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Equities Market: Bearish sentiments dominated last week

The domestic bourse sustained its bearish trend, trading down on four of the five trading days of last week. Thus, the Nigerian Stock Exchange (NSE) All Share Index (ASI) tumbled 2.7percent week-on-week (w/w) with year-to-date (YtD) return moderating to +4.6percent as the index closed the week at 28,067 points. In terms of activities, the value and volume traded decreased by 7percent and 19percent to N4.2billion and 290.1million units respectively.

The bearish sentiment dominated most of the industries under our coverage. Specifically, the Industrial Goods (-4.1percent) index shed the most as BUA Cement (-4.3percent) and Dangote Cement (-5.5percent) dragged the sector index. The Oil and Gas (-3percent) and Consumer Goods (-2.2percent) sector followed, driven by price declines in Forte Oil (-10percent), Mobil (-9.9percent), and Cadbury (-16.28percent).

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The Banking (-1.5percent) sector index also ended the week in the red territory amid w/w losses in Access (-1percent) and FBN Holding (-8.4percent). On the other hand, the Insurance (+0.2percent) sector index ended the week in the green territory on the back of price appreciation in AIICO (+2.5percent) and Linkage Assurance (+8.7percent).

Market sentiment deteriorated, as market breadth remained underwhelming at 0.4x (previously 0.3x).  Specifically, 14 stocks gained against 43 decliners.

This week, we expect the market to remain half-hearted as seen in the past few weeks as earnings reports failed to sway investors.

Money Market: A week of heavy inflows (excess of N1trillion)

In the preceding week, in terms of naira fund flows, inflows from OMO maturities (N311.5billion) outweighed outflows from OMO sales (N128.2billion). As a result, tight liquidity pressures eased, causing average interbank funding rates (OBB and Overnight) to drop from 14.6percent levels to 5.9percent.

At the primary market, the Central Bank of Nigeria went shopping for funds, by floating an OMO auction. Out of the N150billion offered, N128.2billion was subscribed and sold, across the 180-day and 362-day bills.

Demand waned at the long end (362-day: bid to cover at 0.8x), while staying strong at the mid-end (180-day: bid to cover at 2.0x). Also, stop rates declined, with the 180-day at 11.60percent and 362-day at 13.05percent.

At the secondary market for NTBs and OMOs, a bearish outcome was observed, as average yields increased by 12basis points (bps) and 33bps, to 3.8percent and 13.5percent respectively (as at Thursday). Also, the value of bonds traded at both markets, according to FMDQ, were N52.3billion and N942.4billion, down 53.8percent w/w and 30.2percent w/w respectively.

This week, we expect interbank funding rates to crash significantly amid sizable liquidity inflows from Bond maturities (N606.4billion), Bond Coupon Payments (N47.1billion) and OMO maturities (N440.9billion).

Also, NTB maturities (N147.4billion) are expected to be completely rolled over at the NTB auction at relatively lower rates, as local participants side-lined from the OMO market look to reinvest maturing OMO funds.

Bond Market: A bearish outcome at the local bond market

The narrative at the secondary bond market was similar to that of the money market, as participants sold off positions in bonds to free up liquidity. As such, average yield edged upwards by 15bps, to 10percent. Also, the value of bonds traded declined by 37.2percent, to N385.3billion.

Elsewhere, the Federal Government opened a subscription for the FGN Savings bond, offering a 2-Year tenor at 5.91percent per annum and a 3-Year tenor at 6.91percent per annum.

For sovereign Eurobonds, speculations from OPEC’s emergency meeting on considering further production cuts as well as a potential drug for Coronavirus, supported crude oil prices, increasing the demand for Nigeria’s instruments.

As a result, the average yield declined by 8bps to 5.97percent. For corporate Eurobonds, the reverse was the case, as average yield declined by 5bps, to 5.11percent.

This week, we expect sentiments in the bond market to follow a bullish run, with N606.4bn expected to mature from the 13-Feb-2020 bond. Also, the outcome of OPEC’s emergency meeting is a key factor to watch, in determining the performance of sovereign Eurobonds.

FX: CBN continues to support the naira despite apparent pressures

Overall FX market performance across the major windows we track was mixed in the prior week.

At the I&E window, the rate of exchanging the naira for a dollar depreciated by 5bps w/w, closing the week at N364.17/$1.

The parallel market rate closed the week flat at mid-rate of N359/$1, while the CBN’s official rate depreciated by 2bps w/w to N306.95/$1. Notably, activity level was underwhelming at the I&E window, as average daily turnover declined by 16percent w/w to $200.9million.

The CBN gross reserves continued its daily consecutive decline during the week, depleting further by 60bps w/w to settle at $37.8billion (as of February 5).

This week, we expect the CBN to sustain its FX intervention and this should continue to drag overall reserves level, especially as oil prices continue to trade below the 2020 budget benchmark of $57/b.

Global Market Review and Outlook

Positive reports from China boost global appetite for equities

Last week, the major foreign equity indices we track rebounded, ravaged by coronavirus panic sales in the previous week. The positive momentum observed was supported by reports that Chinese researchers have found two drugs that could help the treatment of the Wuhan-virus.

Also, an additional report that China would cut tariffs on $75billion worth of US goods this month to implement its part of the phase-one deal buoyed investors’ sentiments.

Elsewhere, Trump was acquitted by Senate in the impeachment trial, bringing weeks of charges against him to an end. On monetary policy, central banks in 4 countries joined the global easing bandwagon during the week as monetary policy committees in the Philippines, Brazil, Iceland and Thailand slashed policy rates by 25bps apiece.

In the crude oil market, Brent prices continued southwards, declining by 5.4percent w/w to $55/b despite coronal virus medical breakthrough and the increasing likelihood that OPEC+ members may take more supply cut. Specifically, the OPEC+ Joint Technical Committee (OOTT) scheduled an extraordinary meeting during the week, with discussions focusing on the coronavirus outbreak in China and its potential impact on the global oil market. The committee signal further output cuts (600,000bpd), the extension of the duration of the existing cut and the possibility of fast-tracking it’s planned meeting for Q1-2020 from March 5-6th to February 14-15th.

This week, OPEC plan around additional production cut is expected to drive Brent price up as well as the efficacy of the latest medical breakthrough on the coronal virus epidemic will be keenly watched.

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