ASI remains in negative territory week-on-week

This past week saw the equities market extend losses, as investors booked gains on earlier positions. As such, at 26,981.6 points, the ASI closed the week 1.1% lower from the previous week, with YTD return moving further south to -5.8%.

The past week opened with moderate system liquidity and the CBN extended its trend of aggressive OMO issuance which saw N50.8bn and N117.0bn mopped from system liquidity, in a bid to stymie liquidity impact of N138.8bn maturing bills which came in on Thursday.

Also, provisioning for forward FX sales and T-bills PMA contributed to tighter system liquidity during the course of the week. At the end of the week, the Open Buy Back (OBB) and Overnight (O/N) rates edged higher, closing at 13.0% and 13.5% respectively vs. 9.7% and 10.3% in the previous week accordingly

For equities, with Q3 earnings season drawing to a close, we expect a quiet start to trading this week, as investors begin the search for new triggers that will dictate overall market direction. For the money market, we anticipate rates will push further higher, with the CBN likely to extend on-going trend of liquidity mop ups via OMO issuances.

That said, we expect a quiet start to proceedings in the FI market this week, as investors stay cautious with an eye on October headline inflation numbers as well as the pattern of OMO issuances by the CBN and its impact of system liquidity.

Global and Macro-economic market update

Markets bearish as US presidential poll and October labor numbers come into focus.

In the US, Economic data released in the past week were mixed, but underlined steady growth that in our view, will not alter significantly the Federal Reserve’s view for continued normalization of interest rates. Specifically, the U.S. economy added 161,000 new jobs in October, while the unemployment rate fell below 5% to 4.9%.

While the payroll numbers were largely below expectations, they still appear robust enough for the Federal Reserve to consider raising interest rates in December, with market participants seeing a 71.5% chance of the Federal Reserve tightening policy next month. The Dow Jones Industrial Average closed the week lower, sliding for a weekly drop of 1.5% while the Nasdaq Composite Index also last 2.8% on a w/w basis.

European equities were also yanked lower in the past week, with markets rattled by political risks, which pushed the region’s benchmark to its deepest weekly decline in nine months. The Stoxx Europe 600 suffered a weekly fall of 3.5%, marking its largest weekly drop since February.

Furthermore, tail risk from “Brexit” also returned to the fore, after a high court ruled that a parliamentary vote must be held before the UK government can invoke the article that will trigger negotiations on withdrawal from the European Union. While government plans to appeal the verdict, it does mean that the uncertainties around Brexit will be drawn out for much longer, with the process itself likely to be more gradual than earlier anticipated.

Similarly, market in Asia posted steep weekly losses, taking a cue from US and European markets as risk from upcoming presidential polls in the US, curbed investors’ appetite for risk. The Japan’s Nikkei closed at its lowest level in two weeks, down 3.1%, as traders digested recent yen strengthening after the public holiday on Thursday. The Kospi ended the week down 1.9%, while the Hang Seng was also posted a weekly loss of 1.4%.

On the domestic scene, the Vice President Prof. Yemi Osinbajo announced that the World Bank has signed a Partial Risk Guarantee (PRG) agreement for the supply of gas to the $500mn Calabar gas plant to boost domestic energy supply by 500 megawatts. The Vice President reiterated that the event is very significant for the country as it would encourage investment in gas infrastructure.

Domestic Financial Markets Review and Outlook

Equities: ASI lingers in the negative territory, extends losses w/w

This past week saw the equities market extend losses, as investors booked gains on earlier positions. As such, at 26,981.6 points, the ASI closed the week 1.1% lower from the previous week, with YTD return moving further south to -5.8%. A closer look at the sectoral performance revealed that sentiment was mixed, albeit with bearish undertone.

Specifically, the Industrial Goods sector led gainers posting +3.0% w/w, just as the Insurance Index closed the week higher with a positive weekly return of 1.3%. Example of stocks that drove positive momentum in these sectors include WAPCO (9.8%) and AIICO (+8.6%). Conversely, the Oli and Gas sector was down 4.0% w/w, just as the Banking Index and the Consumer goods sector closed the week lower with a negative weekly return of 3.2% and 0.3% in that order. Stocks that drove negative momentum in these sectors include OANDO (-16.7%), STERLINGBNK (-8.8%), ETI (-6.6%) and WEMA (-6.6%).

When compared to the previous week, overall market sentiment improved with market breadth settling at 0.6x (relative to 0.5x in the previous week) as 24 stocks appreciated against 37 decliners. Similarly, activity level during the week also rallied as the average value traded inched higher by 12.5% w/w to N1.2bn, just as the average volume traded appreciated by 2.4% w/w to 150.2m units.