September 4, 2023/United Capital
Global Markets: Bullish Investors’ Sentiments Dominate the Market
Last week, the global equities market closed on a positive note on the back of weaker economic data releases, which spurred hopes that the Federal Reserve, “The Fed” may be nearing an end to its hawkish monetary policy tone. In the US, job data showed that the labour market was cooling, giving the Fed room to pause the tightening cycle. The US economy added one hundred and eighty-seven thousand jobs, exceeding market expectations of one hundred and seventy thousand jobs. Additionally, the unemployment rate ticked higher from 3.5% in July 2023 to 3.8% In August 2023, the highest since February 2022. On economic growth, the US Gross Domestic Product (GDP) for Q2-2023 was revised downward to from the preliminary estimate of 2.4% to 2.1% y/y. Growth rates eased for both consumer spending and government consumption, while exports experienced the biggest decline. This signalled to the market that the Fed may refrain from another rate hike as previous contractionary interest rate decisions have been hurting the US economic growth. Lastly, treasury yields dropped sharply following the release of the July JOLTS – Job Openings Report and August Consumer Confidence Index. Both of those reports were weaker than expected, which supported the market’s expectation of a pause in rate hikes going forward. As a result, the US indices closed in the green zone as the DIJA (+1.4% w/w), S&P 500 (+2.5% w/w) and NASDAQ Composite (+3.2% w/w) closed the week higher.
In tandem, the European markets recorded w/w gains as market participants were optimistic about an end to the global monetary policy tightening cycle. In the UK, the Bank of England (BoE) Chief Economist, Huw Pill stated that the Central Bank remained concerned about the persistence of inflation, as underlying measures of price growth have not yet exhibited the same decline as headline inflation. Notably, the BoE has raised rates fourteen (14) times since December 2021, and investors currently assign a 75.0% probability that rates will rise to 5.5% this month, with a peak of 5.75% expected by end of the year. However, the market did not react to this comment as investors’ sentiment was bolstered by strong economic data releases. Gains in London were broad-based, as the decline in UK home prices signalled a tempering in the hawkish monetary policy tone for the BoE. Home prices fell by 5.3% annually in August, the most since 2009. That said, the UK FTSE 100 climbed by 1.8% w/w. Elsewhere in Europe, the annual inflation rate in the Euro Area remained steady at 5.3% y/y in August 2023. Meanwhile, the core inflation rate dropped as expected to 5.3% y/y, down from July’s 5.5% y/y. Lastly, the French economy advanced by 0.5% q/q in Q2-2023, rising from a flat reading in Q1-2023 and in line with market consensus. On a yearly basis, the GDP expanded by 1.0% y/y in the period under review, after a downwardly revised 0.8% y/y growth in Q1-2023. Thus, France’s CAC (+0.9%), Germany’s DAX (+1.3% w/w) and Europe’s STOXX (+1.5% w/w) improved for the week.
The Asian market closed in the green zone as investors digested positive economic data releases in the region. In China, The People’s Bank of China (PBoC) announced that it would slash the foreign exchange Reserve Requirement Ratio (RRR) by 200bps to 4.0% from 6.0% beginning September 15th. The Central Bank seeks to stem further weakness in the yuan and help the faltering economic recovery. Thus, this will help improve financial institutions’ ability to use foreign exchange funds. Lastly, the Caixin China General Manufacturing PMI rose to 51.0pts in August 2023 from 49.2pts in July 2023, topping market estimates of 49.3pts and marking the highest reading since February 2023. As a result, the capitalisation-weighted Shanghai Composite Index climbed by 2.3% w/w. Investors also reacted to data showing Japanese retail sales grew more than expected in July, while industrial production declined more than anticipated. Retail sales in Japan rose 6.8% y/y in July 2023, accelerating from a downwardly revised 5.6% y/y gain in June. This marks the 17th consecutive month of expansion in retail trade as consumption continued to recover from the pandemic-induced slump. That said, Japanese NIKKEI (+3.4% w/w) and Indian SENSEX (+0.8% w/w) closed higher.
In the oil market, crude oil prices appreciated as the US government data showed tighter-than-expected crude supplies. Additionally, expectations that supply cuts by the OPEC+ group of oil-producing nations, led by Saudi Arabia, would continue through the end of 2023 drove crude oil prices up. As a result, oil prices closed higher on a weekly basis, with Brent Crude gaining 3.9% w/w to print at $87.80/bbl.
