Culled—Proshare
12/4/2018/Vetiva Research
March CPI registers fourteenth consecutive decline
Exactly in line with our estimate, the National Bureau of Statistics reported inflation for March at 13.3% y/y, a sharp drop from the 14.3% y/y recorded in February. Food inflation was a major driver of the moderation, coming in at 16.1% y/y in March (February: 17.6% y/y). Also, with the Bureau earlier reporting sizeable drops in energy prices in the month under review, core inflation unsurprisingly moderated over the month (11.2% y/y from 11.7% y/y). Whilst we laud the drop in inflation rates, we highlight that it was mostly driven by the high base of 2017 as month-on-month inflation has remained sticky (0.84% from 0.79%). We however believe that relatively stable m/m inflation can be positive as it can aid economic and financial planning.
Bond yields venture south as liquidity strengthens
Amidst a continued pause in Open Market Operations (OMO), Interbank Call rate declined further, down 16bps to 2.67% yesterday.
Interestingly, despite the buoyant system liquidity and overarching positive sentiment, yields on T-bills trended in opposite directions, closing the session 2bps higher on average. Notably, whilst the yield on the 15DTM bill rose 53bps to 13.03%, the yield on the 36DTM bill fell 73bps to settle at 12.97%. Meanwhile, buying intensified in the bond market, with yields on benchmark bonds moderating 7bps on average. In particular, yields on the 16.00% FGN JUN 2019 and 14.50% FGN JUL 2021 declined 26bps and 15bps respectively to close at 13.47% and 13.42%.
Whilst we expect buying interest to be supported by today’s ?476 billion OMO maturity, we foresee slower yield moderation as we expect the CBN to conduct an OMO auction to rein in liquidity.
Large caps sustain market recovery
Lifted by all key sectors, save for the Banking sector, the Nigerian equity market ended yesterday’s session 86bps higher, canceling out losses from prior sessions.
Following sustained recovery across major cement players – WAPCO (+295bps), CCNN (+221bps) and DANGCEM (+196bps) – the Industrial Goods sector (+201bp) led gainers on the ASI. The Oil & Gas (+75bps) and Consumer Goods (+67bps) sectors were also among yesterday’s gainers after advances across HONYFLOUR (+492bps), INTBREW (+485bps) and MOBIL (+756bps) outweighed declines in DANGFLOUR (-223bps), PZ (-192bps) and FO (-285bps). The Banking sector however extended losses to three sessions, dragged by declines in DIAMONDBNK (-213bps), FCMB (-126bps) and ZENITHBANK (-38bps).
Market breadth turned positive with 28 advances and 19 declines.
Market Outlook
Amidst bargain hunting interests and sustained upbeat sentiment across several large cap stocks, we foresee a mildly positive session today.
