November 27, 2023/United Capital Research
Global Markets: Broad-based Positive Momentum
Last week, the global equities market closed on a positive note on the back of economic data releases and the agreement between Israel & Hamas for a four-day pause in fighting as part of a hostage release deal. In the US, the fear of missing out on further gains and the belief that the Federal Reserve (Fed) is done raising rates propped up the equities market in the week. The S&P Global US Services Purchasing Managers’ Index (PMI) increased to 50.8pts in Nov-2023 from 50.6pts in the previous month. This is the highest reading in four months and above market expectations of 50.4pts. The increase was driven by companies reporting growth in customer bases following successful marketing campaigns. Additionally, the final reading for the University of Michigan Consumer Sentiment Index for Nov-2023 printed at 61.3pts vs. the preliminary reading of 60.4pts and Nov-2022’s final reading of 56.7pts. The rise is due to more favourable current assessments and expectations of personal finances. Meanwhile, minutes from the last FOMC meeting indicated that the Fed would proceed more carefully in the future and would only consider monetary policy tightening if data showed that inflation was not slowing to the Fed’s 2.0% target. However, the market reaction to the minutes was muted and void of sell-offs. Lastly, impressive Q3-2023 corporate earnings amongst companies in the retail space bolstered the rally in the equities. As a result, the US indices closed on a positive note as the DIJA (+1.3% w/w), NASDAQ (+0.9% w/w) and S&P 500 (+1.0% w/w) closed the week higher.
In tandem, the European markets recorded w/w gains following positive remarks by European Central Bank (ECB) policymakers and positive economic data releases. The ECB President, Christine Lagarde, stated that the central bank may have reached a point where it can pause tightening and assess the impact of its aggressive tightening cycle on different components of the economy. On the data front, business activities in the Eurozone contracted at a slower rate in Nov-2023, aided by softer declines in both services and manufacturing output. Notably, the HCOB Eurozone Composite PMI rose to 47.1pts in Nov-2023, up from the 46.5pts reading in the previous month and slightly above market expectations of 46.9pts. Thus, the France’s CAC (+0.8% w/w), Germany’s DAX (+0.7% w/w), and Europe’s STOXX (+0.9% w/w) rose this week. Elsewhere in the UK, the Bank of England’s (BoE) Chief Economist, Huw Pill, warned that inflation remains persistently high and emphasised the need for continued vigilance. Hence, he stressed the central bank’s need to stand firm in combating inflation, asserting that it cannot afford to ease its tight monetary policy. As a result, the yield on the UK’s 10-year Gilt rose towards 4.3% as investors processed the hawkish remarks by the policymaker. Consequently, the UK’s FTSE declined by 0.2% w/w.
The Asian market closed mixed as investors assessed key economic data in the region. In China, the capitalisation-weighted Shanghai Composite Index fell by 0.9% w/w as investors turned cautious amid the lack of market-moving cues in the country. Elsewhere in Asia, the Japanese NIKKEI (0.1% w/w) and Indian SENSEX (+0.3% w/w) closed higher. This performance was driven by strong domestic earnings and growing expectations that US interest rates had already peaked and could start falling next year.
In the oil market, crude oil prices fell following the postponement of the meeting by the Organisation of Petroleum Exporting Countries (OPEC+). This raised questions about global crude oil supplies as traders speculated whether OPEC+ would agree on further production cuts. As a result, oil prices closed lower, with Brent Crude declining by 4bps w/w to print at $80.58/bbl. (previously, $80.61/bbl.).
This week, the spotlight will be on the speeches from major global central banks across the US, Euro Area and Japan. In the US, we anticipate the release of Personal Consumption Expenditure (PCE) prices, personal income and spending data. Also, we expect Oct-2023 inflation data for Germany, France and the Euro Area. Lastly, investors will focus on the PMI numbers for China and India.
Macroeconomic Highlight and Outlook
According to the National Bureau of Statistics (NBS), Nigeria’s Gross Domestic Product (GDP) grew by 2.54% (year-on-year) in real terms in the third quarter of 2023. This growth rate is higher than the 2.25% recorded in the third quarter of 2022 and higher than the second quarter 2023 growth of 2.51%.
The performance of the GDP in the third quarter of 2023 was driven mainly by the Services sector, which recorded a growth of 3.99% and contributed 52.70% to the aggregate GDP. The agriculture sector grew by 1.30%, from the growth of 1.34% recorded in the third quarter of 2022. The growth of the industry sector was 0.46%, an improvement from -8.00% recorded in the third quarter of 2022. In terms of share of the GDP, agriculture, and the industry sectors contributed less to the aggregate GDP in the third quarter of 2023 compared to the third quarter of 2022.
