December 16, 2024/United Capital Research
Global Market: Mixed Sentiments Prevailed
Major US stock indexes saw a decline at the end of last week, but the technology-heavy Nasdaq Composite saw a modest increase and crossed the 20,000 mark for the first time. Notably, large-cap stocks held up better than their smaller-cap peers as the Russell 2000 Index recorded a second consecutive week of underperformance against the S&P 500 Index. As measured by Russell 1000 indexes, growth stocks posted a third consecutive week of outperformance compared to value stocks, thanks in part to gains in shares of Tesla (12.08% w/w) and Google parent Alphabet (8.44% w/w), the latter of which recorded its largest two-day gain since 2015 between Tuesday and Wednesday. The highlight of the week’s economic calendar came on Wednesday with the Labor Department’s report of headline and core (less food and energy) consumer price inflation (CPI), which both rose by 0.30% in November and were in line with consensus expectations. On a year-over-year basis, core prices increased 3.30% in November, unchanged from the prior month, while overall inflation accelerated modestly to 2.70%, up from 2.60% in October. Meanwhile, on Thursday, the Labor Department also reported a surprise jump in weekly initial jobless claims to a two-month high of 242,000. While some of the increase was attributed to seasonal factors around the Thanksgiving holiday, continuing claims also rose and remained near three-year highs, a sign that it is taking longer for some unemployed individuals to find a job. The jobs data served as another indication of a softening labor market following the prior week’s report of an uptick in the unemployment rate in November. Overall, major US indices recorded mixed performances, with only the NASDAQ (+0.73% w/w) closing in the green territory. Meanwhile, the S&P 500 (-0.64% w/w) and DJIA (-1.82% w/w) closing the week lower.
In tandem, the European markets were mostly bearish, with the pan-European STOXX Europe 600 Index ending 0.77% w/w lower, as investors debated whether the European Central Bank (ECB) has been easing monetary policy fast enough to support the struggling economy. Broadly speaking, major European stock indexes recorded mixed performances. For context, Germany’s DAX eked out a +0.10% w/w gain, while Italy’s FTSE MIB added +0.40% w/w, meanwhile, the France’s CAC 40 Index (-0.23% w/w) and the UK’s FTSE 100 Index (-0.10% w/w) both recorded losses.
Elsewhere, Investors’ sentiment in the Asian market was mixed. In Japan, stock markets registered modest gains over the week, with the Nikkei 225 Index (+0.97% w/w) and the broader TOPIX Index (+0.71% w/w) registered gains. Notably, we observed that regional market sentiment was boosted by China’s announcement of more proactive fiscal measures and moderately looser monetary policy. Meanwhile, Chinese equities lost ground as recent policy announcements seemed to underwhelm investors. The Shanghai Composite Index gave up -0.36% w/w, while the blue-chip CSI 300 fell by -1.01% w/w. Meanwhile, in Hong Kong, the benchmark Hang Seng Index added +0.53% w/w.
In the oil market, crude oil prices climbed about 2.00% on Friday to settle at a three-week high, on expectations that additional sanctions on Russia and Iran could tighten supplies and that lower interest rates in Europe and the U.S. could boost fuel demand. For further background, European Union (EU) ambassadors agreed to impose a 15th package of sanctions on Russia this week over its war against Ukraine, targeting its shadow tanker fleet. The US is considering similar moves. Meanwhile, Britain, France and Germany told the United Nations Security Council they were ready if necessary to trigger a so-called “snap back” of all international sanctions on Iran to prevent the country from acquiring nuclear weapons. Additionally, the International Energy Agency (IEA) increased its forecast for 2025 global oil demand growth to 1.1 million barrels per day (bpd) from 990,000 bpd last month, citing China’s stimulus measures. Also, the IEA forecast an oil surplus for 2025, as non-OPEC+ nations are set to boost supply by about 1.50mbpd, driven by Argentina, Brazil, Canada, Guyana and the US (OPEC+ includes the Organization of the Petroleum Exporting Countries (OPEC) and allies like Russia). Ultimately, following an interplay of fundamentals, there was more northward pressure on crude oil prices, on the back of near-term supply concerns, as well as improved demand outlook. That said, crude oil prices closed the week higher, with Brent Crude climbing by +4.74% w/w to print at $74.49/bbl (previously, $71.12/bbl). Similarly, the US WTI Crude benchmark climbed by 6.09% w/w to close at $71.29/bbl. (previously, $67.20/bbl.)
Looking ahead, we expect a blend of the prospects of a softening labour market, as well as the sustained confidence of the US Fed that inflation is heading to its 2.00% target in the mid-long run, to sustain bargain hunting activities in the market for risk-asset classes in the US. Meanwhile, the ongoing dovish stance in the European Central Bank (ECB), will sustain bargain hunting in the European equities market.
