What To Expect From The Markets This Week- 231120

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Nigeria: Economic Dashboard @ 201120    


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Editor's Note


Source: Proshare Research - November 20, 2020

Nigeria Economy


  • Nigeria's manufacturing sector expanded following six months of contraction. The CBN, in its latest Purchasing Managers' Index Survey Report, noted that the manufacturing PMI stood at 50.2 index points in November, indicating a recovery from the contraction recorded in manufacturing sector since May 2020.
  • Of the 14 subsectors surveyed, eight subsectors reported expansion in the review month. The subsectors that expanded are transportation equipment, non-metallic mineral products, furniture & related products, cement textile, apparel, leather & footwear, plastics & rubber products. Others were food, beverage & tobacco products, as well as printing & related support activities. While the six subsectors that contracted were electrical equipment, petroleum & coal products, chemical & pharmaceutical products, primary metal, paper products, and fabricated metal products.
  • The Federal Executive Council approved the 2020 Finance Bill for subsequent transmission to the National Assembly. The Finance Bill seeks to provide more tax incentives for Nigerian businesses and individuals. Some of the highlights of the proposed bill are reduction in duties on tractors from 35 to 10 per cent, reduction in duties on motor vehicles for the transportation of goods from 35 to 10 per cent, reduction of levy on motor vehicles for the transportation of persons (cars) from 35 per cent to 5 per cent, Exemption of small companies from payment of education tax under the Tertiary Education Trust fund (TETFUND) for companies with less than N25m turnover are eligible etc.
  • The Federation Account Allocation Committee disbursed a total of N2.05trn to the three tiers of government and other statutory recipients in the third quarter of the year. A breakdown of the figures showed that the Federal Government received N812.22bn, state governments N676.5bn, while Local Government Areas got N429.16bn. Total disbursements of N2.05trn in 2020 was 6.2% higher than total disbursements of N1.93trn in Q2 2020, and 5.6% higher than total disbursements of N1.95trn in Q1 2020.
  • Nigeria's inflation rate rose by 14.23% (year-on-year) in October 2020 as against 13.71% recorded in September 2020. Composite food index rose by 17.38% in October 2020 compared to 16.66% recorded in September 2020. The major drivers of food inflation were increases recorded in the prices of bread and cereals, potatoes, yam & tubers, meat, fish, fruits, vegetable, alcoholic and food beverages and Oils and Fats.
  • Core inflation increased to 11.14% in October 2020. The highest increases were recorded in prices of Passenger transport by air, Hospital and Medical services, Passenger transport by road, Pharmaceutical products, Motor cars, Vehicle spare parts, maintenance and repair of personal transport equipment, Hairdressing salons and personal grooming establishments, Miscellaneous services relating to the dwelling, Paramedical services and shoes and other footwear.

Outlook

The MPC meeting would take place this week and would face the decision of whether to cut interest rate or to maintain status quo. Given the consistent rise in inflation most analyst predict that the MPC would maintain status quo.

 

GDP figures for Q3 2020 would be released next week and we expect the Nigerian economy to contract further but the magnitude of contraction would be less than that of Q2 2020.

 

