What To Expect From The Markets This Week - 141220

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Saturday, December 12, 2020 08:00 AM / Proshare Content / Header Image Credit: EcoGraphics


  

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Nigeria: Economic Dashboard @111220

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Editor's Note


Source: Proshare Research - December 12, 2020

Nigeria Economy

  • Nigeria's trade deficit rose by +32.45% from N1.8trn as of the end of the second quarter to N2.38trn in the third quarter. The value of Nigeria's merchandise trade stood at N8.37trn in Q3 2020. This represents an increase of +34.15% in Q3 2020 compared to Q2 2020 but a decline of -8.85% compared to Q3 2019. Total trade year-to-date amounted to N23.2trn. The import component was valued at N5.38trn, representing an increase of +33.7% in Q3 2020 against the level recorded in Q2 2020 and +38.02% compared to Q3 2019.
  • On the other hand, the export component accounted for N2.99trn of the total trade in Q3 2020 indicating an increase of +34.85% compared to the value recorded in Q2 2020 but a decline of -43.41% compared to Q3 2019. The value of exports in Q3 2020 represented the lowest level of any quarter since 2017.
  • The Lagos-Ibadan rail line commenced commercial operations on Monday, December 7th, 2020. The train fare ranges between N2,500 and N6,000.
  • The Federal Government halted the sack of 300 employees of Arik Airline and noted that the hike in domestic airfares was inevitable given the negative effect of the COVID-19 pandemic on the airline industry.


Outlook 

Nigeria's inflation figures will be released next week by NBS. We expect headline, core, and food inflation rate to maintain an upward trend. The magnitude of increase in headline inflation would be less than +0.52% percentage points recorded in November 2020. Headline inflation could rise to 14.52%.


 

Global Economy


  • The UK economy in October recorded a sixth consecutive month of growth, following the economy contraction by -19.5% in April. The UK economy grew slowly by +0.4% in October amidst tougher coronavirus restrictions. Despite continuous growth, the UK economy remains around 8% below its pre-pandemic peak. Sectors such as accommodation and food were the worst affected while areas of the economy such as education, retail, and car manufacturing grew strongly in October.
  • Rising tensions between China and Australia lingers on as China announced that it will temporarily impose anti-subsidy fees on some Australian wine imports from Dec. 11. Importers of wines being investigated for Australian subsidy benefits will have to pay deposits to China's customs authority.
  • Asides from the anti-dumping tariffs of 107.1% to 212.1% on wine imported from Australia, exporters of wine to China being investigated would have to pay anti-subsidy deposits of 6.3%. Some of Australia's wine importers that would be affected include Australia's Treasury Wine Estates, as well as Casella Wines and Swan Vintage while Pernod Ricard will attract a rate of 6.4%.
  • Singapore and UK signed a free trade deal that will cover a trade relationship worth more than $22bn. The agreement is very similar to an existing deal between Singapore and the European Union (EU). The agreement removes tariffs and gives both countries access to each other's markets in services. It also cut non-tariff barriers for electronics. Duties will be eliminated by November 2024, the same timeline as the pact between the EU and Singapore.
  • China's consumer price index (CPI) fell 0.5% in November from a year earlier after rising 0.5% in October. This was driven mainly by improvements in the pork supply. On the other hand, the producer price index (PPI) fell 1.5% from a year earlier.
  • Brexit trade negotiation still deadlocked despite the dinner meeting between British Prime Minister Boris Johnson and European Commission President Ursula von der Leyen on Wednesday, as neither EU nor UK is yet to reach common ground, as both sides are unwilling to compromise.
  • The South African economy grew by +13.5% (Q-o-Q) and contracted by -6.0%(Y-o-Y). The strongest contribution came from manufacturing which contributed 16.2 percentage points while it rose by +210.2%. Trade contributed 14.6 percentage points while it grew by +137%. The highest growth was recorded in mining at +288.3% but its contribution was less than that of manufacturing and trade because the contribution of mining was only 11.8 percentage points.


