March 6, 2018/Cordros Report

February in retrospect

• Global equities were rattled by inflation and bond market concerns in February, with all indices that we track closing in the red.

• The Nigerian equities market in February recorded a loss, after an impressive start to the year.

• The overnight lending rate fell by 75 bps to close the month at 4.5%, driven by buoyant system liquidity in the last week of the month.

• The second month of the year saw treasury bills yields expand, once again by 41 bps, on average, to 14.22%.

• Sentiments in the bond market reversed, with average yield recording a 31 bps m/m expansion to close at 13.72%.

• The USD/NGN strengthened by 0.11% to NGN360.09 in the I&E FX window, while it weakened by 0.27% to NGN363 in the parallel market.

In the nearest term

• Our outlook for Nigerian equities remains positive, on the backdrop of strengthening macroeconomic fundamentals, and the release of more Q4-2017corporate earnings, which are broadly expected to be positive and are likely to support positive investors’ sentiments.

• In the money market, not withstanding expected inflow via maturing OMO bills valued at NGN864.75 billion and budgetary allocations (c. NGN200 billion), we expect the overnight rate to expand in March, with the central bank’s OMO auctions and FX sales keeping a lid on liquidity position.

• While our expectation for a tighter liquidity position suggests constrained demand in the NTB market; we think still-attractive yields (particularly at the longer end of the curve), in addition to possible limited supply at the bi-weekly NTB auction, may likely stoke bullish sentiments in the secondary market.

• In the bond market, we reiterate our expectation for lower yields in the short to medium term, anchored on sustained moderation of inflation rate (we estimate 14.66% for February), anticipated monetary easing, and the FGN’s commitment to its new debt strategy.

• In the absence of any shocks, it is likely rates remain stable in the FX market, with the naira trading within current bands across the various markets, as the apex bank sustains its interventions in the FX space. 

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