Market still seek support … With H1 earnings firmly in focus

The 7th week consecutive week-on-week (w/w) losses in the equities market came to a halt last week as the market closed the week on the positive, appreciating by 14basis points (bps) to close at 31,091.69; year-to-date (YTD) return perked up vaguely to -10.3%.

We attribute the gains recorded last week to attractive pricing of value stocks and technical analysis indicating stocks are nearing their bottom level, which must have triggered position taking by fundamental and speculative investors.

However, the weak sentiment in the market persisted last week as market breadth stood at 0.7x implying 43 stock decliners while 28 stocks appreciated in price. Market activity as measured by Volume traded and value of transaction increased w/w by 45bps and 15bps respectively.

Treasury bill and Bond instruments started the week on a bullish note on the back of attractive yields and high demand from domestic institutional investors. However, bullish run in the Treasury bill space was ephemeral, while the bulls were in control of the bond market all through the week. As a result, average treasury bills yields stayed flat at 13.7% while average bond yields declined by 7bps to 14.9%. Bond market Index as measured by the FMDQ increased by 5.9% to closed at 1,117.91 points.

While we expect to see some level of position taking in the market with fundamentals and technicals justifying an entry, we think reaction to corporate earnings and profit taking might knock off a possible bullish run. We expect to receive more earnings report this week, which will likely not be adequate to spur notable and sustained positive reaction; also, last week gains will likely trigger profit taking by speculators. Steered by our postulations, we see the market closing the week marginally negative.

Global and domestic macro-economic updates

Bearish sentiments return across markets, on weak Economic data and Commodity sell-offs

Bearish sentiments returned to the US markets last week, leaving key indexes with the biggest weekly losses in months. Investors sold stocks due to disappointing earnings results from companies such as Apple Inc. Caterpillar and IBM as well as a dramatic selloff in commodities, which brought back concerns over a slowing growth in global economy. Investors    also grappled with housing report released which showed sales of new single-family homes in the U.S. dropped to the slowest pace in seven months, suggesting the U.S. housing market may not be firing on all cylinders just yet.

A preliminary gauge of manufacturing activity in China also sunk to a 15-month low, suggesting that the world’s second-largest economy is struggling to stabilize and arrest a broad slowdown. The Caixin China Manufacturing   Purchasing Managers’ Index’s initial reading stood at 48.2 in July, compared with a final reading of 49.4 in June, with sub-indexes for output, new orders, new export orders and employment all showing declines during the month. These disappointing numbers weighed heavily on equities, with low readings hinting that the world second largest economy is yet to regain momentum, despite several rounds of interest rate cuts, higher spending on infrastructure and signs that the real-estate market is emerging from a slump.

Completing some sort of market contagion, European equities ended the week in the red, with declines among mining and bank shares solidifying the regional market’s first weekly loss in three. The Euro markets were vulnerable to downside pressures, with sentiment under threat following delays in Greece final bail out agreement, weak data from China and the resumed selling in commodities.

CRR debit and NNPC withdrawal spike money market rates

The money market witnessed a strain in liquidity which pushed market rates to the north. This was driven by less inflow of funds into the system, NNPC cash withdrawal from banks and CRR debit. Furthermore, T-Bills auction worth N162.9bn mopped up the maturing T-bills worth N159.9bn. In reaction to these, the Open Buy Back (OBB) and the overnight (O/N) opened the week at 12.1% and 12.8% respectively, rose on Wednesday to 23.0% and 24.3% and closed the week. OBB and O/N closed the week at 14.2% and 14.7% respectively. Maturing Treasury bills worth N132bn will flow into the system this week, this will improve market Liquidity slightly; hence rates should be trend marginally lower this week.

Average bond yields trend south

Treasury bill and Bond instruments started the week on a bullish note on the back of attractive yields and high demand from domestic institutional investors. However, bullish run in the Treasury bill space was ephemeral, while the bulls were in control of the bond market all through the week. As a result, average treasury bills yields stayed flat at 13.7% while average bond yields declined by 7bps to 14.9%.

Bond market Index as measured by the FMDQ increased by 5.9% to closed at 1,117.91 points. We anticipate some level of foreign investors’ interest in the market this week while domestic investors will maintain current demand. However, the lingering economic uncertainties will sustain cautious approach towards investing.

Naira loses against the Greenback w/w

In line with recent trends, activities in the FX market remained relatively calm in the past week, as stakeholders continue to await a firm policy direction as regards the exchange rate. Nonetheless, the Naira lost 15bps against the dollar on a w/w basis, to close the week at N197.80, even as  key macro variables were left intact at the MPC meeting concluded last week. We expect recent stability in the USD/NGN to be sustained this week on the back of the apex bank’s recent policy maneuver around FX.