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Commodities Market

Weekly Review and Outlook

Energy

  • Oil prices dipped by over 1% on Monday, erasing the positive sentiment that the market boasted last week after OPEC plus agreed on a plan for January production.
  • The American Petroleum Institute (API) reported on Tuesday a build in crude oil inventories of 1.141 million barrels for the week ending December 4.
  • Brent crude oil price rose above $50 per barrel (bbl) on Thursday for the first time since oil price slumped in early March, as hopes of a faster demand recovery after the release of COVID-19 vaccines underpinned a huge rise in U.S. crude inventories that showed there was still bulk supply available. Brent had a weekly growth of +2.34% (see Table 1).

Metals

  • Gold prices inched up by +0.14%, extending their gains from the previous week. Silver depreciated by -0.79% W-o-W (see Table 1).

Agriculture

Cocoa prices depreciated by -0.95% this week, making it two weeks of successive losses. Corn prices plunged by -0.77% W-o-W while Sugar also depreciated by -1.03% (see Table 1).


Table 1Weekly Change in Commodity Prices

Commodity

11-Dec-20

04-Dec-20

31-Dec-19

Weekly Chg

YTD Chg

Brent

50.25

49.1

66

2.34%

-23.86%

Gold

1834.6

1832.1

1517.27

0.14%

20.91%

Silver

23.87

24.06

17.85

-0.79%

33.73%

Cocoa

2615

2640

2463

-0.95%

6.17%

Corn

419.25

422.5

388.25

-0.77%

7.98%

Sugar

14.48

14.63

13.42

-1.03%

7.90%

Source: Bloomberg, Proshare Research

*Data for 11th Dec 2020 is as of 2:06 pm (Nigerian Time)

 

Outlook

  • In the coming week, Oil prices are expected to be bullish as U.S. FDA is set to approve the Pfizer-BioNTech COVID-19 vaccine for emergency use.
  • Gold prices are expected to continue their downward trend as the vaccine roll ou continues.
  • We expect cocoa prices to experience an uptick in the coming week as the truce between top grower Ivory Coast and Chocolate maker Hershey is expected to lead to a pick-up in producer selling.
  • Sugar prices to rise as Indonesia, one of the world's largest sugar consumers is set to announce its import license.
  • Corn prices to rise during the coming week, amid robust demand and dry weather in South American crop areas and U.S. Midwestern area.

 

Fixed Income and Money Market 

 

Money Market

Money market rates started the week low and continued through the week as a result of system liquidity this was supported by N280.0bn OMO maturity repayment. The overnight (O/N) rates closed at 0.88% while the open buyback (OBB) closed the week at 0.50%.

 

We expect rates to trend lower in the coming week in the absence of funding obligations and any other liquidity shocks.

 

Treasury Bills Market

The Nigerian Treasury Bills (NTB) market started the week on a quiet note, however, on Wednesday, we saw a huge sell-off of NTB across all tenors. The CBN conducted an auction on Wednesday offering N50.9bn worth of notes, the offer was oversubscribed all tenors with investor demand strongest on the 91-day tenor paper which was oversubscribed by over 10 times. The rate for the 91-day tenor was 0.01% while 182-day and 364-day notes were 0.09% and 0.15% respectively. The NTB average yield closed the week at 0.43%.


In the week the CBN also conducted a Special bill auction, it sold an 81-day bill at o.5% discount rate to the banks, and the size of issuance is estimated at N4trn.


We expect participation in the NTB market to remain quiet in the coming week as a result of the depressed and unattractive yields.

 

FGN Bond Market

The bond market started the week on a bearish note as investor sentiment was mixed as a result of the uncertainties of CBN's Special Bill, however, the uncertainty was eased after CBN auctioned the Special bill at 0.5%. Average benchmark yields for the FGN bonds closed the week at 2.08% with a huge sell-off at the long end of the curve.


FCMB is set to undertake a Commercial Paper Issuance under its N100bn CP program, the CP has a tenor of 260 days intending to raise about N30bn to support the Bank's short-term funding needs.


We expect the market to continue in a quiet trend in the coming week.

