What To Expect From The Markets This Week - 071220

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Saturday, December 05, 2020 08:00 AM / Proshare Content / Header Image Credit: EcoGraphics


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Nigeria: Economic Dashboard 041220 


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Editor's Note


Source: Proshare Research - December 05, 2020

Nigeria Economy


  • Fitch Ratings in its report title "Fitch Rating sees gradual recovery for African banks in 2021" noted that foreign currency liquidity presents a significant risk to Nigerian banks' ratings. According to the report, although foreign-currency liquidity risks have not materialized particularly in Nigeria, they present a significant risk to banks' ratings.
  • The Federal Government inaugurated its Autogas scheme in Abuja intending to convert one million vehicles to run on Autogas before the end of 2020. One of the proposed benefits of the scheme is that motorists will spend fewer funds on refilling their tanks than those using PMS.
  • Data released by the NBS revealed that the average fare paid by air passengers for specified routes on a single journey decreased by 1.7% and increased by 18.42% Y-o-Y to N36,256.08 in October 2020 from N36,884.59 in September 2020. States with the highest airfare were Anambra N38,500; Cross River N38,460 and Jigawa N38,250; while states with the lowest airfare were Akwa Ibom N32,750; Sokoto N33,250; and Gombe N34,800.
  • The Federal Government extended its Micro, Small, and Medium Enterprise survival fund to transport operators. It is expected that it will benefit 4,500 transport businesses in each state across the federation.


Outlook

Data on Nigeria's foreign trade statistics would be released next week by NBS. The value of Nigeria's total trade fell sharply by -27.3% in Q2 2020 compared to Q1 2020 and -27.46% compared to Q2 2019. It is expected that there would be an improvement in the value of Nigeria's foreign trade in Q3 2020 when compared to Q2 2020 and a decline when compared to Q3 2019.


 

Global Economy

  • The pace of U.S. auto sales slowed in November, data from analytics firm Wards Intelligences, amid a spurt in coronavirus infections. Auto sales in the United States managed to bounce back since hitting a pandemic-fueled bottom in April, leading major automakers to ramp up production and boost weak inventories at dealerships. The seasonally adjusted annualized sales pace for light vehicles dropped to 15.55 million units in November, from 16.21 million units in October and 17.09 million units in the year-ago period.
  • UK PMI rose to 35-month to 55.6 in November. UK's manufacturing production increased further in November with some signs of improving demand but there was a marked divergence between the sub-sectors. The rise in PMI was temporarily boosted by 'Brexit-buying' among clients and the ongoing boost from economies re-opening following re-opening following lockdowns earlier in the year.
  • Japan's industrial output rose for the fifth straight month in October and retail sales in the same month grew the most in over a year, signaling the economy was recovering further from the damage caused by the COVID-19 crisis. Official data released showed factory output jumped 3.8 in October from the previous month, mainly due to strength in general machinery production and motor vehicle manufacturing. Furthermore, retail sales increased by 6.4% Y-o-Y in October to rise for the first time in eight months.
  • Negotiations are still on-going between the UK and EU as regards a BREXIT deal. The UK and the EU have until 31 December 2020 to agree on a trade deal as well as other things, such as fishing rights, and competition rules. If no deal is agreed upon, border checks and taxes will be introduced for goods traveling between the UK and the EU.


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Commodities Market

Weekly Review and Outlook

Energy

Oil edged lower on Monday on the doubt about whether the world's top oil producers would agree to extend its production cuts at OPEC meeting scheduled for November 30 and December 1. However, the talks were postponed to Thursday after disagreement from the key players on how much oil they should pump amid weak demand. Adding to the bearishness of the oil market was the build in crude oil inventories of 4.146 million barrels for the week ending November 27 announced by the American Petroleum Institute (API).

 

On Thursday, OPEC and non-OPEC allies, after days of tense talks, agreed to increase production by 500,000 barrels per day beginning in January. This will bring the total production cuts by the start of 2021 to 7.2m barrels per day from 7.7m barrels per day.

 

Markets reacted positively to this bullish news as Brent rose to its highest since March. Brent recorded a weekly growth of +2.38% (see Table 1).

 

Metals

Gold prices inched up by +2.7%, rebounding from the loss in the previous week. Silver also appreciated by +5.9% W-o-W (see Table 1).

 

Agriculture

Cocoa prices depreciated by -4.7% this week, as the tension between cocoa producers and processors' overpayment of cocoa premium continues.

 

Corn prices plunged by -2.09% WoW while Sugar also depreciated by -2.07% (see Table 1 below)


Table 1Weekly Change in Commodity Prices

Commodity

04-Dec-20

27-Nov-20

31-Dec-19

Weekly Chg

YTD Chg

Brent

49.1

47.96

66

2.38%

-25.61%

Gold

1832.1

1783.66

1517.27

2.72%

20.75%

Silver

24.06

22.72

17.85

5.90%

34.79%

Cocoa

2640

2770

2463

-4.69%

7.19%

Corn

422.5

431.5

388.25

-2.09%

8.82%

Sugar

14.63

14.94

13.42

-2.07%

9.02%

Source: Bloomberg, Proshare Research

*Data for 4th Dec, 2020 is as of 5:08 pm (Nigerian Time)

 

Outlook

  • In the coming week, Oil prices are expected to rise steadily over the new production cuts agreed on by OPEC and OPEC+.
  • Gold prices are expected to continue their downward trend as new developments regarding the vaccine is anticipated.
  • We expect cocoa prices to experience an uptick in the coming week as disagreements between cocoa farmers and processors over the payment of their Living Income differential persists.
  • Sugar prices to rise because of supply disruptions in India emanating from protests by the farmers against farm reforms.
  • Corn prices to rise during the coming week, as China continues to import more U.S. Corn and squeeze global prices.

