September 17, 2024/United Capital Research
Global Markets: Markets Closed Higher
In the preceding week, the S&P 500 dropped by 4.2% w/w, marking its worst week since March 2023. This is largely due to a disappointing employment report and a break below its 50-day moving average. Despite expectations of a lower VIX over the weekend, it remained high at around 22.5, reflecting market nervousness. However, Asian market stability and Oracle’s strong earnings, along with a partnership with Amazon Web Services, boosted sentiment and contributed to a partial recovery of the previous Friday’s losses. The week saw volatile trading with global growth concerns, especially in oil and cyclical sectors, and mixed financial sector performance. A Bloomberg report on reduced capital requirements briefly helped financials, though caution persisted. Wednesday’s session was marked by significant volatility, with the VIX spiking but later falling as equities rebounded. By Thursday and Friday, the S&P 500 gained 4.0% w/w, led by technology stocks, while energy and financials showed mixed performance.
In Europe, major indices rose by 1.0% to 2.0% last week. The STOXX Europe 600 rose by 1.9% w/w, the German DAX up by 2.2% w/w, France CAC 40 increased by 1.5% w/w, and the UK FTSE 100 advanced by 1.1% w/w. The ECB cut its deposit rate as anticipated but also revised its GDP estimates downward and raised its core inflation projections. ECB Chair Lagarde offered minimal forward guidance, indicating that future policy decisions would be made on a data-dependent, meeting-by-meeting basis.
In Asia, China’s equity markets ended the week lower with the Hong Kong Hang Seng and the Shanghai Composite indexes falling by 0.4% w/w and 2.2% w/w. This was due to inflation data released at the start of the week which re-ignited deflationary concerns. This year, China has been the epicenter of global growth concerns. Last week, both the IEA and OPEC cut their global oil demand forecasts citing China weakness. In Japan, the Yen strengthened to monthly highs (+1.0% w/w). However, this was a drag on the country’s domestic equities market with the financials, automobiles and other export sectors underperformed.
In energy markets, oil markets experienced significant volatility last week. Prices initially fell sharply, hitting 2023 lows around $69.0/bbl. on Tuesday. After four weeks of declines, the Relative Strength Index (RSI) dropped below 30, indicating that oil futures were the most oversold they have been since June 2023. This led to a rebound in the latter half of the week, breaking the losing streak. Both OPEC and the IEA have also reduced their global oil demand growth forecasts.
This week, investors will be heavily focused on central banks, particularly the FOMC meeting on Wednesday. In addition to the FOMC, rate decisions are expected from China, Japan, England, Brazil, and others. Economic data from China, including key retail sales figures, will set the tone for the week. Early earnings reports from FedEx and Lennar will come out on Thursday. It is also a week of Options expiration and S&P quarterly index rebalancing, which may increase trading volumes and impact volatility.
Macroeconomic Highlights
According to the National Bureau of Statistics (NBS), Nigeria’s total trade merchandise printed at N31.9tn, down by 3.8% q/q compared to its N33.1tn print in Q1-2024. However, on a yearly basis, the country’s total trade climbed by 150.4% y/y from the N12.7tn recorded in Q2-2023. The y/y increase was primarily driven by improved trading activities in Q2-2024 compared to Q2-2023 when the economy was impacted by the 2023 electioneering activities and the Naira redesign policy. That said, Nigeria’s trade surplus widened to N6.9tn, up by 33.6% q/q and 5115.0% y/y from N5.2tn and N133.2bn in Q1-2024 and Q2-2023, respectively, due to faster growth of export bills.
Total exports grew by 201.8% y/y to N19.4tn, driven by higher crude oil exports as demand for crude oil remained strong. Crude oil exports contributed N14.6tn to the country’s total exports in Q2-2024, making up 75.0% of the total export value. This can be attributed to higher crude oil prices, which supported the growth in export value as the average Brent Crude oil price climbed by 4.0% q/q and 9.4% y/y to $85.03/bbl. in Q2-2024 from $81.76/bbl. and $77.73/bbl. in Q1-2024 and Q2-2024, respectively. Nevertheless, we note that the critical factor driving the increase in trade numbers was the depreciation of the Naira over the period.
