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What To Expect From The Markets This Week - 230919

Market Updates	1971 VIEWS
Market Updates
1971 VIEWS

Saturday, September 21, 2019 09:00 AM / Proshare Content

Nigeria: Economic Dashboard @ 200919

Editor's Pick

Source: Cordros Weekly Economic and Market Report â€“September 20, 2019

Global economy

This week, global central bankers continued to strike a dovish undertone in an effort to tackle a global macroeconomic slowdown occasioned by the negative impact of Sino-US trade war, together with geopolitical crises within the Eurozone and the Middle East. While both the Bank of Japan (BOJ) and the Bank of England (BOE) left benchmark interest rates unchanged, the US Fed delivered its second policy rate cut of the year (-25 bps to a range of 1.75% to 2.00%). The Fed's justification for the rate cut wasn't entirely different from the July statement, citing the need to support the benign growth outlook and muted inflationary movements. Looking ahead, with leading macroeconomic indicators pointing towards a further slowdown in global growth, bias is for the global monetary policy landscape to remain accommodative in the near term.

Elsewhere, data from the US commerce department showed that the US current account deficit improved in Q2-19. Pointedly, the deficit picture now accounts for 2.4% of GDP, down from 2.6% in the previous quarter and the record high 6.3% of GDP in Q4-15. Against the negative impact of global trade protectionism, the US trade deficit worsened in the period as export (-1.1% q/q) underperformed relative to import (+0.3% q/q). Meanwhile, the sturdy income receipts were enough to offset the disappointing trade balance, setting the stage for a 5.9% q/q moderation in the current account deficit. While the trade war between the US and its largest trading partners look set to continue to cast shadow on trade balance, we see gains from income and services providing the needed breather to the overall current account pictures.

Global markets

Global equities across our coverage universe were mixed, albeit with a bearish tilt, as worries about a possible global slowdown still linger. Also, renewed tensions in the Middle East, after an air attack knocked out a Saudi Arabian oil supply hub last weekend also unnerved investors. At the twilight of the week, stimulus measures by major central banks improved sentiments but were unable to offset earlier losses. Consequently, US (DJIA: -0.5%; S&P: +0.0%) and European (FTSE: -0.4%, Euro Stoxx: 0.0%) equities were on track to close the week in flat-to-negative territory. Asian (CSI 300: -0.9%; Nikkei: +0.4%) indices were mixed as China's stance on overall monetary easing was seen as cautious by investors, with policymakers remaining reluctant to join a global stimulus wave. Sentiments in Emerging Markets (MSCI EM: -1.0%) and Frontier Markets (MSCI FM: -1.2%) were weak, following losses across China and Kuwait (-3.9%), respectively.

Nigeria

Economy

Faced with choice of holding or loosening policy rate, the Nigeria's monetary policy committee unanimously elected to maintain status quo by leaving all policy parameters unchanged. The MPR, CRR, and Liquidity Ratio remained at 13.5%, 22.5%, and 30%, respectively. To our mind, of all factors competing for attention, heightened capital flights, with its attendant negative impact on inflation and currency, was at the crux of the committee's decision. Going forward, against the elevated maturity profile in Q4 19 (NGN4.1 trillion), together with the shaky crude oil price outlook, both of which could potentially disrupt the CBN's mandate of currency and price stability, we see a lower chance of a rate cut through the rest of the year.

In our July inflation report, we had argued that the impact of increased farm-produce supplies, due to the green harvest season, would result in a further deceleration in food prices, and by extension, headline inflation. In line with our expectations, the headline inflation for the month of August dipped by 6 bps to 11.02% y/y, the lowest reading since January 2016. For evidence, the food prices moderated by -22 bps to 13.17% y/y, following tapered prices across farm produce (-3 bps), processed food (-392 bps) and imported food (-57 bps). Similarly, the core inflation tapered (-12 bps to 8.68% y/y), following sizeable decline across Alcoholic Beverages, Tobacco, and Kola (-11 bps) and Clothing and Footwear (-6 bps). For the month of September, while we expect the impact of the main harvest season, to exert downward pressure on food prices, we, however, highlight, (1) the partial border closure, (2) banditry activities, and (3) weather conditions, as notable upside risks to food inflation. Meanwhile, we see no risk to core inflation in the near term. Overall, we expect headline inflation to remain flat at 11.02% y/y for September (0.84% m/m).