Global Economy

  • China left its benchmark lending rate for corporate and household loans unchanged for a seventh straight month at its November fixing. The one-year loan prime rate (LPR) was kept unchanged at 3.85% while the five-year LPR remained at 4.65%. Most new and outstanding loans are based on the LPR, while the five-year rate influences the pricing of mortgages. The rate decision comes after the People's Bank of China (PBOC) kept borrowing cost on the medium-term lending facility (MLF) unchanged for a seventh straight month this week.  The LPR is a lending reference rate set monthly by 18 banks. The PBOC revamped the mechanism to price LPR in August 2019, loosely pegging it to the MLF rate.
  • UK inflation rose by more than expected in October, fuelled by the rising price of clothing and second-hand cars, according to the Office for National Statistics. The consumer prices index (CPI) rose to 0.7% in October from 0.5% a month earlier as clothing prices increased, returning to a more normal seasonal pattern after the disruption this year.
  • US retail sales increased less than expected in October and could slow further, restrained by spiraling new COVID-19 infections and declining household income as millions of unemployed Americans lose government financial support. Retail sales rose 0.3% last month, the smallest gain since the recovery started in May, after increasing 1.6% in September, the Commerce Department said. They account for the goods component of consumer spending, with services such as healthcare and hotel accommodation making up the other portion.
  • Singapore's October non-oil domestic exports (NODX) unexpectedly fell 3.1% from a year earlier, coming in well below forecasts, as both electronics and non-electronics shipments dropped, official data showed. On a seasonally adjusted month-on-month basis, exports decreased 5.3% in October after an 11.4% contraction the previous month, Enterprise Singapore said in a statement.
  • Japan's exports extended declines in October but at the slowest pace in almost two years, helped by improvement in Chinese- and U.S.-demand for cars and other items as the world's third-largest economy emerged from its worst post-war slump. Ministry of Finance (MOF) data showed exports fell 0.2% in October from a year earlier. By destination, shipments to the United States rose 2.5%, a second straight month of increase and the biggest since July 2019 led by demand for automobiles and car parts. Exports to China, Japan's largest trading partner, increased 10.2%, driven by chip-making equipment, cars, and plastic, while those to Asia rose 4.4%, the first increase in eight months. Shipments to the European Union fell 2.6% in October.
  • China and 14 other Asia-Pacific countries signed the world's largest trade agreement on Sunday - a move that analysts said will further elevate China's political and economic influence in the region. The signing cemented the Regional Comprehensive Economic Partnership (RCEP) as the largest trading bloc globally, covering a market of 2.2 billion people and $26.2 trillion of global output. That accounts for about 30% of the population worldwide, as well as the global economy. It is also larger than what's covered under the United States-Mexico-Canada Agreement (USMCA) and the European Union.
  • The South African Reserve Bank decided to keep the repo rate steady at 3.5% on 19th November 2020, following the conclusion of its final Monetary Policy Committee (MPC) meeting for 2020. This is the second MPC meeting in a row where the bank has opted to keep the repo rate unchanged, a move that widely expected by most economists

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Commodities Market

Weekly Review and Outlook

Energy

Oil prices firmed this week, with a weekly growth of +3.49%. Earlier in the week prices shot up after Moderna's vaccine outweighed Pfizer's and BioNTech's in efficacy. Also adding to the bullish trend during the week was the positive news from China where its crude oil refinery throughputs increased by 2.6% year-on-year in October, setting a new refinery run record of 14.09m barrels per day (bpd).

 

Lending support to the market is the hope that OPEC+, comprising the Organization of the Petroleum Exporting Countries, Russia, and other producers are considering delaying a plan to boost output in January by 2mbpd. However, the surge in new cases of the coronavirus around the world capped the gains during the week. (See Table 1)

 

Metals

Gold prices experienced a weekly loss of about -1.36% as investors kept turning a blind eye to the yellow metal. Silver also dropped by -2.1% W-o-W. (See Table 1)

 

Agriculture

Cocoa prices had the highest weekly gain amongst the commodities, closing the week with +15.75% growth. Corn prices moved up by +3.71% WoW while Sugar also inched up by +2%. (See Table 1) 

 

Table 1Weekly Change in Commodity Prices

Commodity

20-Nov-20

13-Nov-20

31-Dec-19

Weekly Chg

YTD Chg

Brent

44.5

43

66

3.49%

-32.58%

Gold

1867.17

1892.85

1517.27

-1.36%

23.06%

Silver

24.21

24.73

17.85

-2.10%

35.63%

Cocoa

2726

2355

2463

15.75%

10.68%

Corn

433

417.5

388.25

3.71%

11.53%

Sugar

15.29

14.99

13.42

2.00%

13.93%

Source: Bloomberg, Proshare Research

*Data for 20th Nov 2020 is as of 2:45pm (Nigerian Time)

 

Outlook

  • In the coming week, oil prices are expected to be mixed, as the surge in coronavirus cases shows no sign of slowing. Any positive new development from Pharmaceuticals regarding the vaccine could help support oil prices as well as a draw in US crude Inventories.
  • Gold prices are expected to continue their bearish trend as economic recovery slows.
  • We expect cocoa prices to be stable in the coming week on the back of supply disruptions in Ivory Coast.
  • Sugar prices remain bullish as Indian's export subsidy concerns grow.
  •  Corn prices to remain stable amid strong as China's aggressive buying continues.

 

Fixed Income and Money Market 

 

Money Market

System liquidity remained robust for the week following the FX auction as funding rates were low especially at the beginning of the week, however, the rates increased at the end of the week. The overnight (O/N) rate was 4.33% while open buyback (OBB) was 3.33% at the end of the week.