This week, the spotlight will be on the impact of several economic data releases. In the US, attention will be focused on the ISM Services PMI and foreign trade data reports. Elsewhere, the Central Banks of Australia and Canada will announce their interest rate decisions. These data releases will determine the market’s direction and investors’ sentiments.
Macroeconomic Highlights
The Minister of Finance and Coordinating Minister for the Economy, Chief Wale Edun, revealed at the end of the inaugural Federal Executive Council meeting on Monday, that the Federal Government has no intention to borrow from any local or foreign organisation with its removal of subsidy on petrol and exchange rate harmonisation. He further disclosed that the benefit of the subsidy removal would be ploughed back into various sectors aimed at boosting government’s revenue and improving the business environment for local and foreign investment.
Mr. Wale Edun further disclosed at a press briefing in Abuja on Friday that the administration of President Bola Tinubu is looking to attract funds held in domiciliary accounts and funds held by Nigerians abroad into massive investments in various sectors of the economy. He further disclosed that Nigerians had huge funds in domiciliary accounts and held large sums abroad which could be deployed to rejuvenate the economy and that his team is working to provide the needed environment to attract such funds into the Nigerian economy.
In another news, Access Bank Plc (Access) and Standard Chartered Bank (SCB) have entered into agreements for the acquisition of Standard Chartered Bank’s shareholding in its subsidiaries in Angola, Cameroon, The Gambia, and Sierra Leone, and its Consumer, Private & Business Banking business in Tanzania. Each transaction remains subject to the approval of the respective local regulators and the banking regulator in Nigeria. The agreement with Access for the sale of the SCB’s business in Sub-Saharan Africa is in line with Standard Chartered Bank’s global strategy, aimed at achieving operational efficiencies, reducing complexity, and driving scale.
The announcement was made recently at SCB’s Headquarters in London in the presence of senior representatives from both banks. Signed by Sunil Kaushal, Regional CEO, Africa & Middle East, Standard Chartered and Roosevelt Ogbonna, Group Managing Director, Access Bank Plc.
According to recent data released by the National Bureau of Statistics (NBS), taxess on products in the country rose to N1.36tn in the first six months of 2023 despite worsening hardship across the board. This represents a 113.3% increase from the N636.2bn that was recorded in the first six months of 2021, and a 25.0% increase from the N1.1tn printed in the corresponding period of 2022.
Meanwhile, the Transmission Company of Nigeria (TCN) announced that the Nigerian power grid operated without any major disruption or system collapse for four hundred (400) consecutive days. It further disclosed that the milestone signified a remarkable advancement in the nation’s efforts at strengthening its power infrastructure and ensuring a reliable and dependable electricity supply to distribution load centres for onward distribution to electricity customers nationwide.
The Nigerian Content Development and Monitoring Board (NCDMB) and the Bank of Industry signed an amendment to the Memorandum of Understanding on the $50m NOGaPS Manufacturing Fund. The fund was created by the NCDMB and domiciled with BoI to attract oil and gas equipment manufacturers to the Nigerian Oil and Gas Parks Scheme established by NCDMB. The fund is aimed at increasing access to affordable finance by manufacturing entities.
Abdul Samad Rabiu, the chairman of BUA Cement Plc, expressed confidence that a drop in cement prices will result from the completion of the company’s two new factories by the end of the year. He also revealed the names of the two factories, which are the Obu Line 3 and the Sokoto Line 5, giving the business a total capacity of six million tonnes. This effectively supports the Federal Government’s efforts to lower the nation’s cement prices.
This week, we expect the National Bureau of Statistics to release its Foreign Trade in Goods Report for Q2-2023.
Domestic Equities: The Bulls Prevailed… ASI up 3.0% w/w.
Last week, the local equities market continued its northward ascent as the bulls flooded it. Thus, buy-interest in BUAFOODS (+9.1% w/w), DANGCEM (+2.7% w/w) and DANGSUGA (+27.4% w/w) drove the local bourse northwards. As a result, the benchmark All Share Index (NGX-ASI) climbed by 300bps w/w to print at 67,527.19 points. Hence, YTD return strengthened to 31.76%, while market capitalisation gained N1.1tn to print at N37.0tn. Activity levels improved, with the average value and volume traded rising by 1.6% w/w and 28.5% w/w to N6.0bn and 465.6mn units, respectively. Investors’ sentiments strengthened from 0.7x to 2.0x, as 55 tickers appreciated while 28 depreciated.