Capital markets

Equities

Amidst continued risk off sentiments and the absence of positive market catalysts, trading in the Nigerian equities market was volatile, with the ASI alternating between gains and losses through each trading session this week. Ultimately, the market closed lower week-on-week (-0.3% to 27,698.69 points) as significant selloffs of market heavyweight, AIRTELAFRI (-19.0%), offset gains in STANBIC (+22.4%), GUARANTY (+5.3%) and MTNN (+0.7%), and dragged the YTD loss to 11.87%. Analysing by sectors, the Insurance (+4.8%), Consumer Goods (+2.2%), Banking (+1.8%) and Oil & Gas (+0.5%) all recorded gains, while the Industrial Goods (+0.0%), index closed flat.

Over the coming week, we expect the market to remain pressured given global risk-off sentiments and weak domestic participation. Nonetheless, we note that valuations remain attractive while price deterioration has resulted in expected dividend yields on some stocks rising significantly to levels on par with yields on Treasury bills. Hence, we advise that long-term investors consider appropriately timed investments.

Money market & fixed income

Money market

In line with our expectations, the overnight (OVN) rate remained moderate during the week in line with liquidity dynamics in the market. However, given the boost to liquidity over the prior week, the OVN rate settled 617.1ppts lower week-on-week. On the first trading day, the rate settled 11.6ppts higher at 36.7% as system liquidity became strained. However, as maturities filtered into the market from the 17th, the rate moderated, first by 18.1ppts to 18.3%, and then by 2.7ppts to 15.6% on the 18th. However, on the penultimate trading day of the week, the rate increased by 2.5ppts to settle at 18.1%, as an OMO held by the CBN drained system liquidity.

In the coming week, maturities worth NGN440.17 billion are expected to hit the system on the 23rd (NGN18.12 billion Treasury bond coupon from the 13.53 23-MAR-2025 instrument) and 26th (NGN422.05 billion from OMO maturities). Consequently, we expect the OVN rate to spike at the start of the week given the negative liquidity position of the market (NGN176.06 billion), but pare as liquidity conditions improve.

Treasury bills

Activities in the Treasury bills market were seemingly bearish as the average yield pared by 23bps to settle at 13.6%. In line with our expectations, the CBN held PMA and OMO auctions to manage system liquidity. At the CBN held a Treasury bills PMA during the week on the 20th, when instruments worth NGN179.75 billion were offered to investors. The auction was oversubscribed and fully allotted for the three tenors on offer - NGN3.00 billion of the 91DTM bill (Bid-to-offer: 1.49x), NGN8.39 billion of the 182DTM bill (Bid-to-offer: 1.47x), and NGN168.36 billion of the 364DTM bill (Bid-to-offer: 2.14x) - at respective stop rates of 11.10% (previously 11.10%), 11.80% (previously 11.80%) and 13.30% (previously 12.89%). Also, the CBN offered instruments worth NGN300.00 billion at the OMO auction, with only the 364-day instrument recording oversubscription and full allotment - NGN1.03 billion of the 91DTM bill (Bid-to-Offer: 0.02x), NGN0.05 billion of the 182DTM bill (Bid-to-Offer: 0.001x), NGN4941.40 billion of the 364DTM bill (Bid-to-offer: 2.46x).

We expect increased demand in the secondary market as investors look to re-invest OMO maturities.

Bond

The trend of trading switched in the bonds market during the week, as investor demand resulted in yields declining 9 bps. There were yield declines recorded across the market, save for 6 instruments which recorded yield expansions. The 12.1493 18-JUL-2034 instrument recorded the largest decline (-27bps), while the 16.00 29-JUN-2019 instrument recorded the largest increase (+65bps). The DMO will be holding a primary market Treasury bonds auction next week, on the 25th of September, when three instruments, all through re-openings, will be auctioned to investors - 12.75% FGN APR 2023, 14.55% FGN APR 2029, and 14.80% FGN APR 2049.

We expect trading to have a bearish tilt in the coming week, as investors position for the primary bonds auction.

Foreign exchange

Following the unrelenting naira assets sell-offs by offshore investors, the Nigeria's FX reserves declined by USD30 million WTD to USD42.46 billion (September 18, 2019). Meanwhile, in the absence of CBN's weekly FX interventions, the naira depreciated by 0.1% w/w to NGN362.39/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 decreased by 40.4% WTD to USD687.49 million, with trades executed within the NGN357.50- 363.00/USD band. In the Forwards market, the naira contracted across the 1-month (-0.1% to NGN365.60/USD), 3-month (-0.1% to NGN372.55/USD) and 6- month (-0.3% to 384.02/USD) contracts. Conversely, 1- year contract was unchanged. At the commodities market this week, oil price maintained its elevated level from last week, closing the week at +7.7% w/w to USD64.87bbl.

