Saturday, January 25, 2020 / 02:50PM / By ARM Research / Header
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Series of preliminary Manufacturing PMI for the month of January 2020 were released by IHS during the week. For Euro area, while Manufacturing PMI remained below the 50pts benchmark, the index printed at 47.8pts (Dec 19: 46.3pts), above consensus estimate of 46.8 pts due to improved business sentiments compared to prior periods. Similarly, Germany manufacturing PMI rose to 45.2pts (Dec 19: 43.7) indicating upturn in business activity across Germany's private sector. Same story applies to UK as Manufacturing PMI picked up from 47.5pts in December to 49.8pts, signalling stabilisation of business conditions across the manufacturing sector.
At the first monetary policy meeting for the year, 9 out of 11 members decided to hike the Cash Reserve Ratio (CRR) by 500 bps to 27.5% while leaving all other policy parameters unchanged. Central to the discussion was the increase in inflation, which has expanded for four consecutive months due to structural factors and excess system liquidity due to CBN's policy on excluding non-banks local from OMO auctions. It's decision thus reflected the need to control the impact of money supply on consumer prices. In addition, the committee agreed to continue its drive on improving access to credit via its loan to funding requirement. Particularly, total credit to the private sector increased by N2 trillion between May and December 2019.
As the week comes to an end, the bullish trend continued as the NSE ASI gained 0.03% WoW to close at 29,628.84pts while market capitalization advanced to N15.3 tril-lion. Gains were seen across Cement (+3.67%), Brewers (+1.26%), Oil & Gas (+6.89%), Insurance (+1.37%), and construction (+0.03%) sectors, transcending losses in the banking sector (-2.12%), Telecom (-0.87%), Personal care (-3.58%) and Food (-4.78%). Analyzing individual performances, gains were seen in NB (+1.76% WoW), DANGCEM (+2.8% WoW), BUACEMENT (+5.0% WoW), WAPCO (+10.8%) and SEPLAT (+2.89% WoW).
We witnessed bullish sentiments at the long end of the curve, which brought average bond yields 40bps lower to 9.87% WoW. Declines were seen across the curve, bulk of which were seen in the Jul-2021 (-149bps), Feb-2020 (-84bps) and Apr-2023 (-51bps). We believe the demand for the bond papers mirrored missed out bids at Wednesday's bond auction where FG offered N155 billion. Precisely, subscription levels were 4x the amount offered, printing at N624.5 billion, while FG borrowed a total of ~N412 bil-lion including non-competitive allotment of N1.83 billion. As a result of the high demand, average stop rates dipped 82bps to 11.18% (Prior stop rate: 12.0% avg.). Mean-while, trading was quiet at NTB market over the week following investors' preference for higher yields on bond papers. Consequently, average NTB yields flatlined at 3.53%. Overall, average fixed income yields contracted by 20bps to 6.70% anchored mainly by moderation in bond yields.
Take-Away For The Week
Domestic & Foreign Portfolio Participation In Equity Trading (Nbillion)
This week, we feature data on domestic and foreign participation in equity trading. The chart revealed total value traded declined in December 2019 by 26bps to the tune of N127.94 billion. Domestic participation accounted for a greater proportion by 50.6% while foreign participation stood at 49.4%
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