What To Expect From The Markets This Week - 100820

Proshare

Saturday, August 08, 2020 / 07:00 AM / Proshare Content /  Header Image Credit: EcoGraphics


Proshare Nigeria Pvt. Ltd.



Nigeria: Economic Dashboard @ 070820  

Proshare Nigeria Pvt. Ltd.


 

Editor's Pick

Source:  Cordros Weekly Economic and Market Report - August 07, 2020


Global Economy 

In the US, the industrial sector recovery picked up pace in July, as manufacturing PMI printed 54.2 points in July, the second consecutive month of expansion (June 2020: 52.6 points). Breakdown provided revealed that new orders (+5.1 points), production (+4.8% points), and new export orders (+2.8 points) expanded at a faster pace relative to the prior period. Meanwhile, employment contracted at a slower rate (+2.2% points to 44.3 points), presaging imminent respite for the U.S. labour market. For us, the stronger manufacturing activities in July was on account of the re-opening of some parts of the U.S economy, as well as the positive impact of the sizeable fiscal and monetary stimulus aimed at limiting the impact of COVID-19 on economic growth. While we do not downplay the rapid pace of activities recovery, especially since the economy re-opens, we believe production is still significantly lower, relative to last year, due to lower external, domestic demand, and high unemployment rate. Thus, US growth is expected to remain muted.

In its last policy meeting, the Bank of England's (BoE) Monetary Policy Committee (MPC) voted unanimously to maintain Bank Rate at 0.1%. We recall that the committee last cut its policy rate in March 2020 by 15bps. Beyond that, the Committee also unanimously elected to continue its existing quantitative easing programmes of GBP745 billion. The foregoing is imperative given the growing need to institute policies to support growth from COVID-19 pandemic. We understand that the Committee does not intend to tighten monetary policy until there is a clear sign that the health of its economy has made significant progress. As such, we expect the policy rate to be at the current level through the end of the year. Further, we think more quantitative easing programmes will be needed for the inflation target of 2% (which remain subdued at 0.6% in June) of the committee to materialize.


 

Global Markets

Global equities were broadly positive as investors reacted to the relatively strong manufacturing data from around the world reported at the start of the week. Consequently, US (DJIA: +3.6%; S&P: +2.4%) and European (STOXX Europe: +1.7%; FTSE 100: +2.3%) stocks were set to close the week higher. Asian (Nikkei 225: +2.9%; SSE: +1.3%) stocks were also up on the preceding. Emerging (MSCI EM: +2.6%) and frontier markets (MSCI FM: +1.7%) stocks were also set to end the week higher as investors remained hopeful of more stimulus for the U.S. economy, while also enjoying a recent surge in commodity prices.



Nigeria

 

Economy

Nigeria's manufacturing PMI contracted for the third consecutive month to 44.9 points in July (June 2020: 41.1 points), albeit at a softer pace relative to the prior period. In the same period, the non-manufacturing PMI printed 43.3 points, the fourth straight contraction. Across the sectors, the production level (44.7 vs 36.6 in June), new orders (43.1 vs 36.4 in June), employment level (40.0 vs 38.8 in June), and inventories (43.2 vs 41.0 in June) remained in the contractionary territory, albeit at a slower pace when compared to last month. On the positive, supplier delivery time (56.4 vs 60.9 in June) expanded in the period. For us, passthrough from the COVID-19 pandemic is taking its toll on Nigeria's economic activities. Beyond July, we expect economic activities to gradually improve, owing to the continued steady easing of lockdown.

The Petroleum Products Marketing Company (PPMC) in a new memo, adjusted the ex-depot and ex-coastal price of PMS to NGN138.6/litre and NGN113.7/litre respectively, with effect from August 5.  Although the PPPRA did not give the details of how it arrived at the price band in July, we highlight that the new ex-depot price of NGN138.6/litre is 33.1% greater than the NGN104.1/litre upper band of the ex-depot price in June. Furthermore, we recall that the approved retail price band for July was set within the band of NGN140.8/litre and NGN143.8/litre (+16.4% m/m). With oil price stabilizing between USD42/barrel and USD45/barrel, we see the retail price of PMS leapfrogging above NGN150/barrel over the next few months.