Macroeconomic Highlights
Economic activities in Nigeria have recorded a second consecutive month of contraction, as shown in the November 2024 Purchasing Managers Index (PMI) released by the Central Bank of Nigeria (CBN). The composite PMI for the month stood at 48.9 index points, signaling a continued decline below the 50.0-point threshold, which separates economic expansion from contraction.
In another highlight, the CBN noted that, credit to the government stood at N42.02tn as of September 2024, compared to N22.14tn as of the same period in the previous year, indicating an 89.79% increment. During the same period, credit to the private sector also rose, albeit at a slower pace, to N75.85tn from N59.51tn in September 2023, marking a 27.46% increase in one year.
Meanwhile, Foreign Portfolio Investments (FPI) in Nigerian equities have reached the highest level, post-Covid, as the investments hit $284.00mn in the first nine months of 2024. This marks a 19.00% y/y appreciation from the $239.20mn recorded in the corresponding period in 2023. This represents the highest level of interest in Nigerian equities since the first nine months of 2020 when FPI in the market reached approximately $737.00mn. Comparatively, FPI stood at $168.50mn in 9M-2021, declined to $51.70mn in 9M 2022, and rebounded to $239.20mn in 9M-2023. With an FPI of $84.70mn in Q3-2024, it also represents the highest foreign investment in Nigerian equities in the third quarter of the year since 2019.
The National Pension Commission has disclosed that the total pension fund assets under the Contributory Pension Scheme have risen to N21.92tn as of October 2024, with contributions from 10.53mn registered participants. The commission further anticipates that the assets will surpass N22.00tn by the end of the year.
The Nigerian National Petroleum Company Limited (NNPCL) has confirmed that the ongoing repair of the new 150,000 barrels per day Port Harcourt Refining Company has reached over 90.00% completion rate. This development is coming weeks after the old 60,000bpd plant in the Port Harcourt refinery started its operations.
The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) stated that in Nov-2024, Nigeria accomplished 99.04% of its Organization of Petroleum Exporting Countries (OPEC) crude oil production quota of 1.5million barrels per day (mbpd) as Nigeria hit 1.48mbpd of crude oil output. It was further added that Nigeria produced 204,828bpd condensate totalling 1.69mbpd of crude oil and condensate in the month under review.
The Federal Government has declared that Nigeria’s oil production, including condensates, increased by 9.90% to 1.69mbpd in Nov-2024, up from 1.538mbpd recorded in Oct-2024. Liquid crude oil production rose by 11.42%, reaching 1.48mbpd in November compared to 1.33mbpd in October. This figure, however, remains below the production quota allocated to Nigeria by OPEC. Conversely, condensate oil production exempt from OPEC’s quotas declined slightly by 0.01% in November, dropping to 204,828 barrels per day from 204,806 barrels per day in October.
This week, we expect the National Bureau of Statistics (NBS) to release Nigeria’s Consumer Price Index (CPI) and Inflation report for the month of Nov-2024. We anticipate that headline inflation will inch higher due to the recent increase in fuel pump prices nationwide.
Domestic Equities: The Bulls Maintained Momentum…NGX-ASI Up by 1.19% w/w
Last week, the domestic equities market closed on a positive note, as bullish sentiments drove gains for four (4) out of five (5) trading days. A notable performer was MTNN, which saw a significant gain of (+3.47% w/w), playing a key role in lifting the main index higher. Also worthy of mention is gains in OANDO (+5.54% w/w) and CONOIL (+33.52% w/w). Bargain-hunting activities declined with the market’s breadth declining to 1.5x implying that 51 stocks appreciated while 35 declined, down from 1.7x the week before. Overall, Investor optimism toward riskier assets remained resilient, though bargain-hunting activities have noticeably tapered. This narrowing of market breadth suggests that while enthusiasm for higher-risk assets persist, investor selectivity is rising, with a keener focus on quality and potential returns. As a result, the benchmark NGX-ASI improved by 119bps to close at 99,378.06 points, bringing the YTD return to a steady 32.90% and raising market capitalization to N60.24trn. In terms of trading, market activity declined with the total value and volume of stocks traded declining by 43.19% and 29.89% to print at N9.97bn and 545.89mn units, respectively.
Similarly, on a sectorial level, performance was bullish as four (4) out of the five (5) sectors under our coverage closed in the green territory. The Oil and Gas sector (+7.61% w/w) led the gainers owing to gains in CONOIL (+33.52% w/w). Following was the Insurance sector (+5.52% w/w) on the back of share price appreciation in NEM (+18.48%) and WAPIC (+25.23%). The Consumer Goods sector (+1.01% w/w) followed on the back of bullish activities in PZ (+13.64% w/w) and NESTLE (+1.18% w/w). The Banking sector (+0.16% w/w) followed on the back of share price appreciation in ETI (+5.88% w/w) and STERLING (+4.30% w/w). On the other side of the coin, the Industrial Goods sector (-0.60% w/w) was the sole laggard on the back of sell offs in WAPCO (-5.41%).
