August 9, 2021/United Capital Research

Macro Highlights and Outlook

Following the approval of the Senate and House approval for a potential Eurobond issuance earlier in the year, last week, The Federal Executive Council (FEC) confirmed the issuers for the planned Eurobond issuance after the Debt Management Office (DMO) had forwarded the list. Following the confirmation, the FG is expected to raise $6.2bn (N2.3tn) in Eurobonds within the next quarter. Also, on international financing, the Board of Governors of the International Monetary Fund (IMF) has approved a general allocation of Special Drawing Rights (SDR) equivalent to $650.0bn to boost global liquidity. Nigeria is expected to receive $3.4bn from this special allocation.

Also in the past week, the NNPC has outlined its continued efforts to modernize the Nigerian Oil and gas industry with regards to asset abandonment, relinquishment costs; severance of operator staff; third party contract liabilities and other technical, operational, and financial capabilities. The Nigerian National Petroleum Corporation has stated its plans to outline policies to guide International Oil companies who wish to divest from joint ventures or the Nigerian oil and gas industry. This comes after the Petroleum Industry bill was passed last month in the senate.
 
In the coming week, we expect the Macro-economic environment to remain largely muted. However, we expect the National Bureau of Statistics to release Daily energy generation data.
 
Global review: US Markets rally on the back of improving macroeconomic data
In the US market, market sentiment was spurred by improving economic data as the incoming economic data showed that consumer spending improved by 1.0% m/m in Jun-2021. Personal income data was also up marginally by 0.1% m/m in the past month. Improved macroeconomic data spurred a bullish sentiment across the US Stock market as the S&P, Dow Jones and NASDAQ closed in the green gaining, 0.9% w/w, 0.8% w/w and 1.1% w/w respectively.

In Europe the markets closed relatively flat w/w as the Euro Stoxx and the FTSE 100 closed flat w/w, following improving macro-economic data, which showed a marginal decline in unemployment rate in the euro area to 7.7% from 8.0% in May. In the UK, the Bank of England unanimously voted to maintain its benchmark interest rate at 0.1%. 

On the other hand, in the Asian stocks, Sentiment was mixed, as the Nikkei closed in the green gaining 0.3% w/w, whilst the Shanghai Composite closed in the red losing 0.2% w/w. 

In the oil market, Brent crude futures dipped by 7.8% to close at $70.7/b, following increased supply, as a direct result of OPEC+ decision ease production quotas at the start of August. Similarly, the American Petroleum Institute (API) reported that crude stockpiles rose by 3.6m barrels last week.

Looking forward, we expect continuous positive sentiments as the global economy continues its road to full recovery and positive economic growth. We remain optimistic about economic recovery in the advanced countries and their ability to keep the covid-19 delta variant at bay, given the steady availability of vaccines in the country.

Domestic Equities: Local bourse turn bullish…ASI up by 0.7% w/w
This week, the broader index performance was largely due to buying interest in AIRTELAFRICA (+5.7% w/w), following its positive performance in the last quarter. All in, the local bourse ended the week on a bullish note, as the ASI gained 0.7% w/w reversing losses from the previous week. The ASI closed at 38,811.1 points as YTD loss moderated to 3.6%, and market settled at N20.2tn. Activity level as measured by average volume and value both dropped this week. Average volume traded fell by 56.6% w/w to 167.8m units and average value traded increased by 56.4% to N1.7bn.

In the past week sectorial performance was mainly bearish as all the five core sectors we cover closed in red. The Insurance index (-1.5% w/w) led the laggards, as selloffs in AIICO (-12.0% w/w) and WAPIC (-7.3% w/w) weighed on the index. Similarly, the Banking (-0.6% w/w), trailed due to losses in UNITY (-3.4% w/w), FBNH (-1.4% w/w). The Oil and Gas shed -0.6% w/w due to losses in ARDOVA (-4.9% w/w), OANDO (-2.0% w/w). The Consumer goods index also dipped -0.5% w/w largely due to declines in HONEYFLOUR (-4.8% w/w) and DANGSUGA (-4.3% w/w). Lastly, the Industrial sector shed 0.2% w/w following a dip in in WAPCO by -3.9% w/w.

Investor sentiment, as measured by the ratio of advancers to decliners, weakened to 0.9x, from 1.1x the prior week, as 10 stocks appreciated, and 11 stocks depreciated.

In the coming week, we expect the market to dance to the tune of incoming earnings releases. However, we anticipate a tight trading week barring major surprises in earnings scorecard of large-cap counters. 

Money Market: Bullish sentiments persist
In the money market, system liquidity trended higher this week, on the back of OMO liquidity mop-up by the CBN. The Open Buy Back (OBB) and Overnight (OVN) rates rose by 1350bps and 1275bps to close at 20.00% and 20.50%, respectively.

In the NTB secondary market, bullish performance was sustained as the average yield fell by 28bps to close at 5.62% from 5.90% in the previous week’s session. We also saw similar sentiments in the secondary OMO market as the average yield closed lower at 7.77%, 92bps short of the previous Friday’s close.

At the primary market, the CBN conducted an OMO auction, to mop-up N20.0bn. The CBN left stop rates unchanged at 7.0%, 8.5% and 10.1% for the 96-day, 184-day and 348-day papers, respectively.

We expect the bullish trend in the secondary markets to persist in the money markets in the coming week. The CBN is scheduled to conduct a primary market auction, rolling over N51.4bn of maturing bills. In line with the recent trend at PMAs, we expect rates to trend lower at the auction.
 
Bond Market Review: Marginal buying interest in Bond Market 
Last week, the secondary bonds market remained quiet as the average yield on sovereign bonds drop marginally by 2bps to 11.9% from 12.1% in the previous week. Also, in the corporate bonds segment, sentiments also remained flat as the average fell 2bps w/w to close at 12.6%.

In the Eurobond market, trading activity also remained flat as average close at 5.7%. Similarly, average yield closed flat at the corporate Eurobond market at 3.2%. In the coming week.

In the coming week, we expect proceedings in the bond market to remain tight. For Eurobonds, we expect yields to remain stable if oil prices do not falter, and US yields retain a downward bias. However, the risk of policy normalisation in developed markets is a concerning factor to watch out for in the mid to long term.
 
Currency Market: Naira appreciates at the I&E window
Last week, the naira appreciated at the I&E window, up by 1bp w/w to close at N411.50/$1, as against last week’s close of N411.44/$1. On the other hand, at the parallel market, naira appreciated to N508/$1, as against N517/$1 recorded the previous week. In terms of activity level at the I&E window, average turnover at the window declined -25.8% w/w to print at $122.3m, compared to $158.6m in the prior week. Lastly, external reserves were up 3.20% w/w to close at $33.5bn in the previous week.
 
In the coming, barring any macroeconomic shocks, we expect the naira to continue to trade in a stable range in the parallel market and I&E window.