What To Expect From The Markets This Week- 301120

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Saturday, November 28, 2020 08:00 AM / Proshare Content / Header Image Credit: EcoGraphics


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Nigeria: Economic Dashboard 271120  


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Editor's Note


Source: Proshare Research - November 28, 2020

Nigeria Economy


  • Nigeria recorded its 2nd recession in five years in Q3 2020. The Nigerian economy dipped in the second quarter of 2020 as GDP declined by -6.10%, compared with a growth of +1.87% in Q1. The top five sectors with the highest growth in Q3 2020 were Information & Communication +14.56%Water supply +7.10%Public administration +3.58%, Financial & Insurance +3.21%, and Construction +2.84%. While the top five sectors with the highest contraction in Q3 2020 were transportation & storage -42.98%, Accommodation & Food services -22.61%, Education -20.74%, Real Estate -13.40%, and Mining & Quarrying -13.22%.
  • The Monetary Policy Committee (MPC), of the Central Bank of Nigeria (CBN), voted unanimously to keep the Monetary Policy Rate (MPR), at 11.5%. The CRR was retained at 27.5%, asymmetric corridor of +100/-700 basis points around the MPR while the liquidity ratio was kept at 30%.
  • Company income tax revenue hits N416.01bn in Q3: Revenue from Company Income Tax rose slightly to N416.01bn as of the end of the third quarter of 2020. A breakdown of the company income tax reveals that the sum of N416.01bn was generated as CIT as against N402.03bn generated in Q2 2020, and N520.89bn generated in Q3 2019 representing a 3.48 percent increase quarter-on-quarter, and -20.13 percent decrease year-on-year.
  • Total credit to the economy rose to N19.54trn as of the end of November 13, according to the CBN. Aggregate domestic credit grew by 7.61% in October 2020 compared with 7.35% in the previous month. The rise in domestic credit was attributed to the bank's policy on Loan-to-Deposit Ratio, supported by its intervention in the various sectors of the economy.


 

Global Economy

  • China will impose temporary anti-dumping tariffs of 107.1% to 212.1% on wine imported from Australia from Nov 28, 2020. Australia's trade minister Simon Birmingham said the tariffs were unjustifiable and it was a distressing time for hundreds of wine producers because it will render unviable for many businesses, their wine trade with China. Last week, China outlined a list of grievances about Australia's foreign investment, national security, and human rights policy, saying Canberra needed to correct its actions to restore the bilateral relationship with its largest trading partner.
  • Britain and the E.U can clinch a Brexit deal and the shape of one is clear, but London will not sign up to an accord at any cost. With just five weeks left until the UK finally exits the EU's orbit, both sides are calling on the other to move their positions to clear the way for a trade deal that would avoid a tumultuous finale to the five-year Brexit crisis. The talks for negotiations are snagged on two main issues, fair competition guarantees, and fisheries, but neither, so far, have shown a willingness to shift enough to make way for any breakthrough.
  • France's finance ministry has sent out notices to bi tech companies liable for its digital service tax to pay the levy as planned in December. France suspended the collection of the tax, which will hit companies like Facebook and Amazon, early this year while negotiations were underway at the Organization for Economic Cooperation and Development (OECD) on an overhaul of international tax rules.
  • The International Air Transport Association has predicted heavier losses for the aviation industry in 2020 and 2021. IATA predicted a net loss of $118.5bn for 2020 (higher than the $84.3bn forecasts in June). It also predicted a net loss of $38.7bn in 2021 (higher than the $15.8bn forecasts in June).
  • Singapore's economy contracted by -5.8% in Q3 compared to a year ago. On a quarter-on0quarter seasonally adjusted basis, Singapore's GDP grew by +9.2% in the three months ended September. Singapore's economy is expected to shrink between 6% and 6.5% in 2020, before bouncing back to a growth of between 4% and 6% next year.


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Commodities Market

Weekly Review and Outlook

Energy

Oil prices continued their upward streak this week as Brent Crude prices hit their highest levels since March as a third promising coronavirus vaccine from AstraZeneca raised hope for fuel demand recovery. A surprise drop in weekly US crude Inventories earlier in the week also extended the rally.

