The performance of the equities market in the previous week was mixed, as the first two trading days of gains, were followed by two days of losses. However, the bulls overpowered the bears, as the NSE ASI gained 0.7percent week-on-week (w/w), to close at 25,182.67points.
As a result, year-to-date (YtD) return improved to -6.2percent. Notably, investors gained N86.8billion w/w, with market capitalisation closing at N13.1trillion. Activity levels were lower than the preceding week, as average volumes and value declined by 6.2percent and 47.6percent, to 275.8million and N2.5billion respectively.
Analysing the key sectors under our coverage, three out of five gained. The Insurance (+3.7percent) sector was the largest winner, uplifted by CHIPLC (+16.7percent), WAPIC (+10percent) and AIICO (+7.3percent). The Industrial Goods (+2.2percent) sector followed suit, as BERGER (+10percent) and BUACEMENT (+3.8percent) gained.
Also, the Banking (+0.5percent) index moved up marginally, pulled by UNITYBNK (+9.6percent) and ACCESS (+2.3percent). Contrarily, the Oil & Gas sector (-2.6percent) was the largest loser, as MOBIL (-10percent) and OANDO (-1.5percent) lost. The Consumer Goods (-0.2percent) sector also ended the week in the red territory, due to price declines in DANGSUGAR (-1percent) and GUINNESS (-4percent).
Investor sentiment was positive, evident by a market breadth of 1.1x, as 33 stocks gained while 31 stocks lost. Notably, BUACEMENT released its Q1-2020 results, posting a revenue growth of 25.1percent year-on-year (y/y) to N54billion and a PAT growth of 26.2percent y/y to N19.8billion. Also, DANGSUGAR announced plans to increase the company’s authorised share capital to N7.5billion, from N6billion. Finally, AIICO announced a proposed bonus issue of 1 share for every 5 shares, and a proposed rights issue of 5 shares for every 13 shares.
Looking ahead, we expect the market to remain volatile, as investors lock funds in cheap and fundamentally sound stocks, while taking profit on some stocks that gained last week.
Money Market: Spread between OMO and NTB yield narrows to 1.6percent
The Nigerian interbank market was mostly in an illiquid state throughout the prior week amid lack of sizable inflows. Accordingly, average interbank funding rate –open buyback (OBB) and Over Night (OVN) stayed in the double-digit region for major part of the week before sliding to 9.3percent at the end of the holiday shortened week – thanks to c. N92billion OMO maturity.
At the primary market, the CBN on behalf of the FG, successfully rolled over a total of c. N90.94billion NTB maturity, at a relatively low rate. Specifically, the 91-day and 183-day stop rates fell to 2percent and 2.20percent respectively (previously 2.45percent and 2.72percent) while the 364-day stop rate remained unchanged at 4.02percent. Also, total investor demand reached N176.94billion (bid-to-offer rate of 1.95x).
Activities at the secondary market was underwhelming amid lack of liquidity in the system. Notably, average NTB yield remained flat w/w, settling at 3.39percent. Also, activity was dull at the OMO segment but picked up later in the week, as investors look to reinvest their maturing OMO funds. Accordingly, average OMO yield declined mildly by 10bps w/w to 4.98percent.
This week, in the absence of any sizable CRR debits, we expect the financial system to return to a liquid position, buoyed by N352.83billion OMO maturity scheduled to hit the system today (Thursday). This should spur activities at the secondary market for the week.
Bond Market: Oil price recovery spurs interest at the Eurobond market
The strain in liquidity at the interbank market reflected negatively on the outcomes at the secondary bonds market. This was as average FGN bond yield increase by 6bps w/w to end the week at 10.08percent.
Meanwhile, interest for Nigerian issued notes, at the secondary Eurobond market further strengthened as crude oil prices remained resolute above $39/b for most of the week. Notably, average yield on sovereign Eurobonds fell by 22bps w/w, to 7.69percent. Also, average Nigerian corporate Eurobond yield declined by 48bps w/w, to settle at 9.01percent. We observe a significant buying interest in ZENITH 2022 as the yield declined by 91basis points (bps) w/w to close at c. 7.85percent.
Looking ahead, we expect the positive momentum in the global oil market to continue to reflect positively on the Eurobond market. Also, we expect to see some renewed buying interest at the domestic bond market predicated on our expectation for liquidity to improve at the interbank market.
Currency Market: Muted activity in the FX market
Dynamics in the FX market remained the same in the previous week. The official naira exchange rate remained at N361/$. At the I&E window, the naira appreciated slightly to N385.75/$ (previously N386.50/$). Meanwhile, the parallel market rate hovered around N450/$ and N440/$ for the major part the week and settled at N445.0/$.
Notably, the CBN’s gross FX reserves closed the week at $36.5bn (down 0.3percent month-to-date). Also, sales of dollars to BDCs remained on hold as the FG extended airport closure to 21st of June-2020.
This week, we do not expect any change in the dynamics at the FX market as the CBN continue to tacitly manage the naira.
Global: US-China tension picking up heat
The previous week was a very eventful week across global markets as optimism of economic recovery and high level of liquidity fuelled bullish run across equities markets. Notably, the S&P 500 erased all losses from the COVID-19 induced crash in March and YTD return closed at -1.2percent. The MCSI world index also continued to erase losses and YTD returns closed at -3.8percent.
Elsewhere, the US Federal Open Market Committee (FOMC) met and unanimously decided to keep the federal funds rate at 0-0.25percent band. Still on the US economy, the US-China trade tension gains heat as the US congress makes progress with plans to delist Chinese stocks from the US capital markets on the back of low transparency from Chinese companies.
In the crude oil market, Brent price traded above $39.0/b for most of the week, buoyed by the OPEC+ agreement to extend the current supply cut till July-2020. However, the market negatively reacted to news of US crude oil inventory build-up at the end of the week. Hence Brent crude price closed at $38.6/b. Looking ahead, we expect oil prices to remain around $35-$40 in the short term. Also, even as economies resume commercial activities and central banks continue to inject liquidity, the road to economic recovery is expected to be a long one.