The Central Bank of Nigeria (CBN) postponed a meeting of its Monetary Policy Committee (MPC) for a second time since Governor Olayemi Cardoso was nominated to the post in September 2023, leaving investors guessing as there was no official communication. The delay comes as the foreign exchange backlog worth several billions of dollars has not been fully cleared. The CBN had early this month cleared over 75.0% to 80.0% of outstanding matured FX forwards contracts with banks.
The Nigerian Senate approved the Medium-term Expenditure framework (MTEF) for 2024-2026 and Fiscal Strategy Paper (FSP), which contains projections for budget appropriations over the next three years. The lawmakers approved $73.96, $73.76 and $69.90 per barrel, respectively as benchmark oil prices for daily crude oil production of 1.78 million bpd, 1.80 million bpd, and 1.81 million bpd for 2024, 2025 and 2026.
The Senate approved the federal government’s recommended spending N26.0trn, with N16.9trn in retained revenue, a N9.0trn budget deficit, N7.8trn in new borrowings (including borrowing from foreign and domestic sources); N1.3trn worth of statutory transfers, an estimated N8.2trn in debt service; N243.6bn in the Sinking Fund; N1.27trn in pension, gratuity, and retiree benefits.
The upper chamber also approved the exchange rate of N700 to $1, N665.61 to $1, and N669.79 to $1 as proposed by the executive for 2024, 2024, and 2026 respectively.
Last week, Vice President Kashim Shettima approved the constitution of a multi-sectoral committee on Monday, to drive the goals of the federal government’s Human Capital Development (HCD) programme. The committee comprises of Aliko Dangote, Tony Elumelu, amongst others.
The Nigerian Sovereign Investment Authority (NSIA) has launched a $500 million Renewables Investment Platform for Limitless Energy (RIPLE), expected to boost Nigeria’s renewable energy drive and deepen access to electricity.
The Authority (NSIA) equally signed a Memorandum of Understanding (MoU) with the International Finance Corporation (IFC) as a strategic partner for a pilot investment – and more – in core focus areas of the Platform.
The Federal Government, as part of measures to address the food shortage in the country, is set to flag off the 2023/2024 dry season farming on Saturday, 25 November 2023.
According to a statement issued by Kingsley Osadolor, technical adviser on strategy and communications to the Minister of Agriculture and food security on Thursday, the government announced a 50.0% drop in the price of agricultural inputs, as it plans to distribute a range of agricultural inputs, including seeds, fertilizer, herbicides and pesticides, will be delivered to farmers.
He further noted that the 2023/2024 dry season farming will be boosted by an African Development Bank facility and implemented under the National Agricultural Growth Scheme and Agro-Pocket (NAGS-AP) project.
The former Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, was granted bail on Wednesday by the Federal Capital Territory (FCT) High Court in Maitama, Abuja. The bail was to the tune of N300.0mn after being arraigned on a six-count charge bordering on procurement fraud of N1.2 billion.
In the week ahead, the National Bureau of Statistics (NBS) to release the country’s Capital Importation Data for Q3-2023. This will provide the stakeholders with insights regarding capital inflows.
Domestic Equities: Bullish Sentiments Prevailed…ASI up 0.16%
Last week, the local equities market closed positive following the dominance of the bulls in the market. Notably, price appreciations in large-cap stocks, GTCO (+5.4% w/w), ZENITHBA (+3.9% w/w) and TRANSCORP (+4.0% w/w) spurred the rally in the market. As a result, the benchmark All Share Index (NGX-ASI) climbed by 16bps w/w to print at 71,230.48 points. Hence, YTD return strengthened to 39.0%, while market capitalisation rose to N39.2tn. Activity level improved, as the weekly average volume of stocks traded climbed 19.7% w/w to 485.0mn units while the weekly average value traded fell 18.2% w/w to N4.5bn. Investors’ sentiments strengthened to 2.8x from 1.8x, as 59 tickers appreciated while 21 depreciated.
Across sectors, overall w/w performance was mainly bullish as two (2) sectors under our coverage closed in the green. The Insurance sector (+4.1% w/w) led the gainers due to buy interest in MBENEFIT (+16.7% w/w), AIICO (+17.7% w/w) and VERISTASK (+27.6% w/w). The Banking sector was up 1.9% w/w due to price appreciations in ZENITHBA (+3.9% w/w), UNITYBNK (+57.3% w/w) and FIDELITY (+2.3% w/w). Trailing behind was the Industrial index which gained 4bps w/w due to buy interest in BETAGLAS (+10.0% w/w). The sole laggard was the Consumer goods index (-0.5% w/w) due to selloffs in NB (-5.0% w/w), DANGSUGA (-1.6% w/w), INTBREW (-5.6% w/w). The Oil & Gas sector was muted.