According to the Organisation of Petroleum Exporting Countries (OPEC), Nigeria’s crude oil production increased from 1.31mn barrels per day (mbpd) in Jul-2024 to 1.35mbpd in Aug-2024. This was stated in the September Monthly Oil Market Report (MOMR). The report showed that the average daily crude production rose marginally by 45,000bpd as the government continued its strong fight against oil theft and pipeline vandalism.
Company Income Tax (CIT) collection in Q2-2024 rose by 150.8% q/q to N2.5tn from the N984.6bn collected in Q1-2024. According to the report, local CIT payments in the period under review amounted to N1.4tn, while foreign CIT payments contributed stood at N1.1tn. On a q/q basis, the agriculture, forestry, and fishing sectors exhibited the highest growth rate at 474.5%, followed by financial and insurance activities at 429.8% and manufacturing at 414.2%.
The US Agency for International Development has announced a $6.5mn grant to the International Organisation for Migration (IOM) to address the humanitarian needs caused by recent flooding across Nigeria. According to the agency, $3mn out of the total grant will be allocated by IOM specifically to address the immediate needs arising from the floods, which have impacted over 619,000 people across 29 states since mid-August.
The Federal Government has unveiled details of its strategic plans to generate at least $100.0bn and create over two million jobs from Nigeria’s creative economy yearly. In 2022, the Nigerian creative economy contributed just 1.2% to Nigeria’s GDP compared to other African countries like South Africa (3.0%) and Egypt (4.3%). The Minister of Art, Culture, and the Creative Economy, Hannatu Musawa, identified 14 pivotal initiatives that will drive the sector’s growth and significantly boost government revenue and grouped these initiatives under four unique pillars, which include technology, infrastructure and funding, international culture promotion, and intellectual property monetisation.
This week, we expect the macroeconomic environment to be relatively quiet in the absence of any dat releases.
Domestic Equities: Local Bourse Regains Momentum…NGX-ASI Up by 1.06% w/w
Last week, the domestic equities market closed the week green as bullish sentiments dominated the market in three (3) out of five (5) trading days of the week. Notably, renewed interest in MTNN (+7.4% w/w) stood out as the primary index driver. Bargain hunting activities improved, as evidenced by the market’s breadth, which strengthened to 1.6x (from 0.9x last week). Sentiments toward risk asset classes remained positive given the recent trend and developments in the money/fixed-income market. That said, the benchmark NGX-ASI climbed higher by 106bps to settle at 97,456.62 points. As a result, YTD return strengthened to 30.3%, while market capitalisation closed at N56.0tn. Furthermore, market activities were mixed, as the average value of stocks traded fell by 0.02% to print at N10.2bn, while the total volume of stocks traded rose by 20.7% to print at 516.8mn units.
Similarly, on a sectorial level, performance was bullish as five (5) sectors under our coverage closed in the green territory. The Banking sector (+5.12% w/w) led the gainers on the back of buy interests in ETI (+8.45% w/w) and JAIZBANK (+2.73% w/w). Following were the Oil and Gas sector (+2.00% w/w) on the back of share price appreciation in CONOIL (+9.09%) and ETERNA (+3.33%). The Insurance sector (+1.59% w/w) gained due to interests in CORNERST (+5.93% w/w) and WAPCO (+5.13%). The Consumer Goods sector (+1.47%) followed on the back of share price appreciation in FLOURMIL (+22.47%) and HONYFLOU (+13.42% w/w). Lastly, The Industrial Goods sector (+0.17% w/w) gained owing to bargain-hunting activities in BERGER (+27.73% w/w) and WAPCO (+3.17% w/w).
On corporate actions, following approval from the Securities and Exchange Commission (SEC), Zenith Bank plc has extended its Right Issue scheduled to end Monday, 9th September, by two weeks to close Monday, 23rd September.
EverQuest Acquisition LP (comprising Custodian Investment Plc, Aion Investment, and Evercorp Industries) has entered a Share Sale and Purchase Agreement to purchase a 100.0% equity stake in FBN Quest Merchant Bank Limited.
Guaranty Trust Holding Company Plc is the first Nigerian financial institution to report a profit before tax of N1.0tn in six months. The financial giant’s profit represents a 206.6% y/y increase from the N327.4bn recorded in the same period last year.