 

Fixed Income and Money Market 

 

Money Market

Money market rates for most of the trading session this week were between 0.50% - 1.00% as system liquidity was fairly robust, however, the rates increased at the end of the week. The overnight (O/N) rates and open buyback rates closed at 4.25% and 3.63% respectively, this was as a result of FX retail auction which mopped up some of the system liquidity.

 

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 average benchmark yield remained unchanged at 0.10%, the NTB market started the week on a quiet note, however, in the week, the CBN introduced Special bills for excess Cash Reserve Requirement (CRR) via a circular. The market had a mixed reaction as investors were unsure how to price in the effects of the new instruments. Although the new instruments are tradeable between banks, retail and institutional investors and this poses a good opportunity for some institutional investors with residual liquidity as NTB rates may be elevated.

 

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 lukewarm note as liquidity at the start of the week weighed on activity. Average benchmark yields rose to 4.20% this week from 4.06% in the previous week, this was in reaction to the 90-day tenor Special Bill by the CBN which has no coupon rate and the applicable yield at issuance will be determined by the CBN'.

 

Also, Edo State Government is said to sponsor an N25 billion Bond Issuance Programme by River Jamieson SPV Limited, although coupon rate and applicable yield haven't be set yet according to the document presented.

 

 

We expect the market to continue in this trend in the coming week.

 

FGN Eurobond Market

The FGN Eurobond market continued its bearish trend which was supported by positive news about the acceptance and distribution of Pfizer-Biotech COVID-19 vaccine to be distributed in the UK  and the news of OPEC and non-OPEC allies agreeing to increase production by 500,000 barrels per day beginning in January.

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

 

Foreign Exchange Market

The week was an eventful week for the FX market, the Naira was under pressure for most of the week despite CBN's continuous intervention, however, at the end of the week the domestic currency appreciated by 421bps to close at $1/N475 this is following CBN's relaxing restriction on the receipt of international money transfers in USD (diaspora remittances).

 

The CBN also devalued the Naira at the start of the week by N6, the new rates pegged IMTOs sale of dollar to banks at N388 to $1, banks to CBN at N389 to $1, CBN to BDC at N390 to $1 and BDC to end-users at not more than N392 to $1.

 

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


  • The Nigeria equities market rose this week as reflected in the NSEASI which climbed by +0.72%, Market cap advanced by N137.46bn; YTD return and market capitalization improved to +30.91% and N18.37trn, respectively WoW. The week opened quiet as investors traded cautiously with no aggressive appetite for profit taking and bargain hunting but towards the end of the week, the benchmark index closed lower with profit-taking on tier- banks.
  • On Monday, 30 November 2020 the Nigerian Stock Exchange announced the launch of the associated Growth Board Index and migration of Chellarams Plc, Living Trust Mortgage PlcMcNichols Plc, and The Initiates Plc from the Alternative Securities Market (ASeM) to the Growth Board.
  • Performance across sectors was mixed for the week, as the NSE Banking, NSE Consumer Goods, and NSE-IND retreated by -3.13%, -2.78%, and -2.21% respectively. On the other hand, NSE Insurance and NSE Oil & Gas closed positive by +1.56% and +1.71% respectively.
  • Market breadth closed negative for the week with 21 gainers as against 45 losers.
  • During the week ending Friday, December 4th, 2020, four (4) quoted firms declared their results.  Two (2) out of the Four (4) firms declared revenue growth. CUTIX records 36% growth in earnings to emerge as the firm with the highest growth in earnings while NIGERINS records 59% 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 27Nov. 2020 -  04Dec. 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 719.53 points and N534.83bn showing a decrease of -2.24%  and -2.24%WoW respectively.


 

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Dangote and Toni Index 

 

Dangote Index closed the week negative at 106.82 basis points from 110.15 basis points recorded the previous week, an decline of -3.02%.  DANGSUGAR and DANGCEM recorded a decline in their share prices except for NASCON which closed flat. DANGSUGAR recorded the highest loss of -5.00% WoW.

 

Table 2: Dangote Index W-o-W Change

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Furthermore, the Toni Index also closed negative to close at 99.45 basis points from 102.16 basis points recorded the previous week, a W-o-W decline of -2.65%.  AFRIPRUD  advanced in share price while UBA, UBCAP, and TRANSCORP.

 

 

Table 3: Toni Index W-o-W Change

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Outlook

 

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.     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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4.     Investors Gain N81.84bn as NSEASI Inches Up by 0.45% to Open the Week Positive


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