), with the latter touching its highest mark in 2019.


In our last PMI report, we argued that the impact of festive induced spending in the last quarter of the year is expected to strengthen business performance and sentiments. True to our prognosis, Nigeria's PMI in October rebounded after slower growth in prior month. To start with, the manufacturing PMI rose by 0.5 points to 58.20 index points - the highest since January 2019, following significant increases recorded across the production level (+8.0 points), new order (+7 points), and employment level (+2.0 points). Similarly, modest growth recorded in business activities (+0.7 points) and new order (+1.0 point) had a positive pass-through to the non-manufacturing PMI, which grew marginally by 0.2 points to 58.20 index points.  Elsewhere, sustained closure of land borders continued to mount pressure on prices, as output prices increased by +0.6 points. For the rest of the year, we expect the blend of festive induced spending and FX stability to keep the PMI afloat.

According to the NNPC's monthly financial and operations report for July 2019, average daily crude production surged by 17.42% y/y to 2.09 Mb/d - the highest since January 2016. The improved reading was underpinned by (1) modest count of terminal shutdowns, with the NNPC reporting only 8 shutdowns and a loss of 0.04 Mb/d (2) a low production base of 1.78mb/d from the corresponding period of last year. Elsewhere, despite the overall improved production level, the number of product theft and vandalism rose to 228 - the highest since January 2019. Looking ahead, the case for a stronger oil GDP in Q3-19 (+2.06% y/y) is higher, given the improved crude production which should help support our view of a sturdy non-oil growth (+2.12% y/y). On balance, we estimate overall GDP growth at 2.11% y/y in Q3-19.

Capital markets

As an unimpressive earnings season came to a close, the Nigerian equities market extended losses, with the All-Share Index declining by 0.2% w/w to 26,293.30 points. Thus, the MtD and YtD losses worsened to 4.8% and 16.3% respectively. Analysing by sectors, the Consumer Goods (-0.7%) and Banking (-0.6%) indices closed in the red, while the Oil & Gas (+5.0%), Industrial Goods (+1.1%), and Insurance (+0.3%) indices recorded gains.

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 that long-term investors consider appropriately timed investments.

Money market and fixed income

Money market

As expected, inflows into the system tethered the OVN rate in the single-digit territory during the week, resulting in a 279bps decline to 4.07%. The rate pared on each of the first three trading days of the week, declining by 1.86ppts, 1.21ppts, and 1.29ppts over those days to settle at 3.71%. Thereafter, on the penultimate trading day of the week, the rate increased by 1.64ppts as system liquidity became strained following Treasury bills PMA and OMO auctions. 

In the coming week, OMO maturities (NGN351.67 billion) are expected on the 7th of November, which should support system liquidity and keep the rate tethered. Also, the substantial liquidity position of the market (NGN398.08 billion) further substantiates our expectations for the coming week.

Treasury bills 

Trading in the Treasury bills market was tepid, as market players threaded the cautious path after the CBN issued a directive which stated that individuals and local corporates could no longer trade for OMO bills in either the primary or secondary markets. Consequently, the average yield pared by 36bps to 12.42%.  During the week, the CBN held an OMO auction for instruments worth NGN363.09 billion - 96DTM(NGN16.50 billion), 187DTM (NGN10.50 billion) and 362DTM (NGN336.09billion) -, which were sold at respective stop rates of 11.55% (previously: 11.55%), 11.75% (previously: 11.79%) and 13.32% (previously: 13.35%). Also, the CBN held a Treasury bills PMA, which predictably closed with lower stop rates, as the 91DAY, 182DAY, and 364DAY instruments were auctioned at respective stop rates of 9.50% (previously: 10.80%), 10.45% (previously: 11.00%) and 11.55% (previously: 12.95%). 

The directive from the CBN means that more funds are chasing fewer instruments - Bid-to-Offer of 4.27x for aggregated offer amount, with oversubscription recorded on all instruments -, which should result in yields paring further in the coming week. That being said, we expect some investors to refocus on the Treasury bonds market over the coming weeks, given restrictions.


Given the restrictions on trading in the T-Bills market, activities moved to the bonds market, as participants invested excess liquidity. Consequently, the average yield pared significantly by 82bps to settle at 13.19%. To buttress this point, data collated from FMDQ showed that there were 455 more deals done in this week over the prior week for instruments worth NGN611.03 billion; representing an increase of 141.8% over the prior week. Also, there were yields declines across all trading instruments in the week, signal to the increased interest from investors, with the 14.20% MAR-2024 instrument (-197 bps) recording the largest decline in yield. 

We expect investors to continue to take position in the Treasury bonds market as long restrictions to the trading in the T-Bills market remain. Consequently, we expect yields to pare further in the coming week.

Foreign exchange

Nigeria's FX reserve continued its descent, declining by USD22.05 million WTD (30 Oct 2019), the lowest since 26 January 2019. Meanwhile, 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. Nonetheless, the naira depreciated by 0.18% WTD to NGN362.75/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 surge by 150.9% WTD to USD1.29 billion, with average trades executed within the NGN357.00 - 362.94/USD band. In the Forwards market, the naira weakened across all contracts - 1-month (-0.2% to NGN365.82/USD), 3-month (-0.2% to NGN372.27/USD), 6-month (-0.2% to NGN382.61/USD) and 1-year (-0.7% to NGN410.25/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 resilient in the short to medium-term.




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Monday, November 04, 201 9

The Nigerian - Canada Investment Summit will hold on this day at Transcorp Hilton Abuja, while the 4th African International Conference on Islamic Finance 2019 will hold on the same day with the theme:  Infrastructure Financing, Sustainability and the Future of African Market at Eko Hotel & Suites, Victoria Island, Lagos.


Tuesday, November 05, 2019

The International Produced Water Management Conference and Exhibition will commence on this day at Continental Hotel Lagos, while the Africa Polling Institute in Collaboration with African Heritage Institution will on the same day hold the Public Dissemination of the Nigeria Social Cohesion Survey 2019 at AfriHeritage Conference Hall, 54 Nza Street Independence Layout, Enugu.


The UPDC Real Estate Investment Trust Plc will on this day hold its Annual General Meeting at NEM House, 199 Ikorodu Road, Obanikoro, Lagos



Thursday, November 07, 2019

The Africa Maintenance & Reliability Conference will commence on this day at Lekki Colliseum, Victoria Island Lagos, while the 18th WimBiz Annual Conference will hold on the same day with the theme: Shaping the Future: Strategizing to Win at Eko Hotel & Suites, Victoria Island Lagos.


The FMDQ OTC Securities Exchange will on this day hold its Capital Market Conference at Grand Ballroom, Oriental Hotel, Victoria Island, Lagos, while the PMI Nigeria Chapter Conference 2019 will hold on the same day with the theme: Beyond Project: Re-thinking the Future at Shell Hall, Muson Center, 8/9 Onikan, Lagos.



Friday, November 08, 2019

The Nigerian- America Chamber of Commerce will on this day hold its Breakfast Meeting at   Lagos Continental Hotel, Plot 52, Kofo Abayomi Street, Victoria Island Lagos, while FMDQ Gold Award will hold on the same day at Oriental Hotel 3, Lekki- Epe Expressway Victoria Island 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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