Brent had a weekly growth of +7.78 (See Table 1)

Also boosting prices is the hope that The Organization of the Petroleum Exporting Countries (OPEC) and allies including Russia are leaning towards retaining its present output cut till the end of the first quarter of 2021.

However, rising Libyan output is also contributing to the oversupply concerns leading to a marginal drop in the prices earlier Thursday.


Metals

Gold prices slumped to a weekly loss of -4.47% as investors continue to ditch the yellow metal for other asset classes. Silver also dropped by -6.15% WoW. (See Table 1)


Agriculture

Cocoa prices had +1.61% weekly growth.

Corn prices plunged by -0.35% WoW while Sugar also depreciated by -2.29%. (See Table 1)


Table 1Weekly Change in Commodity Prices

Commodity

27-Nov-20

20-Nov-20

31-Dec-19

Weekly Chg

YTD Chg

Brent

47.96

44.5

66

+7.78%

-27.33%

Gold

1783.66

1867.17

1517.27

-4.47%

+17.56%

Silver

22.72

24.21

17.85

-6.15%

+27.28%

Cocoa

2770

2726

2463

+1.61%

+12.46%

Corn

431.5

433

388.25

-0.35%

+11.14%

Sugar

14.94

15.29

13.42

-2.29%

+11.33%

Source: Bloomberg, Proshare Research

*Data for 27th Nov, 2020 is as of 4:38pm (Nigerian Time)

 

Outlook

  • In the coming week, oil prices are expected to fall marginally, as rising Libya output will most likely contribute to the oil glut. A build in US Crude Inventories due to the lockdowns and restrictions will most likely draw down oil prices.
  • Gold prices are expected to continue their downward trend as investor's risk appetite strengthens.
  • We expect cocoa prices to appreciate during the coming week.
  • Sugar prices to rise as the Indian Government could announce an export subsidy to remove surplus sugar inventory in the system.
  • Corn prices to remain stable during the coming week.

 

Fixed Income and Money Market 

 

Money Market

Funding rates remained relatively depressed as system liquidity remained robust with N123.0 billion OMO repayment on Tuesday. However, the rates increased at the end of the week. The overnight (O/N) and open buyback (OBB) closed the week positive as the rates recorded 0.5% and 1.25% respectively.

 

We expect the liquidity injection next week to ease funding rates.

 

Treasury Bills Market

Near-zero rates for the Nigerian Treasury Bill (NTB) instruments persisted this week as we see gloomy investor sentiment toward this instrument. The NTB market started the week on a quiet note as market participants looked forward to the MPC meeting outcome. The MPC meeting ended with a neutral outcome as the members of the committee voted unanimously to leave all policy rates unchanged as the Monetary Policy Rate (MPR) was left at 11.5%.

 

Given the outcome of the meeting, we expect the low yield environment to persist in the fixed income market as it remains unattractive to investors.

 

FGN Bond Market

Mixed sentiment was seen across the board with slight buying interest seen on the mid to long-term instruments and minimal volume traded on some maturities by investors.

 

On Wednesday, the CBN conducted a primary market auction offering N150.6bn worth of treasury bills on offer across the 91-, 182- and 364- Day tenor. Nevertheless, demand was high and the offer was oversubscribed by 2.9 times. Investor demand was strongest on the 364-day paper which was over-subscribed by 3.1 times. Bond markets have been mildly bullish with slight buying interest observed on the short end of the yield curve, pulling the average bond yield down1bps.

 

We expect bond yields to be depressed further following the MPC's recent decision to hold the benchmark interest rate at 11.5%.

 

FGN Eurobond Market

The FGN Eurobond market was relatively bullish this week as news on improvement in the development of the COVID-19 vaccine continued to encourage investor sentiment while the oil price was remained steady through the week.

 

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 pent up demand for FX.

 

The Naira closed the week at $/N390.25/at the investors and exporters window (I&E), at the NAFEX window it closed at $/N388.50, at the Bureau de change (BDC) window it traded at $/N490 on Friday despite the APEX bank comments during the MPC meeting press conference that the value Naira can only be determined by the forces of demand and supply at NAFEX. This could also be attributed to increased demand for forex for year-end travel and festivities.