Across sectors, overall w/w performance was mainly bullish as all five (5) sectors under our coverage closed higher. The Consumer Goods index (+7.6% w/w) and the Oil and Gas index (+5.4% w/w) gained following buy-interests in BUAFOODS (+9.1% w/w), DANGSUGA (+27.4% w/w) and SEPLAT (+10.0% w/w). The Banking index (+5.1% w/w) and the Industrial index (+2.0% w/w) gained following price appreciations in ZENITH (+5.0% w/w), UBA (+8.8% w/w), FIDELITY (+8.4% w/w), DANGCEM (+2.7% w/w) and WAPCO (+9.4% w/w).). Lastly, the Insurance sector posted 0.8% weekly gains due to increased bids in CHIPLC (+38.5% w/w) and MBENEFIT (+17.1% w/w).
On corporate actions, Stanbic IBTC Holdings Plc released their H1-2023 financial statements, which revealed that in the period under review, Gross Earnings and Profit After Taxes (PAT) rose by 58.0% y/y and 121.5% y/y to N211.5 bn and N67.9 bn, respectively. Similarly, Fidelity Bank’s recently released H1-2023 financials revealed Gross Earnings of N247.1 bn (+59.6% y/y) and PAT of N62.0 bn (+166.0% y/y). Also, GTCO released its financials for H1-2023, which revealed a whopping 181.1% climb in the Tier-1 bank’s revenue for the period and a 267.4% climb in its PAT for the period under review.
This week, we expect to continue seeing the bulls dominate the local bourse. Investors will continue cherry-picking activities around fundamentally sound stocks with potential upsides, as recent corporate disclosures indicate. In addition, we envisage investors to begin to take positions in the market in anticipation of the earnings release of Tier-1 banks in the coming weeks. Furthermore, our expectation of a low-rate fixed-income environment within the week would further catalyse the bull run.
Money Market: System Liquidity Drove Buy-Interest.
The financial system opened the last week with a balance of N57.6bn. However, system liquidity became reflated following OMO repayment to the tune of N40.0bn and FAAC inflows of N479.4bn. Thus, last week, the financial system closed with a balance of N353.6bn. Consequently, the weekly average of funding rates between banks (the Overnight Policy Rate (OPR) and Overnight (OVN)) dropped by a significant 17.5ppts w/w and 17.7ppts w/w, respectively. That said, for further context, the OBB and OVN closed the week at 1.67% and 2.42%, respectively.
The secondary NT-bills closed bullish as we observed strong buy-interests at the short end of the curve. Thus, the average yield fell by 63bps w/w to close at 7.27% (previously, 7.56%).
This week, we expect the CBN to conduct its first NT-bills auction for September, rolling over maturing bills to the tune of N214.74bn. At the auction, we anticipate the stop rates to taper, with the 364-day bill straying back into the upper region of the single-digit terrain. Overall, we expect the liquidity in the system to serve as an anchor for FTD and money market rates, bolstering buy interest. That said, we foresee funding rates between banks, FTD rates and money market yields to remain within the influence of the magnitude of liquidity in the financial system.
Bond Market: Bearish Sentiments Resume in the Nigerian Eurobond Market.
The secondary bonds market closed relatively bullish as we witnessed mild buy-interests across the curve, with yields declining particularly in the MAR-2024 (-100bps w/w) and the JUL-2034 (-34bps w/w). As a result, we observed the average yield across all bond tenors fall by 4bps w/w to settle at 14.06% (previously, 14.10%).
In the Nigerian Eurobond secondary market, sell pressures resumed, in tandem with the overall sentiments in the Sub-Saharan African (SSA) region. That said, the average yield on Nigerian Eurobonds rose by 12bps w/w to settle at 11.11% (previously, 10.99%).
This week, we expect investors to retain standoffish sentiments toward duration-exposed instruments, with overall anticipation of the upcoming bond auction. In the Eurobond market, we expect the bearish sentiment to continue in the market, in tandem with sentiment in the SSA region.
Currency Market: Naira Appreciates at the I&E Window
Last week, the Naira gained by 4.9% w/w at the Investors & Exporters (I&E) window to close at N740.4/$, from its previous close of N778.4/$. At the parallel market, we continued to find offer quotes in the N900.0/$1- N920.0/$1 range. Activities in the I&E window improved, with average FX turnover climbing by 30.6% w/w from $83.6mn to $109.2mn. Lastly, Nigeria’s external reserves settled at $33.7bn.
This week, we expect sustained pressure on the Naira pending the injection of the $3.0bn NNPC loan from Afrexim Bank into the FX market.
