Saturday, February 22, 2020 / 03:00PM / By ARM
Research /Header Image Credit: ARM
As the outbreak of the coronavirus continues to threaten China's economy, the PBoC took the widely expected step of cutting its 1-year loan prime rate from 4.15% to 4.05%, and the 5-year rate from 4.80% to 4.75%. This followed on from the central bank's decision, also during the week, to lower the interest rate on its medium-term lending facility from 3.25% to 3.15%. In the UK, the CPI rose to a 6-month high of 1.8% YoY in January (December19: 1.3%), higher than the consensus estimate of 1.6%. Driving this was an increase in HWEGF by 2.0% (December:0.4%) and Transport by 1.8% (December: 0.7%). Food rose slower at 1.4% (vs 1.7% in December) while Recreation and Culture, the largest weighted component of the index, remained flat at 1.5%. For the European Union, inflation was up to 1.7% YoY in January (December: 1.6%). Aside from the UK, Germany and France also recorded higher inflation rates in January - 1.6% (vs 1.5% in December) and 1.7% (vs 1.6% in December) respectively.
This week, the NBS released the CPI numbers for the month of January 2020. As expected, inflation rose by 15bps to 12.13% YoY (vs December: 11.98% YoY), driven largely by the uptick in food prices. Food inflation rose 18bps to 14.85% YoY, largely reflecting lingering impact of the border closure as prices for farm produce and imported food increased. Meanwhile, core inflation rose slightly by 3bps to 9.35% YoY, reflecting increases in prices of HWEGF, Transport, Health amongst others. Elsewhere, during the week, the international monetary fund (IMF) in its Article IV Consultation cut its 2020 growth forecast for Nigeria from 2.5% to 2%. According to the IMF, Nigeria's susceptibility to external shocks is increasing due to the adverse impact of coronavirus in China on global crude oil prices. The Fund also highlight-ed tits concerns regarding he deteriorating current account position and capital outflows as threat to Nigeria's external position.
The Nigerian bourse sustained its downward trend with the ASI plummeting by 1.32% to 27,388.62. The total market's capitalization dropped to N14.27 trillion, as investors experienced a total loss of N188 billion for the week. Majority of the sectors -- Brewers (-5.62), Food (-6.81%), Oil & Gas (-2.34%), Insurance (-2.28) and Banking (-2.34%) -- closed negative while the Cement (+0.56%), Construction (+3.85) and Real Estate (+0.26) sectors closed positive. Particularly, some of the major stocks posting losses include Nestle (-9.02%), Nigerian Breweries (-5.92%), Guaranty Trust Bank (-6.52%), FBN Holdings (-3.36%) and Dangote Sugar (-5.84%).
Here are the stocks we recommend for the upcoming week: Dangcem- STRONG BUY (FVE: N240.87), Guaranty Trust Bank Plc - STRONG BUY (FVE: N49.66), Nestle Plc - OVERWEIGHT (FVE: N1447.39), Seplat Plc - STRONG BUY (FVE: N828.90). Click here for our Weekly Stock Recommendation.
At this week's bond auction, the FG only
sold N100bn via competitive bids, compared to the N140 billion they offered.
However, difference was covered by selling N60billion via uncompetitive bids.
The total subscription was N398.2 billion, 2.84x the offered amount, which
pressured the average stop rate lower by 65bps to 10.53%. There was also a
decline in the stop rates at the OMO auction this week with the 1-year bill
printing 2bps lower at 13.02%. N300 billion was offered and sold at the OMO
auction with subscription slightly higher at N335.29 billion. In the secondary
market average yields dropped by 14bps WoW to 6.81% led by a 34bps decline in
bond yields to 9.74%. The demand in the bond segment was led by interest in the
Apr-2023 (-103bps) bond. NTB yields, meanwhile, rose 5bps to 3.87% although
this is 22bps lower than the week's peak of 4.09%. This was largely driven by
an expansion in long-tenor bills (+83bps).
Take-Away For The Week
Trend in Average inflation, average NTB stop rates and real return over one year
This week, we feature the trend in average NTB stop rates, monthly inflation rates and real return over the last one year. The chart shows real return took negative turn in October 2019. This is due to declining NTB yields as well as higher inflation rate. On NTB yields, CBN's restriction on participation in OMO to FPI and banks in October remains the key driver. On the other hand, rising inflation rate reflects higher food prices due to the closure of the border in August 2019.
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