Market direction explains investors’ feeling about MPC outcome

After last week’s bullish bet, investible funds flow into Nigerian equities this week will best describe how Customs Street investors feel about the outcomes of just concluded Monetary Policy Committee (MPC) meeting.

Amid dismal GDP growth rate, the MPC on Tuesday rose from its two-day meeting –the third meeting for 2016 –after contending with a shrinking economy that is likely to contract further in the current quarter and rapidly rising inflation, as well as exchange-rate policy.

Rising from the two-day meeting, the Monetary Policy Committee of the Central Bank of Nigeria kept rates on hold and embraced flexibility in foreign exchange (FX) market. The committee had assessed the outlook for the year and noted with concern the tapered economic growth.

Nigeria’s gross domestic product contracted by 0.36 percent in the first quarter (Q1) of 2016, the Nigerian Bureau of Statistics (NBS) said last Friday, as the worst crisis to grip Africa’s biggest economy in decades continues to deepen.

The equities market in reaction to this decision closed on a positive note, as the NSE ASI appreciated by 0.80% to close at 27,231.50basis points Tuesday, compared with the 0.37% depreciation recorded prior to MPC decision.

Before the MPC outcome, investors had priced in Nigeria’s declining growth prospects,  which led equities to race southwards across board at this week open amid a contraction in economic activities as indicated by the recently published Q1’2016 GDP figure.

Research analysts at Vetiva Capital Management Limited said they expect the renewed pressure to extend into other trading session(s) “as we note that the below-view Q1’2016 figure has triggered risk off sentiment amongst investors.”

Ahead of this GDP figure, investors had raised their bet at the Nigerian Stock Exchange (NSE) as its All-Share Index (ASI) and market capitalisation appreciated by 2.55percent and 2.36percent to close last week at 27,116.45 points and N9.313 trillion respectively, from 26,441.03 points and N9.099 trillion recorded at the beginning of the preceding trading week.

“Given the spate of positive investor activities in the market lately, a number of stocks are now trading close to their intrinsic values. Nonetheless, we expect the recent rally of stock prices to persist into the coming week, as more investors return to the market to join the rising wave.  We also opine that the outcome of the MPC meeting will impact the direction of trading activities”, said Meristem Securities analysts.

“Given the recently released negative GDP growth rate (-0.36%) by the NBS, the Nigerian Bourse may reverse into the bearish terrain this week,” said research analysts at Lagos-based Dunn Loren Merrifield.

Also, research analysts at United Capital plc said, “This week, we expect a mixed start to equities trading. We think overall market direction for the week will be driven by investors’ interpretation of the outcomes of the MPC meeting, especially around FX policy.”

The Central Bank of Nigeria (CBN) plans to raise N143.85 billion ($722.86 million) worth of Treasury Bills (T-Bills) with maturities ranging between three months and a year on June 1. The apex bank will issue N45.85 billion of 3-month debt, N18 billion in the 6-month paper and N80 billion of 1-year bills in a Dutch auction. “Each bid must be in multiple of N1, 000 subject to a minimum of N10, 000,” CBN said in a public notice. Allotment letters are to be issued to successful bids on June 2.

 Iheanyi Nwachukwu