November 13, 2023/United Capital
Global Markets Recorded Mixed Investor Sentiments.
In the previous week, U.S. markets saw a broad-based rally, marked by robust performance across various sectors. The primary driver behind the market surge was the significant decline in Treasury yields, triggered by the perceived dovish stance by the Fed Chair, Jerome Powell. Despite the overall market rally, trading activity in the latter part of the week was characterized by a period of consolidation, suggesting a pause before reacting to key events scheduled for this week. While mega-cap tech stocks spearheaded the market’s upward move, small and mid-cap indices lagged, exhibiting relatively weaker performance. Thus, the S&P 500 was up 1.3% w/w while the S&P 400 Mid Cap Index was down 1.6% w/w and the Russell 2000 ended the week lower at -3.1% w/w. The NYSE FANG+ index, which provides exposure to a select group of highly traded growth stocks of tech-enabled companies, ended the week up 4.6%.
In Europe, investors consolidated gains made in previous weeks, as optimism about a peak in interest rates was waned following hawkish commentary from European Central Bank (ECB) policymakers. Christine Lagarde (ECB president) had earlier cautioned that it will take more than a “couple of quarters” for the ECB to start cutting rates. Thus, the STOXX Europe 600 Index closed -0.2% w/w, the CAC 40 was flat, and Italy’s FTSE MIB fell 0.6% w/w.
In Asia, Chinese equities rose despite a disappointing Consumer Price Index (CPI) report which showed that inflation had contracted by -0.2% y/y in Oct-2023 from 0.0% y/y in Sep-2023. This is the 2nd CPI contraction this year following the -0.3% y/y fall in Jul-2023. Also, trade data showed that China’s overseas exports declined by 6.4% y/y in Oct-2023 from 6.2% y/y in Sep-2023, amid weak global demand. Hence, the Shanghai Composite Index rose 0.2% w/w.
Commodity markets faced broad weakness amid global growth concerns and the strengthening U.S. Dollar. Consequently, Dollar Index went up by 0.8% w/w as investors unwound some of their defensive positions post attacks on Israel. The biggest shift was in oil prices (Brent Crude -4.1% w/w) as American Petroleum Institute (API) data showed a 12.0mn bbl. build-up. Metals markets were broadly lower with both precious metals (e.g., Gold -2.9% w/w) and industrial metals (e.g., Palladium -10.0% w/w) under pressure.
This week, there will be several potentially impactful triggers for global markets. At the forefront will be economic data. In the U.S., inflation data will be released on 14-Nov. This will be an important consideration ahead of the U.S. Fed’s Dec-2023 meeting. Also, Retail Sales report will be released on 15-Nov. This alongside with Q3-2023 earnings reports from major retailers, including Walmart and Target, will show the state of the U.S. consumer heading into the holiday season. The Asia-Pacific Economic Cooperation (APEC) Summit hosted by San Francisco which began on 11-Nov. will hold till 17-Nov. In Asia, China’s retail sales and industrial production data releases will be keenly watched by investors.
Macro Highlight and Outlook
Fitch Ratings has affirmed Nigeria’s long-term foreign currency credit default outlook at B- citing recent policies by President Tinubu as responsible for the stable outlook. The global credit ratings agency noted that reforms such as fuel subsidy removal and the new exchange rate framework were responsible for the stable outlook. It also raised concerns over the proposed $10 billion forex loan, which the government plans to use to offset forex backlogs and inject liquidity into the system.
The Central Bank of Nigeria (CBN) disclosed that it has directed all its branches across the country to continue to issue different denominations of old and redesigned banknotes in adequate quantities to Deposit Money Banks (DMBs) for onward circulation to customers. The CBN also cautioned that all bank notes issued by it remain legal tender.