 

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

 

Treasury Bills Market

Near-zero rates for the Nigerian Treasury Bill (NTB) instruments continued this week as we see limited investor interest play out in trading this instrument. The NTB market started the week on a quiet note which was maintained throughout the week as a result of system liquidity.

 

We expect participation in the NTB market to trend downwards in the coming week because of the depressed yields.

 

FGN Bond Market

The bond market started the week on a bearish note as investors reacted to October inflation figures, with headline inflation higher for the 14th consecutive month to 14.2%. through the week we see more participation particularly at the long end of the curve, however on a less aggressive note.

 

Summary FGN bond auction for November 2020 shows both the reopened 15-year tenor and 25-year tenor bonds were oversubscribed, albeit at a decreasing rate - that is, the oversubscription rate has declined compared to pre-COVID-19 levels and when rates were still relatively high. The 15-year tenor instrument was oversubscribed by 119.25% while the 25-year dated instrument was oversubscribed by 142.60%.

 

We expect the market to trend on a quiet note as yield opportunities thin out and the absence of bond auction for this month.

 

FGN Eurobond Market

The FGN Eurobond market was supported by positive COVID-19 vaccine news and oil price was mostly steady through the week. At the close of the week, we saw mixed investor sentiments in the market as COVID-19 restrictions weighed against the vaccine progress.

 

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

 

Foreign Exchange Market

The Naira was under pressure for most of the week despite CBN's continuous intervention, this was as a result of demand for FX swelling faster than the supply. The Naira closed the week at $/N385.83/at the investors and exporters window (I&E), at the NAFEX window it closed at $/N385.70, at the Bureau de change (BDC) window it traded at $/N478 on Friday.

 

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


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Nigerian Capital Market

  • Companies continue to release third-quarter earnings, this week twelve (12) quoted firms declared their results.  Eight (8) out of the Twelve (12) firms declared revenue growth. NEIMETH records 27% growth in earnings to emerge as the firm with the highest growth in earnings while EKOCORP records 23% negative growth in earnings to emerge as the firm with the least growth rate. ZENITHBANK tops with the highest PAT figure while EKOCORP declared the least with a loss.
  • The Nigerian bourse closed the week negative as it declined by N470.61bn in market capitalization while NSE All-Share dipped by -2.57%. YTD return and market capitalization stood at +27.18% and N17.84trn, respectively.
  • Profit-taking held sway on the capital market, most particularly amongst banking stocks as investors took positions in the market to go short (sell-off of stocks) while depressed yields in the fixed income market still loom.
  • A total turnover of 11.4bn shares worth N35.89bn in 39,265 deals was traded this week by investors on the floor of the Exchange while volume and value traded declined by -72.27%, and -74.08%, respectively. The most traded stocks by volume were UAC-PROP, TRANSCORP, and JAIZBANK accounting for 9.26bn shares worth N6.64bn in 1,958 deals, contributing 81.22% and 18.50% to the total equity turnover volume and value respectively.
  • Sectoral performance for the week was bearish as all other indices closed the week negative except the NSE Insurance Index which appreciated by +0.51%. NSE Banking, NSE Consumer Goods, NSE-IND, NSE Oil and Gas closed negative by -5.98%-4.29%-0.66%, and -4.38% and respectively.
  • Market breadth closed negative for the week with 21 gainers led by BOCGAS and TRIPPLEG as against 55 losers led by WAPIC and OANDO.


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Chart 1: Movement of NSEASI Index Points 16 Nov. 2020 - 20Nov. 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 736.53points and N547.46bn showing an increase of +1.44%  and +2.65% W-o-W respectively.


 

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Dangote and Toni Index 

 

Dangote Index closed the week negative at 104.57 basis points from 108.51 basis points recorded the previous week, a decline of -3.63%. DANGCEM and DANGSUGAR recorded a decline in their share prices except for NASCON which recorded a growth W-o-W.

 

 

Table 2: Dangote Index W-o-W Change

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In the same vein, the Toni Index also closed negative to close at 99.87 basis points from 111.18 basis points recorded the previous week, a W-o-W decline of -10.17%. The stocks making up the index all recorded decline in their share prices except TRANSCOHOT which closed flat W-o-W. 

 

 

Table 3: Toni Index W-o-W Change

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Outlook

As more corporate results are released, in the coming week we expect that there will be more profit-taking in the market as investors take positions on the capital market. Furthermore, constriction in translating returns on domestic investment into the foreign exchange and low yields in the fixed income market will put pressure on the Nigerian Stock Exchange.



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