 

We expect the CBN to continue its FX management strategy and stronger commitment towards exchange rate unification, supporting the Naira at the NAFEX and I & E window.


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Nigerian Capital Market

  • It was a bullish performance on the Nigerian Bourse this week with gains recorded although the activity level was lower compared to the previous week. In the week the market picked up momentum following the outcome of the MPC meeting on Tuesday to hold interest rate at 11.5% which signaled that the low yield environment in the fixed income market will be around for a while as Investors took more interest in tier-1 banks and other bellwether stocks.
  • Market cap advanced by N390.26bn in while NSE All-Share advanced by +2.19%. YTD return and market capitalization improved to +29.97% and N18.23trn, respectively.
  • A total turnover of 1.2bn shares worth N25.79bn in 31,665 deals was traded this week by investors on the floor of the Exchange; the volume of stocks traded advanced by +376.18% while value traded declined by -127.40%. The most traded stocks by volume were ZENITHBANK, TRANSCORP, and ACSESSBANK accounting for 649.53m shares worth N8.1bn in  6,395 deals, contributing 35.76% and 31.42% to the total equity turnover volume and value respectively.
  • Performance across sectors was positive for the week as all other indices closed the week positive except the NSE Banking and NSE Consumer Goods which retreated by -5.36% and -2.90% respectively. NSE Insurance, NSE-IND, and NSE Oil & Gas positive by +0.28%+4.40%, and +0.64% respectively.
  • Market breadth closed negative for the week with 27 gainers led by UPDCREIT and NEIMETH as against 43 losers led by JAPAUL and HONYWELL.
  • During the week ending Friday, November 27th, 2020, five (5) quoted firms declared their third-quarter results. One (1) out of the Five (5) firms declared revenue growthFCMB recorded 8% growth in earnings to emerge as the firm with the highest growth in earnings while INTENEGINS recorded 52% negative growth in earnings to emerge as the firm with the least growth rate.

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Chart 1: Movement of NSEASI Index Points 20Nov. 2020 - 27Nov. 2020

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NASD OTC

 

The NASD OTC Security Index (NSI) and Market Capitalization closed the trading week with a negative movement in Market capitalization and NSI. The NSI and Market capitalization closed the week at 735.99 points and N547.06bn showing a decrease of -0.07%  and -0.07% WoW respectively.


 

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Dangote and Toni Index 

 

Dangote Index closed the week positive at 110.15 basis points from 104.57 basis points recorded the previous week, an uptick of +5.34%.  DANGSUGAR and NASCON recorded a decline in their share prices except for DANGCEM which recorded a growth WoW. DANGCEM being a large-cap stock held the index up despite the losses recorded in the other two stocks within the index.

 

Table 2: Dangote Index W-o-W Change

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In the same vein, the Toni Index also closed positive to close at 102.16 basis points from 99.87 basis points recorded the previous week, a W-o-W uptick of +2.29%. The stocks making up the index all advanced in their share prices except AFRIPRUD which closed negative WoW. 

 

 

Table 3: Toni Index W-o-W Change

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Outlook

 

Taking a cue from the market's reaction to the last NTB auction and the MPC's recent decision to hold the benchmark interest rate also supports the demand for equities market. We expect sustained bullish bias for equities in the coming week, albeit alongside profit-taking.

 

Furthermore, constriction in translating returns on domestic investment into the foreign exchange will put pressure on the Nigerian Stock Exchange.



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Latest Reports This Past Week

1.      Covid Related Reports

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

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

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

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

6.     FAAC Disburses N682.06bn in September 2020 - NBS

7.     Average Prices of 1kg of Rice Increased By 39.07% YoY in September 2020 - NBS


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1.      Investors Gain N17.77bn, NSEASI Inches Up by 0.10% as Market Breadth Closes Flat

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3.     Investors Gain N113.38bn as NSEASI Inches Up by 0.64% Amid Negative Market Turnover

4.     Investors Lose N7.86bn as NSEASI Dips by -0.04% to Open the Week Negative


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