Equities commence search for new triggers

At the close of trading last week, the NGSE ASI was down by 1.5% w/w to 25,507.1, putting YTD loss at -10.9% and the month of March returns at 3.0% accordingly. The month of March recorded the first positive m/m close in 2016. The month’s performance was mostly driven by bargain hunting as investors positioned for attractive dividend on FY-15 earnings releases. Despite upbeat m/m performance, the equities market was down 11.7% over Q1-16 with the Banking sector (-19.3%) leading losses for the quarter amid a flurry of FY-15 earnings warning by sector players.

In the past week, the money market opened on a quiet note with relatively moderate liquidity levels of N129.0bn, post Easter celebrations.  Delayed FX refunds by the Apex bank tightened liquidity further on Tuesday, with the Open buy back (OBB) and Overnight (O/N) touching c.15.0% and system liquidity also briefly hitting N161.0bn short.

We expect profit taking on earlier gains to continue this week, as the FY-15 earnings season draws to a close, though we may see moderate bargain hunting as speculators exit positions post closure of registers. This should leave the market in search of new triggers, which will likely shift attention to the strength of domestic macro fundamentals.

Global and Macro-economic market update

Performance mixed across markets as investors react to economic numbers

While sharp drop in oil prices pulled down the energy sector, capping the gains for the main benchmarks, U.S. stocks ended higher in the past week on investors’ rising confidence that a spate of strong economic data, including the March jobs report, will not speed up the pace of interest-rate increases by the Federal Reserve. While a strong 215,000 new jobs were created in March, the Institute for Supply Management also said its manufacturing index rose to 51.8% last month from 49.5% in February further demonstrating the increasing strength of the US economy. We note that the manufacturing sector has been hammered since last summer by weak global growth, strengthening dollar, and the collapse of oil prices and investors interpreted latest set of numbers as encouraging signs that the sector is stabilizing.

Despite upbeat economic numbers from the US economy, stocks began the second quarter with a w/w loss across the Atlantic, mostly hurt by dismal data from Japan which showed that industrial output fell sharply in February, weighed down in part by a nationwide output shutdown at Toyota Motor Corp. On the Data front, Spain’s central bank announced it has revised its 2016 growth outlook to 2.7% from 2.8%, amid slower global expansion, an appreciation of the euro and market turmoil. European equities ended Q1 sharply lower, losing a hefty 7.7% over the first three months of 2016.

Disappointing data from Japan (highlighted above) also weighed on sentiments in Asia, although impact was tapered by PMI data from China which rose to 50.2 in March from 49.0 the previous month implying an expansion of the nation’s factory activity for the first time in eight months. Overall, although sentiments remain mostly mixed, most markets in Asia ended the week marginally higher with investors still cautious.

On the domestic scene, data from the Nigerian stock exchange has revealed that total transactions at the nation’s bourse increased by 39.4% from N84.1bn recorded in January to N117.3bn with domestic transactions increased from 48.4% in January 2016 to 63.52% in February 2016 while FPI transactions decreased from 51.6% to 36.5% over the same period.

Financial Markets Review and Outlook

Equities shed 1.5% w/w, down 11.7% over Q1-16

At the close of trading this week, the NGSE ASI was down by 1.5% w/w to 25,507.1, putting YTD loss at -10.9% and the month of March returns at 3.0% accordingly. We note that the month of March is the first positive m/m close in 2016, mostly driven by expectations of attractive dividend payments by companies for FY-2015. However, the market was down 11.7% over Q1-16 with the Banking sector (-19.3%) leading losses for the quarter amid a flurry of FY-15 earnings warning by sector players.

For the week, sector performance was mixed. Topping the losers’ chart was the Banking index (-8.0%), followed by the Consumer goods (-4.1%) and the Insurance (-0.5%) indices respectively. The major counters that drove bearish sentiment in these sectors include UBA (-15.9%), ZENITH (-15.5%), TIGER BRANDED CONSUMER (-13.3%), GUARANTY (-10.7%), NB (-9.6%) and Guinness (-8.2%). On the flip side, the Oil and gas (+2.1%) and Industrial goods (+0.3%) indices closed the week higher, reflective of the performance of counters such as OANDO(+14.5%), TOTAL (+9.9%), and DANGCEM(+4.6%). Market activity as measured by average volume and value traded declined by 11.0% and 43.0% w/w, to close at N315.0bn and N1.6bn respectively. Market breadth however increased marginally w/w, closing at 0.7x (vs. 0.6x in the previous week) as 24 stocks appreciated in price compared to 35 decliners.

We expect profit taking on earlier gains to continue this week, as the FY-15 earnings season draws to a close, though we may see moderate bargain hunting as  speculators exit positions post closure of registers. This should leave the market in search of new triggers, which will likely shift attention to the strength of domestic macro fundamentals.

Upsurge in system liquidity moderates Money market rates w/w…

In the past week, the money market opened on a quiet note with relatively moderate liquidity levels of N129.0bn.  Delayed FX refunds by the Apex bank tightened liquidity further on Tuesday, with the Open buy back (OBB) and Overnight (O/N) touching c.15.0% and system liquidity also briefly hitting N161.0bn short. However, the situation improved towards the end of the week, as Thursday saw T-bill maturity worth c.179bn together with the eventual boost credit of FX refunds boosted system liquidity to c.N500.0bn. This drove a downtrend in rates, with the OBB and ON closing the week at 3.8% and 4.3%, vs 12.8%n and 13.3% in the previous week. NIBOR also followed a similar pattern at the interbank, with the 1M, 3M and 6M fixings berthing at 9.1%, 11.0% and 12.4%, 120bps, 90bps and 60bps below the previous week’s close accordingly. In line with on-going trend of OMO mop-ups and the Apex bank’s recent shift in policy stance to a tighter regime, we expect liquidity to moderate this week which should see key money market rates to hinge higher from current levels.

…as the FI market relays mixed sentiment more tilted to the bears

Despite relatively strong buy bias towards the end of the past week driven by non-allotment of OMO announced, T-bill yields trended up w/w, mostly reflective of the strength of sell-offs seen earlier in the week as market players reacted to tight system liquidity.  Thus the 91day, 182day and 364day bills added 110bps, 80bps and 40bps w/w to close at 8.1%, 9.2% and 10.5% in that order. T-bills maturity of c.218.0bn is expected to hit the market this market, although impact will be neutered by an issuance of an equal amount.

A similar yield pattern also played out in the Bond market, although more buying interest by the PFAs towards the end of the week aided recovery, which ensured yields across the curve closed the week only marginally higher. Overall, yields are at the short, mid and long end of the maturity spectrum closed the week at 10.0%, 11.40% and 12.7%, 24bps, 5bs and 9bps higher than the previous week respectively. We expect sentiment to be mixed across the FI market this week, albeit with a bullish tilt especially if the pattern of no-sale at the OMO auction lingers.

Naira loses for the second consecutive week, remains “stable” in the parallel market

In line with recent pattern, the naira was relatively stable at the interbank in the past week, shedding 33bps to close at N199.2/US$. The currency however remained within a tight range in the parallel market, closing the week at N322.00/US$. With the FX policy framework still hazy post the MPC meeting, we believe the fundamental demand/supply imbalance currently rocking the FX market will continue, and attendant pressure on the domestic currency should ensure the wide official/ parallel market spread remain in the near term.