The CBN’s sectoral analysis of Deposit Money Banks’ credit indicates that, operators in the manufacturing sector saw their combined debts to Nigerian banks rise from N5.6tn in Jan-2023 to N7.0tn in Jun-2023. This implies that banks’ credit to the sector increased by 52.1% y/y as the sector received the largest share of the credit from banks during the first six months of the year.
The Nigerian National Petroleum Company Limited (NNPCL) said that it had launched a new grade of crude called Nembe, which it says is particularly suited to the European market. For many years, Nigeria has struggled with declining production and disruptions to supply due to unrest and oil theft.
NNPCL revealed that the lingering conflict between Russia and Ukraine has impacted Nigerian crude oil inflows in the international oil market, leading to a dip in demand from the once-dependable Asian market at the onset of hostilities in the Eastern bloc.
To illustrate the extent of this shift, Nigeria’s crude exports to India dwindled from approximately 250,000 barrels per day (bpd) in the six months preceding the February 2022 invasion of Ukraine to 194,000 in the subsequent six months afterwards. And so far, this year, only around 120,000 bpd of Nigerian crude volumes have made their way to India. The Nigerian government is counting on oil to help shore up the value of the battered Naira, and industry operators say it must decisively tackle insecurity, the sabotage of oil assets, and regulatory issues to achieve this objective.
In a bid to strengthen bilateral ties and attract foreign direct investments, the Federal Government of Nigeria has signed a Memorandum of Understanding with the Government of the Kingdom of Saudi Arabia, to drive technological advancements within Nigeria’s energy sector.
This week, we expect the Nigerian Bureau of Statistics (NBS) to release the country’s Inflation report for October 2023. We project that Nigeria’s year-on-year Inflation rate for October 2023 will print at 27.70%.
Domestic Equities: The Bulls Prevailed… ASI up 0.94%
Last week, the Bulls prevailed against the Bears, underpinned by sustained buy-pressure across BUACEMEN (+6.5% w/w), FBNH (+12.4% w/w), and SEPLAT (+3.9% w/w). As a result, the benchmark All Share Index (NGX-ASI) appreciated 93bps w/w to print at 70,196.93 points. Hence, YTD return strengthened to 36.97%, while market capitalisation closed at N38.14tn. On activity level, the weekly average of market equity turnover and volume of stocks traded improved by 11.2% w/w and 1.5% w/w to print at N9.0bn and 496.4mn shares traded, respectively.
Across sectors, overall w/w performance was bullish as four (4) of five (5) indexes under our coverage closed in the positive territory. The Oil & Gas sector (+2.9% w/w) led the gainers on the back of buy interest in SEPLAT (+3.9% w/w) and CONOIL (+7.9% w/w). Trailing behind were the Industrial goods (+2.7% w/w), Banking (+1.2% w/w) and Consumer goods (+5bps w/w) sectors, owing to gains across BUACEMEN (+6.5% w/w), FBNH (+12.4% w/w), FIDELITY (+8.3% w/w), ETI (+6.7% w/w), UBA (+1.5% w/w), PZ (+15.0% w/w), and NB (+2.0% w/w). The Insurance sector (-0.5% w/w) was alone in the red territory, as investors sought to book gains from previous weeks’ rally. Sell offs across MANSARD (-5.4% w/w), and AIICO (-4.0% w/w) topped the chart, in terms of index movers.
On corporate actions, Seplat Energy Plc announced a proposed dividend of N29.90k/share, with qualification and payment dates set at 11 November 2023 and 24 November 2023, respectively.
On other disclosures, MeCure Industries Plc’s 4,000,000,000 ordinary sharesof 50 Kobo each at N2.96k/share was listed on the entry segment of the growth board of Nigerian Exchange Limited (NGX), on Tuesday, 7 November 2023. Following the approval of Courtville Business Solutions Plc’s application to delist its entire shares from NGX, it was disclosed that the entire issued share capital of Courteville were on Friday, 10 November 2023, delisted from the Daily Official List of NGX.
