Weekly Economic and Financial Commentary - Week Ended Mar 06, 2020

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Saturday, March 07, 2020 / 02:45PM / By ARM Research /Header Image Credit: ARM

 

Global Economy

In a bid to shield the US economy from adverse impact of the coronavirus, the US Feds voted on Wednesday to cut rates by 50 bps. The emergency rate cut is the biggest since the 2008 financial crisis and brings interest rate range to 1% - 1.25%. Ironically, the rate cut failed to impress, as investors were spooked by aggravated concerns of the coronavirus impact on the global economy, even after the Feds guided to taking further rate cuts. Meanwhile, the Fed's move marked the start of a series of global expansionary moves after G7 finance officials held a conference call and agreed to imple-ment appropriate policy tools to support growth. Meanwhile, oil prices tanked this week by 8% to $46.7/bbl. - the lowest since June 2017 - as concerns of impact of the coronavirus on demand per-sisted. In fact, oil market shunned the news of a possible additional 1.5mbpd production cut by the OPEC cartel announced after the first day of the meeting on Thursday. In a final blow, oil prices plunged further today by 6.7% after investors' fears was confirmed following Russia's refusal to support taking on the additional cuts upon conclusion of the meeting today.

 

Domestic Economy 

This week, we witnessed significant fall in oil prices (-8% WoW to $47/bbl as at the time of the report) reflecting the impact of corona virus on oil demand. Consequently, the FG announced plans to review the 2020 budget which is currently benchmarked at $57/bbl. Irrespective, we foresee a higher fiscal deficit for FY 2020 on the back of lower oil prices. Meanwhile, the Senate approved the $22.8 billion loan request from President Buhari which is expected to be gotten from external creditors and used to finance infrastructure projects including Nigeria Electricity Transmission and Access Project, Social Inclusion and Welfare advancement project, amongst others. In other fronts, S&P global ratings agency downgraded Nigeria's outlook from a stable outlook to negative, highlighting weak economic growth, sizeable public debt, susceptibility to external pressures and depletion in foreign reserves, amongst others.

 

Equities and Stock Recommendation

Contrary to the past couple of weeks, the NSE ASI saw an increase of 24 bps WoW, to close at 26,279.61 points with the market capitalization closing the week at N13.7 trillion. Gains in the banking sector (+4.66%), Telecoms sector (+3.07%) and oil and gas (+2.97%) combined to outweigh losses in the Cement (-1.60%), Food (-7.42%) and Personal Care (-10.35%). That said, the major drivers of the positive performance were observed in stocks like ACCESS (3.66%), STANBIC (+7.69%), FBNH (+13.83%), UBA (2.99%), MTNN (4.55%).

Here are the stocks we recommend for the upcoming week: Wapco STRONG BUY (FVE: N23.59), Seplat Plc - STRONG BUY (FVE: N828.90)and Fidelity (N2.92). Click here for our Weekly Stock Recommendation.

 

Fixed Income

The fixed income market ended in the week on a bearish note as yields closed 53bps higher to 7.06% WoW. This mirrored expansion at the long end of the curve with average bond yields expanding by 107bps to 10.12%. Bulk of the expansion was seen in Mar-2025 (324bps), Mar-2024 (+267bps), Apr-2023 (+178bps) and Jan-2026 (+172bps) bonds. In contrast, NTB yields dipped 1bp to 4.00% WoW, reflecting declines in the short-tenor (-13bps) and long-tenor (-22bps) bills. Meanwhile, at the OMO auction this week, the CBN sold N110.51 billion worth of OMO bills, at what will be the smallest OMO auction this year, with only N100 billion worth of bills offered. Subscription was weak at 1.12x - the lowest since mid-February - while the 1year stop rate remained flat at ~13.00%.

 

Take-Away For The Week

Trends in Equity vs Safe Haven assets

 

This week, we feature impact of the Coronavirus on major global financial markets. Risk off sentiments drove selloffs across major global equity markets, while investors flooded safe-haven assets like Gold and US treasury notes.

 

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Research 234 (1) 2701653  research@armsecurities.com.ng

 

Nigeria: Economic Dashboard @ 060320  
Proshare Nigeria Pvt. Ltd.

Proshare Nigeria Pvt. Ltd.

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