Despite the continuous depletion of reserves amidst sell-offs from off-shore investors, we see no risk to naira devaluation in 2019, as we believe the CBN has more than enough ammunition to sustain its naira defense. On balance, we expect the naira to remain resilient in the short to medium-term.

Monday, September 23, 2019

The Ai Institutional Investment Leaders' Roundtable 2019, in Association with the 2nd CFA Annual Climate and ESG Asset Owner Summit will hold on this day at New York, CFA Society New York while the African Association of Agricultural Economists Conference will hold on the same day at Sheraton Abuja Hotel, Abuja.

Tuesday, September 24, 2019

The Convention of Business Integrity will on this day hold the 4th Regulatory Conversation at the Incubator Victoria Island Lagos, while Investing Impact Capital In Africa Alternatives will hold on the same day with the theme: Maximising risk-adjusted returns and impact at 301 Avenue of the Americas.

The Institute of Directors Nigeria will on this day hold a Masterclass for Independent Directors in Lagos Nigeria, while The Chartered Institute of Bankers Nigeria will on the same day hold the 12th Annual Banking and Finance Conference with the theme: The Future of the Nigerian Banking Industry - 360 degree" at Congress Hall, Transcorp Hilton Hotel, Abuja.

The Palm Africa Expo will hold on this day at International Conference Center Annex, Garki Abuja while, the CIIA Council Meeting will hold on the same day in Ikoyi Lagos State.

Power Nigeria will hold on this day with the theme: Energizing Nigeria at Landmark Center Victoria Island Lagos while, the African Waste Management Exhibition & Conference (AFRICAN WASTE MANAGEMENT EXPO) will hold on the same day at Landmark Centre, Lagos.

The IMTC Africa 2019 will hold on this day with the theme: Explore the Rapidly Evolving X-Border Finacial Service & Fintech Industry in Africa at Eko Hotels & Suites, Lagos, Nigeria.

Wednesday, September 25, 2019

The National Bureau of Statistics will on this day release the Federation Account Allocation Committee (FAAC) August 2019 Disbursement), while the Logistics, Transport And Port Management Conference (LTP Nigeria) by DU & T Consulting will hold on the same day at Eko Hotels & Suites, Lagos.

Thursday, September 26, 2019

The Institute of Directors Nigeria, will on this day hold the 2019 Annual Director's Conference with the theme: African Continental Free trade Africa Agreement (AFCFTA) at Congress Hall, Transcorp Hilton Hotel, Abuja, while the Nigerian- South Africa Chamber of Commerce will on the same day hold its September Breakfast Meeting at Orchid Hall, Eko Hotel and Suites, Plot 1415, Adetokunbo Ademola Street, Victoria Island, Lagos.

Honeywell Flour Mills Plc will on this day hold its Annual General Meeting at Civic Centre, Ozumba Mbadiwe Street, Victoria Island, Lagos, while the Academy Press Plc will on the same day hold its Annual General Meeting at 28/32, Industrial Avenue, Ilupeju Industrial Estate, Lagos.

The University Press Plc will on this day hold its Annual General Meeting at Kakanfo Conference Centre, 1, Nihinlola Street, Joyce B. Road, Off Ring Road, Ibadan, while e-Tranzact International Plc will on the same day hold its Annual General Meeting at The Colonades, Alfred Rewane Road, Ikoyi Lagos.

The Nigeria British Chamber of Commerce will on this day hold its 3rd Quarter Members Evening with the theme: Beyond Financing SMES: Innovation and Collaboration at The Grand Junction, Landmark Tower, Victoria Island Lagos, while the Lagos Business School will on the same day hold the LBS Building a Successful and Sustainable Business at Sheraton, Ikeja Lagos.

Friday, September 27, 2019

The Annual Young Entrepreneurs Summit & Awards/Exhibition will hold on this day in Abuja, while the Fintech & Blockchain Summit will hold on the same day in Ikoyi, Lagos State.

Saturday, September 28, 2019

The 2nd edition of Jos Tech & Funders Breakfast Meetup will hold on this day at nHub Nigeria, Jos Plateau

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

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