What To Expect From The Markets This Week - 170521

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Saturday, May 15, 2021 07:40 AM / Proshare Content / Header Image Credit: EcoGraphics


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Nigeria: Economic Dashboard @ 140521 

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Editor's Note

Source: Proshare Research - May 15, 2021

Nigeria Economy

  • The Transmission Company of Nigeria stated that at about 11.01 am, 12th of May 2021, there was a total system collapse of the grid, because of voltage collapse at some parts of the grid. TCN commenced grid recovery immediately after the collapse, from Shiroro Generating Station to Katampe TS, Abuja through the Shiroro - Katampe line at 11:29 am, and through Delta Generating Station to Benin Transmission Substation and reached Osogbo and parts of Lagos. While the grid restoration and power restoration gradually progressed to other parts of the country.
  • According to the World Bank report titled 'Defying predictions, remittance flows remain strong during COVID-19 crisis', remittances by Nigerians in the diaspora declined by -27.7% in 2020. The report noted that remittances to Sub-Saharan Africa declined by an estimated -12.5% due to a decline in the remittance to Nigeria that contributes the largest amount in the region. It noted that excluding flows to Nigeria, remittances to Sub-Saharan Africa increased by +2.3%.
  • According to the NBS Data on Company Income Tax breakdown by sectors for Q1 2021, the sum of N392.77bn was generated as CIT as against N295.72bn generated in Q4 2020 and N295.68bn generated in Q1 2020 representing a +32.82% increase Q-o-Q and +32.84% increase Y-o-Y. BreweriesBottling and Beverages generated the highest amount of CIT with N23.26bn generated and closely followed by Professional Services including Telecoms which generated N18.17bn, State Ministries & Parastatals generated N17.35bn while Textile and Garment Industry generated the least and closely followed by Mining and Automobiles and Assemblies with N13.94m, N34.4m and N73.57m generated, respectively. Out of the total amount generated in Q1 2021, N152.33bn was generated as CIT locally while N184.59bn was generated as foreign CIT payment. The balance of N55.85bn was generated as CIT from other payments.
  • The Nigeria Sovereign Investment Authority, manager of Nigeria's sovereign wealth fund, announced its audited results for the 2020 financial year, which indicated a +343% growth in income to N160bn in 2020 from N36.25bn in 2019. It noted that excluding devaluation gain of N51bn, it made a core income of N109bn compared to N33.07bn in 2019. According to NSIA "Despite the challenges of COVID-19, it had a strong year owing to strong performance from its investments in international capital markets, improved contribution from subsidiaries and affiliates and exchange gain from foreign currency positions". Furthermore, it noted that it achieved a +33% growth in net assets to N772.75bn in 2020 from N579.54bn in 2019 and stated that it received an additional contribution of $250m and provided stabilization support to the Federal Government of $150m withdrawn from Stabilization Fund.


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Global Economy

  • The Philippine economy declined by more than expected in the first quarter of 2021. Its GDP declined by -4.2% Q-o-Q in March 2021, marking the fifth straight quarter of declines amid pandemic-induced lockdowns.  Among the major economic sectors, agriculture contracted by -1.2% while services and industry contracted by -4.4% and -4.7%, respectively. On the demand side, household consumption fell by -4.8%, but government spending increased by +16.1%. The economy's performance, however, improved on a sequential basis, growing +0.3% from the previous quarter on seasonally adjusted terms.
  • The British economy grew by +2.1% in March 2021 from February 2021. The growth could be attributed to the reopening of schools, increased COVID-19 testing, and vaccinations, which pushed up activity in the public sector and by retailers as consumers spent some of their lockdown savings. According to the Office for National Statistics, Britain's GDP contracted by -1.5% in the first three months of 2021. Despite the increase in economic activity, the British economy remains 8.7% smaller than at the end of 2019. The Bank of England expects it will be back to its pre-pandemic size by the end of this year.
  • US inflation rate rose at its fastest pace in more than 12 years in April. The Consumer Price Index, which measures a basket of goods as well as energy and housing costs, rose by +4.2% Y-o-Y in April 2021 while the month-to-month gain was 0.8%. Excluding volatile food and energy prices, the core CPI increased 3% from the same period in 2020 and 0.9% on a monthly basis. Overall energy prices increased by 25% Y-0-Y, including a 49.6% increase for gasoline and 37.3% for fuel oil. Used car and truck prices, which are seen as a key inflation indicator, surged 21%, including a 10% increase in April. Shelter, another key CPI component, rose by 2.1% Y-o-Y and o.4% for the month. In addition to rising prices, one of the main reasons for the big annual gain was because of base effects, meaning inflation was very low at this time in 2020 as the Covid pandemic caused a widespread shutdown of the U.S. economy.