 

FGN Eurobond Market

The FGN Eurobond market started the week on a bearish note in reaction to falling oil prices as Iran signaled oil production to full capacity in 2021 and rising COVID-19 cases. However, in the week we saw a reversal in the market as investor sentiment was positive and yields fell in most of the sessions this week.


We expect the market participants to continue to react to events around the global oil price and COVID-19 news.

 

Foreign Exchange Market

For weak-on-week (W-on-W) performance of the Naira, at the I&E FX window, the Naira appreciated against the USD by +0.25%, at the BDC market it remained unchanged.


The Naira closed the week at $/N395 at the I&E FX window, at the NAFEX (spot market) it closed at $/N391.71, and at the BDC market, it closed at $/N480, E/N630, and E/N580.


We expect the CBN to continue its FX management strategy in supporting the Naira at the parallel and I & E window.


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Nigerian Capital Market

  • It was a bearish performance on the Nigerian Bourse this week as a result of profit-taking as reflected in the NSEASI which dipped by -2.53%. The week opened negative on increased risk-off sentiment and remained so through the week with profit-taking on tier-1 banks and large-cap stocks. Market cap retreated by N463.73bn; YTD return and market capitalization retreated to +27.60% and N17.90trn, respectively WoW.
  • A total turnover of 2.32bn shares worth N20.99bn in 23,722 deals was traded this week by investors on the floor of the Exchange; the volume and value of stocks traded advanced by +171.82% and +4.20% respectively. The most traded stocks by volume were JAIZBANK, UBA, and ZENITHBANK accounting for 894m shares worth N7.07bn in  4,045 deals, contributing 39.47% and 33.72% to the total equity turnover volume and value respectively.
  • Performance across sectors was negative for the week as all indices closed the week negative except the NSE-ASeM which closed flat. NSE-IND recorded the highest decline of -4.96%, Banking, NSE Consumer Goods,  NSE Insurance, and NSE Oil & Gas retreated by -2.93%, -1.55%, -1.82%, and -0.25% respectively.
  • Market breadth was negative for the week with 13 gainers led by FTNCOCOA and UNIONDAC as against 46 losers led by REGALINS and UPL.

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Chart 1: Movement of NSEASI Index Points 07Dec. 2020 - 11Dec. 2020

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NASD OTC

 

The NASD OTC Security Index (NSI) and Market Capitalization closed the trading week with a positive movement in Market capitalization and NSI. The NSI and Market capitalization closed the week at 733.77 points and N545.41bn showing an increase of +1.98% and +1.98%WoW respectively.


 

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Dangote and Toni Index 

 

 

Dangote Index closed the week negative at 98.42 basis points from 106.82 basis points recorded the previous week, a decline of -7.86%.  DANGSUGAR and DANGCEM recorded a decline in their share prices except for NASCON which closed flat. DANGCEM recorded the highest loss of -8.04% WoW.

 

Table 2: Dangote Index W-o-W Change


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Furthermore, the Toni Index also closed negative to close at 96.09 basis points from 99.45 basis points recorded the previous week, a W-o-W decline of -3.38%.  All the stocks weighed under the Toni Index closed the week negative with TRANSCOHOT recording the highest loss of -10.00%. 

 

 

Table 3: Toni Index W-o-W Change

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Outlook

We expect continuous profit-taking in the equities market albeit alongside bargain hunting as yields in the fixed income market remains relatively unattractive. 


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Latest Reports This Past Week

1.      Covid Related Reports

2.     FAAC Disburses N639.90bn in October 2020 - NBS

3.     GDP by Expenditure: Household Consumption Expenditure Contracts By -0.08% in Q2 2020 - NBS

4.     N416.01bn Generated as Company Income Tax in Q3 2020 - NBS

5.     Nigeria Slips into Recession; Real GDP Contracts by -3.62% in Q3 2020

6.     NBS Publishes COVID-19 Impact Monitoring Survey Report for September 2020

7.     N424.71bn Generated as VAT in Q3 2020 - NBS


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