On corporate actions, Aradel Holdings Plc has entered into an agreement to acquire a 5.14% equity interest in Chappal Energies Mauritius Limited, an energy company focusing on investments in deep value and brownfield upstream opportunities within Africa. On 06-Dec-2024, Chappal announced the acquisition of Equinor Nigeria Energy Company, which holds a 53.85% ownership in oil and gas lease OML 128, including the unitised 20.21% stake in the Agbami oil field, operated by Chevron.
Access Bank Plc has signed an agreement to acquire a 100.00% equity stake in South African Based Bidvest Bank.
Looking forward, the equities market is expected to retain its buy interest as investors cherry-pick undervalued stocks. However, given the high interest rates in the fixed income and money markets, we expect some bearish undertone to persist in the equities market as fixed income biased investors take advantage of the high yields in the fixed income space. 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 entertain mid-long-term (≥3 months) investment objectives, cherry-picking only sound equities with strong fundamentals and ongoing/pending corporate actions. This strategy will maximise market opportunities, thereby optimising portfolio returns.
Money Market: Stop Rate on the 364-day Bill Declined at the PMA
Last week, the financial system opened with a surplus balance of N32.79bn. During the week, system liquidity weakened due to the overselling activities at the primary market. As a result, the financial system closed the week with a deficit balance of N1.50tn. Consequently, the average Open Repo Rate (OPR) and Overnight Rate (OVN) climbed by 519bps and 517bps w/w to settle at 32.12% and 32.63%, respectively.
Similarly, the CBN conducted an NT-bill auction with an offer size of N275.71bn across the 91-day, 182-day, and 364-day bills. At the auction, investors’ demand was strong, as total subscriptions printed at N907.85bn, indicating an oversubscription rate of 3.29x. The bids were majorly skewed towards the longer-tenured instrument, “364-day bill”, which received total bids of N512.00bn. Notably, the Apex Bank oversold the auction, allotting a total of N527.84bn. As a result, the stop rates on the 364-day bills declined by 13bps to settle at 22.80% (previously, 22.93%). Meanwhile, the stop rates on the 91-day and 182-day bills remained unchanged at 18.00% and 18.50%, respectively.
Also, the CBN conducted an OMO auction with an offer size of N600.001bn across the 351-day, and 365-day bills. At the auction, investors’ demand was strong, as total subscriptions printed at N1.56tn, indicating an oversubscription rate of 2.60x. Notably, the Apex Bank oversold the auction, allotting a total of N1.56tn. As a result, the stop rates on the 351-day bill and 364-day bills settled at 23.95% and 23.98%, respectively.
In the secondary NT-bills market, we observed mild buy-interests across the curve as investors remained focused on activities in the primary market. As a result, the average yield on NT-bills fell by 2bps w/w to close at 25.70% (previously, 25.72%). Similarly, the average yield on OMO bills declined by 9bps to settle at 27.23% (previously, 27.32%).
This week, we expect the system liquidity to remain tight as we do not anticipate any significant inflows. This is because we only expect OMO maturities to the tune of N40.00bn to hit the financial system. As a result, we expect rates to remain at current levels, with a likelihood of tapering.
Bond Market: Bearish Sentiments Dominate the Market
The secondary bonds market was relatively bearish, as investors maintained a cautious approach towards the market. Thus, the average bond yield climbed by 4bps to close at 19.53% (previously 19.49%). Meanwhile, activities were bullish in the corporate bonds market, as the average yield on corporate bonds fell by 3bps to settle at 23.23% (previously, 23.26%).
In the Nigerian secondary Eurobonds market, we observed sell pressure among investors as the nation’s fiscal health remains worrisome. Thus, the average yields in the market increased by 18bps w/w to settle at 9.36% (previously 9.18%).
Looking forward, we expect the Debt Management Office (DMO) to conduct the Dec-2024 bond auction, with an offer size of N120.0bn across the reopened 2029 and 2031 papers. At the auction, we expect investor’s demand to be strong as seen in previous auction. In the secondary bonds market, we anticipate the bearish trend to persist as investors remain cautious towards duration-exposed instruments. Similarly, we expect cautious bearish activities in the Nigerian Eurobonds market as investors continue to reassess macroeconomic conditions.
Currency Market: Naira Depreciated at the Official Market
Last week, the Naira depreciated by 33bps w/w at the official market to close at N1,540.00/$, from its previous close of N1,535.00/$. Meanwhile, the Naira depreciated by 8.28% w/w at the parallel market to settle at N1700.00/$, from its previous close of N1570.0/$. Lastly, Nigeria’s external reserves rose by 52bps to settle at $40.53bn.
This week, we expect continued pressure on the Naira across all market segments in the short-medium-term, given that Dollar earnings remain weak amid rising demand.