Looking forward, the equities market is expected to retain its buy interest as investors cherry-pick undervalued stocks. However, given the sentiment that rates might have peaked in the fixed income and money markets and investors locking in on current rates, we expect some bearish undertone to persist in the equities market. Nevertheless, the Bulls will remain incentivized to persist in bargain hunting, given the tremendous mid-long-term opportunities in the equities market. Fund managers and businesses may begin to entertain mid-long-term (≥6 months) investment objectives, cherry-picking only sound equities with strong fundamentals and ongoing corporate actions. This strategy will maximise market opportunities, thereby optimising portfolio returns.
Money Market Review: Stop Rates Declined Further at PMA
Last week, the financial system opened with a deficit balance of N173.6bn. During the week, system liquidity remained depressed in the absence of any inflow from coupon payments or OMO maturities. As a result, the financial system closed the week with a deficit balance of N503.0bn. Consequently, the average Open Repo Rate (OPR) and Overnight Rate (OVN) climbed by 394bps and 383bps w/w to settle at 31.02% and 31.50%, respectively.
The Central Bank conducted an NT-bill auction with an offer size of N161.9bn across the 91-day, 182-day, and 364-day bills. At the auction, investors’ demand was strong, as total subscriptions printed at N563.2bn, indicating an oversubscription rate of 3.5x. The bids were majorly skewed towards the longer-tenured instrument “365-day bill”, which received total bids of N539.2bn. Notably, the Apex Bank sold just the amount on offer. As a result, the stop rates on the 91-day, 182-day, and 364-day bills declined by 37bps, 50bps, and 35bps to settle at 16.63%, 17.00%, and 18.59%, respectively.
In the secondary NT-bills market, we observed bearish sentiments across the curve. As a result, the average yield on NT bills rose by 62bps w/w to close at 20.28% (previously, 19.66%). Similarly, the average yield on OMO bills climbed by 92bps to settle at 23.63% (previously, 22.71%).
This week, we expect the financial system to become awash with liquidity, as we expect inflows from coupon payments worth N398.7bn and OMO maturities worth N45.bn. Additionally, we expect inflows from FAAC payments to bolster system liquidity further. As a result, we project that FTDs and money market rates will remain at current levels, with a likelihood of tapering further.
Bond Market: Bearish Sentiments Dominated to the Secondary Market
The secondary bonds market was bearish amid the illiquidity in the market, as the average bond yield climbed by 15bps to close at 18.84% (previously 18.69%). In tandem, corporate bonds traded on a bearish note, as the average yield on corporate bonds rose by 29bps w/w to 21.64% (previously 21.35%).
Nigeria’s first-ever foreign-currency domestic bond secured a total of $900.0mn in subscriptions. This marks an oversubscription rate of 180.0% compared to the offer size of $500.0mn. The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, noted that the oversubscription reflects investor confidence in Nigeria’s economic stability and potential for growth.
In the Nigerian secondary Eurobonds market, we observed mild sell-offs as the nation’s fiscal health remains worrisome. Thus, the average yields on Nigerian Eurobonds increased marginally by 4bps w/w to settle at 9.95% (previously, 9.91%).
Looking forward, we anticipate bullish sentiments to return to the secondary bonds market underpinned by the expected inflows into the financial system. In the Eurobonds market, we expect buy-interests among investors as the dovish global monetary policy cycle begins.
Currency Market: Naira Appreciated at the NAFEM Window
Last week, the Naira appreciated by 2.9% w/w at the Nigerian Autonomous Foreign Exchange Market (NAFEM) to close at N1,546.41/$, from its previous close of N1,593.32/$. At the parallel market, the Naira appreciated by 0.3% w/w to settle at N1665.0/$, from its previous close of N1670.0/$. Meanwhile, activities in the NAFEM window increased, as average FX turnover rose by 3.8% w/w to settle at $241.6mn. Lastly, Nigeria’s external reserves grew by 130bps, settling at $36.9bn.
This week, we expect the volatility in the FX market to persist amid Dollar demand outweighing Dollar supply. Nevertheless, we expect the interventions by the Central Bank to ease the pressure on the FX market.