On corporate actions, MTN Nigeria Communications Plc notified the Nigerian Exchange Limited (NGX) and the investing public of its proposed issuance of up to N72.1bn series 10 commercial paper note under its N250.0bn commercial paper issuance programme. The issuance is part of the company’s strategy to diversify its funding sources of funds deployed for short-term working capital requirements.
In addition, Jaiz Bank Plc notified the NGX and the general public of the appointment of Haruna Musa as the substantive Managing Director/CEO of the Bank.
Furthermore, the NGX notified Trading License Holders and the investing public that trading in the shares of Consolidated Hallmark Insurance Plc (the Company) was suspended on Monday, 20-Nov-2023. The suspension is necessary to prevent trading in the Company’s shares and enable the Company to reconcile its books with CSCS for the delisting of Consolidated Hallmark Insurance Plc and listing of Consolidated Hallmark Holdings Plc. The suspension is required to determine the shareholders who will qualify for the consideration.
Looking into this week, we project mixed sentiments toward listed corporates. We see the ASI looking to form a support between 69,215pts and 70,000pts. This is because we see some respite with the RSI currently trending above the overbought region, with some investors projected to continue booking some profit; albeit mild. On a broader note, we still see sustained buy interest toward the Banks and other fundamentally sound stocks with strong 9M-2023 performance and pending corporate actions.
Money Market Review: Stop Rates Climbed at Primary Market Auction (PMA)
Last week, the financial system opened with a balance of N37.7bn. During the week, inflows totaling N201.7bn from NT-Bill maturities hit the system. However, there was a Primary Market Auction, rolling over these bills. Nonetheless, the financial system closed in a deficit, with a balance of -N186.4bn. Consequently, both the Open Repo Rate (OPR) and the Overnight Rate (OVN) rose by 2.92ppts and 2.38ppts to 23.8% and 24.6%, respectively.
In the primary market, the Central Bank conducted an NT-Bill auction, rolling over N211.7bn worth of bills across the 91-day, 182-day and 364-day papers. The auction was oversubscribed as bids totaled N1,231.1bn, even as bids for the 364-day bill came in at N1,208.5bn. The CBN opted to sell N561.7bn worth of bills, implying a 5.8x bid-to-cover ratio. Therefore, stop rates climbed on the 91-day (+100bps) and 182-day (+100bps) to 8.0% and 12.0%, respectively. However, the stop rate on the 364-day bill remained unchanged at 16.8%.
In the secondary NT-bills market, we observed strong buy-interest across the curve, trickling from the primary market. As a result, the average yield on NT-bills fell by 2.3ppts w/w to close at 10.5%.
This week, we expect money market rates and FTD rates to remain elevated, given the CBN’s disposition to orthodox monetary policy in periods of high inflation and excessive money supply. We expect the financial system to remain relatively illiquid.
Bond Market: Bearish Sentiments in Secondary FGN Bond Market
Bearish investor sentiments dominated the secondary bonds market as the average bond yield rose by 18bps w/w to close at 15.91%. However, corporate bonds traded flat, as the average yield on corporate bonds rose by 2bps to close at 17.0%.
In the Nigerian secondary Eurobonds market, we observed buy interest amongst investors in line with SSA Eurobonds as global investors shop for high yields. Thus, the average yields in the market fell by 13bps w/w to settle at 10.83%.
This week, we expect bearish sentiments to persist in the bonds market across the curve. However, we foresee the bullish run in Nigerian Eurobonds to continue. Also, the $105.9mn worth of coupon payments is expected to increase buy-interest in Eurobonds.
Currency Market: Naira Depreciates at the NAFEM
Last week, the Naira fell by 0.4% w/w at the Nigerian Autonomous Foreign Exchange Market (NAFEM) to close at N794.89/$, from its previous close of N791.75/$. At the Parallel Market, the Naira depreciated by 1.8% w/w to close the week at N1,155.0/$ (previously, N1,135.0/$). Activities in the NAFEM window slowed as average FX turnover declined by 18.4% w/w to $137.4mn (previously $168.4mn). Lastly, Nigeria’s external reserves declined by 30bps to settle at $33.2bn (previously $33.3bn).
This week, we expect sustained pressure on the Naira to continue given the acute supply-demand imbalance of the Naira against the US Dollar.