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Commodities Market

Weekly Review and Outlook

Energy

Domestic

  • Earlier in the week, OPEC's April data showed that Nigeria pumped 1.548mbpd in April while the S&P Global Platts survey puts the country's production at 1.6mbpd. Both reports showed that Nigeria produced above the 1.51mbpd quota under the production cuts agreement.
  • Nigeria's revenue-earning volume is currently under threat given India's reduction in crude oil imports from Nigeria. India, Nigeria's largest crude oil importer, reduced its crude oil importation by $39.5bn in April as lockdowns linger in major cities from the COVID-19 surge in April.

 

Foreign

  • Crude prices rose on Monday after a major cyberattack forced the shutdown of critical fuel supply pipelines in the United States and highlighted the fragility of its oil infrastructure. Consequently, the U.S. gasoline prices jumped nearly 2% on Monday, while heating oil was up by more than 1%.
  • Oil prices fell on Tuesday as fears of prolonged outage of the largest U.S. fuel pipeline system, Colonial Pipeline, faded, while some U.S. Gulf Coast refiners cut output.
  • Oil prices rose to an eight-week high on Wednesday as U.S. crude exports fell and on signs of a speedy economic recovery and positive forecasts for energy demand.
  • Oil prices fell about 3% on Thursday as India's coronavirus crisis deepened and a key U.S. fuel pipeline resumed operations, halting a rally that had lifted crude to an eight-week high after forecasts for a rebound in global demand later in the year.
  • Oil prices fell on Friday after dropping about 3% a day earlier as coronavirus cases remained high in major oil consumer India and as a key fuel pipeline in the United States resumed operations after being shut due to a cyber-attack.
  • Brent had a weekly growth of 0.28% (see Table 1).


Metals

Gold appreciated by 0.20% while Silver also declined by -0.36% W-o-W (see Table 1).

 

Agriculture

  • Cocoa prices gained by 1.77% this week.
  • Corn prices depreciated by -9.35% W-o-W while Sugar also dipped by -2.87% (see Table 1).

 

Table 1Weekly Change in Commodity Prices

Commodity

14-May-21

07-May-21

31-Dec-20

Weekly Chg

YTD Chg

Brent

68.45

68.26

51.8

0.28%

32.14%

Gold

1838.76

1835

1898.67

0.20%

-3.16%

Silver

27.34

27.44

26.4011

-0.36%

3.56%

Cocoa

2479

2436

2597

1.77%

-4.54%

Corn

654.5

722

484

-9.35%

35.23%

Sugar

16.95

17.45

15.28

-2.87%

10.93%

Source: Bloomberg, Proshare Research

*Data for 14th May 2021 is as of 5:51pm (Nigerian Time)

 

Outlook

  • In the coming week, oil prices are expected to be little changed as India's coronavirus situation lingers and fuel supplies in the U.S. return this weekend after a cyber attack forced a shutdown at the nation's main fuel pipeline.
  • Gold prices are expected to be mixed in the coming week, as U.S. dollar, Treasury yields, and rising inflation expectations likely to weigh on the precious metal.
  • Cocoa prices to decline next week on weak demand from Europe and production surplus in Ghana and Ivory Coast.
  • Sugar prices are expected to rise next week due to supply tightness as India, a top producer of the commodity battles new Covid cases.
  • Corn prices are expected to rebound from a two-week low hit earlier in the session on technical support.


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Fixed Income and Money Market 

Money Market

System liquidity opened the week in a deficit of N71bn easing funding rates at the beginning of the week which was not sustained throughout the week.

 

Funding rates rose significantly at the close of the week. Open Buyback (OBB) closed at 26.88% while Overnight (O/N) rates closed at 28.88% indicating a Week-on-Week (W-o-W) rise of +82.24% for OBB and +89.38% for O/N rates.

 

Money Market Rate

 

07-May-21

14-May-21

% Change

OBB

14.75

26.88

+82.24%

O/N

15.25

28.88

+89.38%

Source: FMDQ, Proshare Research

 

Funding rates are expected to remain elevated in the coming week.

 

Treasury Bills Market

The overall trading activity for the Nigerian Treasury Bills for the most part was bearish this week.

 

At the close of the week, the average benchmark yield for T-bills was rose by +4.23% to close at 5.07% while OMO bills rose by +2.77% W-o-W to close at 8.62%. Yield for CBN's Special bills rose significantly by +15.31% W-o-W to close at 7.53%

 

Average Benchmark Yields

07-May-21

14-May-21

% Change

T. Bills (%)

4.86

5.07

+4.23%

OMO Bills (%)

8.39

8.62

+2.77%

SPEB

6.53

7.53

+15.31%

Source: FMDQ, Proshare Research

 

We expect the activity in the treasury bills market to remain subdued next week as system liquidity remains relatively tight.


