Saturday, January 18, 2020 / 12:50PM / By ARM Research /Header Image Credit: ARM
In the week of the signing of the US-China phase one deal, there were mixed data releases from China. First, China's trade surplus increased to $46.79 billion in December (the highest in six months) from $37.93 billion in November. However, this printed 17.8% lower YoY, as imports (16% YoY) jumped at a faster pace than exports (7.6% YoY). For FY 19, China's trade surplus widened to $424.9 billion from $350.9 billion with exports rising by 0.5% and imports falling 2.8%. Surplus with the US declined 8.5%YoY to $295.8 billion in 2019 on the back of the trade war. Still on China, the economy grew 6.0% YoY in Q419, same as the previous quarter. This brings the FY 19 growth to 6.1% (FY18: 6.6%), its slowest annual pace in 29 years. However, this came in line with analysts' expectations and within Beijing's official growth target for the year of 6-6.5%. In the US, CPI rose 2.3% YoY in December (November: 2.1%) following a 1.8% increase in Food and a 3.4% rise in Energy. In the UK, meanwhile, CPI was down to 1.3% in December (November: 1.5%) following declines in the prices of Transport, Restaurants & hotels and Food.
This week, the finance bill 2019 (now Finance Act) - which include incremental changes to Nigeria's tax and fiscal laws designed to support the implementation of the 2020 National budget - was signed into law by the President. One of the significant changes made in the Finance Act is the increase in Value Added Tax (VAT) from 5% to 7.5%. Accordingly, implementation of the 7.5% VAT will be effective from February 1st, 2020. Meanwhile, inflation for December 2019, released by the NBS, saw a 13bps hike from the prior month, printing at 11.98% YoY (November 2019: 11.85%). Notably, the rise was driven by increase in food (+18bps to 14.67% YoY) and core inflation (+33bps to 9.32% YoY). We believe the uptick was, in part, fuelled by impact of the festivities as well as the lingering impact of the border closure on commodity prices, relative to the prior year. Contrarily, MoM headline inflation declined by 17bps to 0.85% MoM, buoyed by decline in food inflation (-28bps to 0.97%) while core inflation rose slightly (+2bps to 0.81% MoM).
For the third consecutive week, the NSE ASI closed in green appreciating by 0.69% WoW to close at 29,618.52pts while market capitalization advanced by N81.8 billion. On a sectoral basis, we witnessed gains across Banking (+1.54%), Oil & Gas (+0.82%) and Telecom (+6.42%) outweighing losses in Cement (-1.28%), Brewers (-7.45%), Food (-0.20%), Insurance (-0.83%), Personal care (-1.04%) and Construction (-1.04%) sectors. Dissecting the sectoral performance revealed gains in GUARANTY (+4.85%), UBA (+4.76%), ZENITH (+2.06%), DANGCEM (+1.74%), MTNN (+9.14%), FO (+21.89%), and UACN (+4.39%) amongst other stocks.
Bullish sentiments at the short end of the curve pushed average NTB yields 74bps lower to 3.53%, with the long tenor bills experiencing the biggest drop of 169bps. At the other end of the curve, bond yields rose 5bps to 10.27%, as bearish sentiments set in closing the week. Long tenor bonds saw the biggest increases in their yields - Jul-2034 (26bps), Apr-2037(23bps) and Apr-2049 (25bps) - which were slightly tapered by the interests in the Feb-2020 (-67bps) paper. Meanwhile, there was strong demand for NTBs at the primary auction where N225.45 billion was sold despite subscription of 1.85x (N417.64 billion). With N152 billion worth of bills maturing, this sale represented a net issuance of N73.5 billion. The average stop rate declined 53bps to 3.99%, with the 1year rate printing at 5.09%. There was also upheld interest at the OMO auction, where the N200billion offering by the CBN was greeted with 2.05x subscriptions. Overall, N201.25billion was sold (vs. N434.7 billion maturity), while the 1yr stop rate printed 5 bps lower at 13.25%.
Take-Away For The Week
FPI flows into IEW (in $'Billions)
This week, we feature data on Foreign Portfolio Inflows into the I&E Window from H2 2019 to the week ended 10th January 2020. Data from FMDQ shows there was a significant jump in FPI flows into the window in the second week of the year (at $728.7 million) which surpassed recent monthly flows. Also, we saw minimal CBN interven-tion in the window. While the data may soothe recent concerns on the fast declines in portfolio flows, we think it might be too soon to pop the cork. Thus, we would contin-ue to monitor developments in this space.
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