August 26, 2016/Cordros Weekly Update
The bears returned to the nation’s bourse, with the benchmark index closing 0.72% w/w lower at 27,450.91 points. The bull and the bear took turns, sequentially, in the week’s five sessions, with the losses eventually outweighing the gains in size.
This further suggests that investors still remain mostly skeptical of the domestic bourse’s outlook. The Banking (-13.32% w/w) and Industrial Goods (-1.13% w/w) indices were dragged lower by price declines in ZENITHBANK (-3.16%) and DANGCEM (-5.19%) respectively. On the positive however, the Oil and Gas (+6.74% w/w) and Consumer Goods (+0.93% w/w) indices appreciated, following gains recorded by FO (+10.56%), SEPLAT (+14.58%), NB (+1.48%) and GUINESS (+0.54%) respectively. Similarly the Insurance (+0.04% w/w) index closed in green, driven by positive interest in NEM (+2.27%) and CCNN (+3.27%) respectively.
Market breadth was negative, with 27 gainers – topped by SEPLAT (+14.58% w/w) – versus 23 losers – led by FCMB (-14.96% w/w) – compared to 25 gainers against 39 losers the preceding week. Total volume traded fell by 18.08% to 1.12 billion shares, worth N13.84 billion and traded in 15,625 deals, compared to the 1.37 billion shares, valued at N12.94 billion that exchanged hands in 16,915 deals last week. GUARANTY (179.75 million), FBNH (139.38 million) and DIAMONDBANK (115.85 million) maintained the top positions by volume, collectively accounting for 25.06% of total volume traded during the week, while GUARANTY (N4.67 billion), NB (N2.73 billion) and ZENITHBANK (N1.27 billion) accounted for 66.66% of total value of transactions.
Corporate Releases: H1 2016 earnings; UBA (PAT: +1.94% y/y; Interim dividend: 20 kobo per share).
Global Equities
Global equities indices were mixed this week; with oil prices and uncertainty ahead of a crucial Fed speech weighing on investor sentiments.
In the U.S, a retreat in crude oil prices following a rise in weekly inventory data to record levels dragged stocks lower at the start of the week. Furthermore, stocks fell to their lowest level in two weeks following (1) a slump in health sector after pharmaceutical Mylan Inc. (MYL) company raised prices on one of its widely used products prompting criticisms from regulators and (2) a Fed official (Dallas Fed Chief) made a strong case for a “rate increase in the not-so-distant future.” There was a slight recovery on Friday, after Fed Chairwoman Janet Yellen gave no firm signal of an impending rate hike in her highly anticipated Jackson Hole speech. At the time of writing, the DJIA and S&P 500 were down by 0.24% w/w and 0.19% w/w respectively.
European equities were broadly bullish this week following (1) the release of strong European PMI data for August, which suggested that the region’s recovery was strengthening; (2) gains from exporters following a weaker Euro due to bullish speculation on the dollar flowing hawkish signals from some Fed officials; and (3) M&A activity in the European banking sector. The EuroStoxx index gained 0.90% w/w while the UK FTSE declined by 0.52% w/w. Sentiments were dampened in Asian markets. A tumble in oil crude oil prices following weekly inventory data showed stockpiles at record levels. Also, a lot of investors sat on the sidelines, weighing the prospect of more tightening in the U.S ahead of the Fed chairwoman’s speech this Friday (today). Consequently, the Nikkei and CSI 300 fell by 1.12% w/w and 1.72% w/w respectively. Meanwhile, the MSCI emerging market fell 1.34% while the MSC frontier market rose by 0.30% w/w.
Fixed Income and Money Market
Interbank
Rates in the interbank Naira market eased 207bps w/w to close at 18.24%, as system liquidity swung to a positive balance of N62.84 from a negative balance of N39.37 billion at the previous week’s close. This week’s improvement in system liquidity came despite the apex bank’s effort at mopping up liquidity (the CBN actually offered N50.00 billion apiece of the 195-day and 279-day bills in today’s auction), wherein it eventually sold N71.64 billion of the 195-day bill; however, no sale was recorded on the 279-day bill. The overnight (-717bps) rate was the most sensitive, dropping to 18.38%. The 1, 3 and 6 month rates similarly fell by 69bps, 34bps and 9bps, respectively, closing at 16.59%, 17.85% and 20.14%.
T-Bills
In what was a quiet trading week with a slight bullish bias, average yield in the Nigerian Treasury Bills market, decreased by 40bps w/w to close at 16.19%. The week opened with upbeat sentiments which were sustained till midweek. Profit-taking however ensued on Thursday (+23bps) and persisted today (+25bps) – following today’s OMO auction where the CBN sold the 195-day bill at a stop rate of 18.00%. This week’s increased demand occurred across all maturities; with the long (-71bps) end of the curve attracting the most interest on the back of the 55DTM (-175bps to 13.44%) bill. Notable investor interest in the 97DTM (-205bps to 15.83%) and 237DTM (-354bps to 17.16%) bills equally led to contraction across the intermediate (-28bps) and long (-71bps) ends of the curve respectively.
Bonds
Proceedings in the bonds space closed bearish, with average yield rising by 5bps w/w to close at 16.19%. Persisted selloffs which dominated the market on Wednesday — which halted a 6-day bullish performance — through Friday overshadowed earlier demands at the week’s opening and on Tuesday. The mid (+6bps) and long (+14bps) ends of the curve expanded, driven by profit-taking in the JAN 2026 (+18bps to 15.41%0 and NOV 2028 (+16bps to 15.38%) notes respectively. Instruments across the short (-3bps) end of the curve however attracted investor interest, as the AUG 2017 (-70bps) bond was in high demand.
Foreign Exchange
Tuesday’s report that the CBN suspended nine Deposit Money Banks (DMBs) from forex transactions, for failure to remit the sum of $2.33 billion belonging to the Nigerian National Petroleum Corporation (NNPC) to the Treasury Single Account (TSA) made frontline news in the forex market this week. While proceedings in the official market were unaffected (NGN gained w/w) for obvious reasons, the LCY continued to roll in the deep in the parallel segment, and hit a new record low of N412/USD on Friday.
At the time of writing, the NGN/USD (+0.60% w/w) NGN/GBP (+10.42% w/w) and NGN/EUR (+10.89% w/w) had strengthened to N314.95, N403.40 and N347.67 respectively, in the interbank market. In the parallel market, the NGN/USD (-3.78% w/w), NGN/GBP (-3.92% w/w) NGN/EUR (-2.94% w/w) depreciated to exchange at N412, N530 and N455.
OUTLOOK
Equities: We expect the market to remain subdued in the coming sessions, particularly in the absence of positive catalysts on the horizon.
Interbank: We expect rates to further moderate in the coming week, owing to the expectation of OMO inflow worth N129.10 billion. However, key risk to our prognosis is the possibility of more aggressive OMO auctions by the CBN.
T-Bills: On Wednesday, 31st August, the apex bank, at the NTB auction, would offer a total of N212.85 billion across the 91-day (N45.85 billion), 182-day (N62.00 billion) and 364-day (N105.00 billion) bills. We expect investors to be cautious ahead of the auction, and consequently take cues from the auction stop rates and July Inflation figure (which is due for release next week).
Bonds: We expect trading to be cautious ahead of the release of July inflation figure, and investors taking cues from the eventual release.
Currency: We expect the local currency, in the interbank market, to maintain stability at current levels as a result of low liquidity. As dollar shortage persists, more so with the suspensions of eight banks (after UBA was readmitted) temporarily breaking supply to BDCs, we expect the domestic currency to be further pressured in the parallel segment.