This week, we expect mixed sentiments to prevail, with more of positive sentiments from investors, particularly directed toward listed corporates with strong fundamentals and impressive 9M-2023 financial performance. Pockets of profit-booking activities is also envisaged, as some investors will look to crystallise gains. A downside for the equities market is a sustained improvement in FTD rates offered by the banks, which would invariably divert some interest toward money market instruments.
Money Market Review: Stop Rates Trend Higher at PMA
Last week, the financial system opened liquid with a balance of N451.6bn. In the absence of any inflow from coupon payments or maturities, liquidity remained reflated. Nevertheless, the financial system closed the week buoyant with a balance of N317.3bn. Consequently, the average Open Repo Rate (OPR) fell by 14bps w/w to settle at 16.47%, while the average Overnight Rate (OVN) remained unchanged at 17.36%, respectively.
In the primary market, the Central Bank of Nigeria (CBN) conducted an NT-bills auction, rolling over a total of N310.1bn maturing bills across the 91-day, 182-day and 364-day bills. At the auction, investors’ demand was strong, with the bulk of bids skewed towards the longer-tenured instrument. As a result, the total subscription printed at N875.8bn, implying a bid-to-cover ratio of 2.8x. Notably, the CBN over-allotted at the auction, as total bills sold printed at N491.8bn. In line with our expectation, the stop rates across all the maturing bills, 91-day, 182-day and 364-day bills climbed by 100bps, 200bps and 375bps to settle at 7.00%, 11.00% and 16.75%, respectively.
In the secondary NT-bills market, we observed buy interests across the curve as investors sought to fulfil unmet bids from the Primary Market Auction (PMA). As a result, the average yield on NT-bills fell by 93bps w/w to close at 13.36% (previously 14.29%). In tandem, the average yield on OMO bills fell by 5bps to settle at 15.87%. (previously 15.92%)
This week, we expect a total of N30.0bn worth of OMO maturity to hit the financial system. We predict that FTD and money market rates would rise despite the influx, albeit slowly, as banks are anticipated to provide better rates that are indicative of the current high returns on short-term instruments.
Bond Market: Bearish Sentiments in the Secondary Market
The secondary bonds market was dominated by mild bearish investor sentiments as the average bond yield rose by 6bps to close at 15.67% (previously 15.61%). Similarly, corporate bonds traded on a bearish note, as the average yield on corporate bonds increased by 30bps w/w to 16.98%. (previously 16.68%).
In the Nigerian secondary Eurobonds market, we observed sell-offs amongst investors in line with SSA Eurobonds. Thus, the average yields in the market climbed by 48bps w/w to settle at 11.49% (previously 11.01%).
Looking forward, we expect the Debt Management Office (DMO) to conduct the Nov-2023 bond auction with an offer size of N360.0bn across the 2029s, 2033s, 2038s and 2053s papers. At the auction, we expect marginal rates to trend higher, given the Federal Government’s new disposition to keep fixed-income rates elevated at attractive levels. Lastly, we expect mixed sentiment in the Eurobonds market. We continue to anticipate that the current reform process in Nigerian Foreign Exchange Market (NAFEM) will positively translate into the stability of the segment, thus further improving investors buy sentiments for Nigerian Eurobonds.
Currency Market: Naira Depreciated at the Parallel Market
Last week, the Naira depreciated by 0.5% w/w at the Nigerian Autonomous Foreign Exchange Market (NAFEM) window to close at N780.14/$, from its previous close of N776.14/$. At the parallel market, Naira depreciated, as we saw offer quotes in the N1100.0/$- N1150.0/$ range. Activities in the NAFEM window improved, as average FX turnover climbed by 13.1% w/w to settle at $135.6mn (previously $117.9mn). Lastly, Nigeria’s external reserves declined by 13bps to settle at $33.39bn (previously $33.44bn).
This week, we see improvement in the Naira/Dollar position as the Federal Government’s efforts to enhance liquidity and market conditions continue to bear fruit.