 Proshare Nigeria Pvt. Ltd.


Capital Markets

 

Equities

Bullish momentum from the previous week was sustained as investors continued to react to better than expected earnings and bargain-buy relatively cheap stocks. Specifically, GUARANTY (+8.2%), STANBIC (+10.0%), SEPLAT (+12.8%) and ZENITHBANK (3.7%) were the primary drivers of the overall market's gain, with the All-Share index closing the week 1.4% higher at 25,041.89 points. The YTD loss moderated to -6.7%. Performance across sectors within our coverage was broadly positive with the Banking (+4.9%), Oil & Gas (+4.8%), Consumer Goods (+0.7%), and Industrial Goods (+0.1%) indices recordings gains. The Insurance (-0.3%) index was the sole loser.

Our view continues to favour cautious trading as risks remain on the horizon due to a combination of the increasing number of COVID-19 cases in Nigeria and weak economic conditions. Thus, we continue to advise investors to seek trading opportunities in only fundamentally justified stocks.



Fixed Income and Money Market 


Money Market

In line with our expectations, the overnight (OVN) rate expanded by 507bps to 7.2%, as outflows from CRR debits (between NGN450.00 billion to NGN600.00 billion) and FX auctions pressured the system, in the absence of any significant inflows.

Barring any liquidity mop-ups by the CBN, we expect the OVN to trend southwards in the coming week, as inflows from OMO maturities (NGN29.78 billion) boost system liquidity. 


 

Treasury Bills

Trading in the Treasury bills secondary market remained bullish, despite the liquidity pressures witnessed in the system. Thus, average yield across all instruments contracted by 15bps to 3.4%. At the OMO segment of the market, bullish sentiments prevailed, as average yield in the space contracted by 18bps to 4.1%. This is due to the lack of OMO bills supply by the CBN over the last two weeks. Similarly at the NTB segment, average yield contracted by 4bps to 1.7%, as retail demand spurred the activities in the space.

We expected bullish sentiments to persist across the treasury bills space. In the NTB segment, we expect participants focus to shift towards next week's PMA, where the CBN will be rolling over NGN56.78 billion worth of instruments maturing. 




Bond

The Treasury bonds secondary market traded with weak sentiments, due to profit-taking by investors. Consequently, average yield expanded by 71bps to 7.8%. Across the benchmark curve, average yield expanded at the short (+37bps), mid (+74bps) and long (+110bps) segments, as market participants sold-off the JAN-2026 (+176bps), MAR-2027 (+116bps) and MAR-2036 (+169bps) bonds, respectively.

Considering the relatively attractive yields that Treasury bonds possess, we expect demand to return to the market next week.


Foreign Exchange

The CBN's foreign reserves sustained its descent as FX outflows continue to outpace inflows, thus dipping by USD171.88 million w/w to USD35.71 billion. Nevertheless, the naira appreciated marginally against the US dollar by 0.84% w/w to NGN386.00/USD at the I&E window, and remained flat at NGN475.00/USD at the parallel market. In the forwards market, the naira appreciated against the US dollar across the 1-month (+0.8% to NGN387.38/USD), 3-month (+0.9% to NGN389.99/USD), 6-month (+1.1% to NGN394.35/USD) and 1-year (+1.0% to NGN408.08/USD) contracts.

Despite the CBN's stronger commitment towards exchange rate unification, we still see legroom for the currency to depreciate further, at least towards its REER derived fair value. Our prognosis is hinged on (1) the widening current account (CA) position, (2) currency mispricing, which could induce speculative attacks on the naira, and (3) the resumption of FX sales to the BDC segment of the market which should place an additional layer of pressure on the reserves as the CBN funds the backlog of unmet FX demand.



Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.


Contact Us:

To list your events, e-mail business@proshareng.comWhatsApp  0902-407-5284 and DM @proshare.



For further information, enquiry or clarifications, kindly email market@proshareng.com and research@proshareng.com Tel: 0700PROSHARE (070077674273). Call us NOW!

 

Follow @proshare @ecopoliticsNG @TheAnalystNG@PersonalFinanceNG and @WebTVng for coverage and updates.


Proshare Nigeria Pvt. Ltd.




Proshare Nigeria Pvt. Ltd.


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!



Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd. Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd. Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

Previous Week(s) Market Outlook

1.      What To Expect From The Markets This Week - 030820

2.     What To Expect From The Markets This Week - 270720

3.     What To Expect From The Markets This Week - 200720

4.     What To Expect From The Markets This Week - 130720

5.     What To Expect From The Markets This Week - 060720

6.     What To Expect From The Markets This Week - 290620


Proshare Nigeria Pvt. Ltd.


Latest Reports This Past Week

1.      Covid Related Reports

2.     N651.77bn Generated as VAT in H1 2020 - NBS

3.     Average Prices of 1kg of Tomato Increased By 30.25% YoY in June 2020 - NBS

4.     Average Fare for Bus Journey Within City Increased By 3.36% MoM to N229.94 in June 2020 - NBS

5.     NBS Publishes COVID-19 Impact Monitoring Survey Report for June 2020

6.     Nigeria's Total Public Debt Stood At N28.63trn in Q1 2020 - NBS

 

Proshare Nigeria Pvt. Ltd.


Related News

1.      Investors Gain N138.76bn WoW as NSEASI Inches Up by 1.09% to Close the Week Positive

2.     Investors Lose N69.61bn as NSEASI Dips by -0.54% Amid Negative Market Turnover

3.     Investors Gain N185.65bn as NSEASI Inches Up by 1.46% to Open the Week Positive


Proshare Nigeria Pvt. Ltd.


Read More - The Monthly Proshare CONFIDENTIAL  

1.      Roads: Concrete Vision, Asphalt Competition, Looking Ahead.     

2.      CEO Remuneration 2020 Report: Between 2019 and 2020; Understanding The New Realities

3.     Coronanomics (1) - Understanding the Realities of an Impending Recession

4.     NCM2020 - Fin. MKT in Transition: Understanding Past Uncertainties; Preparing for New Possibilities

5.     Banks' H1 2019 Numbers: Top Line Growth, Bottom Line Uncertainty

6.     CEO Remuneration: Making Sense Of The Numbers For Listed Companies In Nigeria

7.     Budget 2019: The Hidden Monsters

8.     Surviving Uncertain Times in the Nigerian Financial Market

9.     The Rich, The Poor and Buharinomics

10.  Nigerian Banks’ Performance - H1 2018

11.   AMCON and Financial Services Debt Burden in Nigeria

12.  Poverty Tracker and Nigeria: Raising The Red Flag

13.  POCKET Economics: Addressing Income Inequality

14.  The Silent Drug Epidemic: A Gathering Storm

15.  Judging IMF's Position on Development Indices

16.  Money Market: The Folk Road

17.  The Headache of Missing Targets

18.  2018 Outlook on the Nigerian Economy: The Need for an Even Keel

19.  Nigeria External Economy and the White Noise of Import Dependency

20. States and the Rising Weight of Debt

21.  Money Supply: Reeling from Policy Response

22. How Rail and Energy Will Deliver a Robust Economy for Nigeria

23. Too Big Government: The Hysteria of Developmental Quagmire

24. The Nigerian Debt Conundrum and the Need for Automatic Stabilizers 



Proshare Nigeria Pvt. Ltd.


Proshare Nigeria Pvt. Ltd.

READ MORE:
Related News
SCROLL TO TOP