FMDQ Securities Exchange Limited approved the quotation of the Coronation Merchant Bank Limited N0.71 billion Series 13 and N14.13 billion Series 14 Commercial Papers (CPs) in March 2021, and the N1.41 billion Series 15 and N20.19 billion Series 16 CPs in May 2021, both under its N100.00 billion CP Programme, on its platform. The net proceeds from these CPs will support the Issuer's short-term funding requirements.

 

FGN Bond Market

The Bond market started the week on a relatively quiet note with mixed sentiment seen across the board as the cherry-picking was sustained on the long end of the curve.

 

At the close of the week, the market was slightly bearish with selling interest seen majorly across the board.

 

The overall average benchmark yields closed at 9.10% for the week which increased W-o-W by +0.08%.

 

Average Benchmark Yields

07-May-21

14-May-21

% Change

Short Tenor (%)

6.36

6.37

+0.13%

Mid Tenor (%)

11.00

11.22

+2.01%

Long Tenor (%)

13.48

13.51

+0.24%

Source: FMDQ, Proshare Research 

 

FMDQ Securities Exchange Limited announced the approval of the listing of the FSDH Funding SPV PLC N7.05 billion Tranche A and N4.95 billion Tranche B Series 1 Fixed Rate Bonds under its N30.00 billion Debt Issuance Programme on its platform. FSDH Funding SPV PLC is a special purpose vehicle set up to raise capital from the Nigerian debt capital market for FSDH Merchant Bank Limited.

 

FGN Eurobond Market

Activity in the Eurobond market picked up at the beginning of the week as global commodity prices continue to rally. Demand was seen on the mid to long tenor paper.


However, this trend wasn't sustained as feared that rising inflation could push the Federal Reserve to tighten monetary policy faster than expected.

 

The average benchmark yield closed at 6.12% at the end of the week declining marginally W-o-W by -0.31%.

 

We expect market sentiment to remain soft in the near term in the absence of any trigger.

 

Foreign Exchange Market

Overall it was a mixed market for the Naira both at the official window and BDC window.

 

On a W-o-W basis, the Naira remained flat against the dollar at the BDC window, however, against the Euro it was bullish while against the Pound it was slightly bearish.

 

At the I & E FX window, the Naira was depreciated marginally by -0.33% at the end of the week.

 

It depreciated against the British Pound by -0.15% while against the Euro it appreciated by +0.51%, closing at $/N482, £/N677, and €/N584 at the BDC window.  

 

The Naira closed the week at $/N411.67 at the I&E FX window, at the NAFEX (spot market) it closed at $/N410.48.



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Nigerian Capital Market

  • The Nigerian bourse closed the week positive with an advancement of +0.72%. The Nigerian Stock Exchange gained N147.57bn in Market capitalization W-o-W while YTD return and market capitalization currently stands at -1.96% and N20.58trn respectively.
  • The volume and value of stocks traded on the exchange this week declined by -0.08% and -0.01% respectively.
  • Performance across sectors tracked was broadly positive this week as the NSE Insurance was the highest gainer for the week with +3.97% while NSE Banking, NSE-30, NSE-IND, NSE Consumer Goods and NSE Oil and Gas closed the week positive with +3.72%, +0.86%, +0.78%, +0.32% and +0.10% respectively.


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Chart 1: Movement of NSEASI Index Points 07May. 2021 - 14 May. 2021

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Source: NSE, Proshare Research

 

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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 778.03 points and N553.03bn with a decline of -1.24% and -1.24% respectively.

 

 

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Dangote and Toni Index  

Dangote Index closed the week positive with 114.31 basis points from 112.53 basis points recorded the previous week, a growth of +1.58%.


NASCON closed flat, DANGCEM  and DANGSUGAR advanced by +1.61% and +1.41% WoW resprectively. DANGCEM  recorded the highest gain W-o-W.

 

 

Table 2: Dangote Index W-o-W Change

 

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Furthermore, the Toni Index closed positive with 92.30 basis points from 89.53 basis points recorded the previous week, a W-o-W growth of +3.09%


AFRIPRUD, TRANSCORP, UBA  and UBCAP all closed the week positive +4.30% while TRANSCOHOT closed flat W-o-W.


 

Table 3: Toni Index W-o-W Change

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Outlook

 

In the coming week, we expect a likelihood of choppy trading sessions during the week as investors take profit on this week's gains. However, press releases from listed companies and macroeconomic developments is likely to impact investors' decisions.

 

In addition, we expect investors to monitor the movement of yields in the fixed income market.



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