Key business activities that shaped last week ending July 7, 2018
The week in review took off with a cheering revelation by the Central Bank of Nigeria’s (CBN) Purchasing Managers’ Index (PMI) report for the month of June, showing that business conditions remained healthy.
This is based on the fact that manufacturers and service providers continued improvement in their overall operations by expanding at a quicker pace than in the preceding month. The headline composite manufacturing and non-manufacturing PMIs printed at 57.0 and 57.5 respectively, from 56.5 and 57.3 recorded in the previous month.
There are no sufficient reasons to expect contracting PMIs over the rest of 2018, as the impact of the positive drivers supporting the encouraging figures deepens further.
Business Hilights recalls that the Central Bank of Nigeria (CBN) had released its Balance of Payments (BOP) report for the first quarter of 2018, showing a significant improvement in the country’s foreign trade position. The overall balance of payments grew 145.6% y/y and 18.4% q/q, indicating a surplus of USD7.32 billion (vs. USD2.98 billion in Q1-17 and USD6.18 billion in Q4-17).
The current account balance also grew 22.1% y/y to USD4.47 billion (vs. USD3.66 billion in Q4-17). This is positive for foreign reserves accretion and exchange rate stability, as the widening surplus indicates growing revenue receipts compared to import payments.
On Capital markets, the week in review saw equities market reversed gains posted, as the bears resurfaced (-1.71% w/w to 37,625.59), causing the Year-to-Date return to close negative, at -1.61%. Four of the five trading sessions closed in the red, as sell pressures ensued in value stocks. Losses were highly stacked in the Consumer Goods (-3.49%) index, while the Oil & Gas (-2.87%), Industrial Goods (-2.77%), and Banking (-0.07%) indices followed suit. On the flip side, the Insurance (+0.53%) index was the sole gainer. 4
0 stocks recorded losses during the week, led by FO (-19.79%) while MBENEFIT (+21.62%) led the 25 losers. Eight stocks (African Alliance Insurance Plc, Cornerstone Insurance Plc, R. T. Briscoe Plc, Royal Exchange Plc, STACO Insurance Plc, Standard Alliance Insurance Plc, Universal Insurance Company Plc, Veritas Kapital Assurance Plc) were placed on full suspension, for failing to file relevant accounts.
However, in the short to medium term, sideways trading is likely to remain the theme in the absence of a near-term positive trigger as macroeconomic fundamentals remain strong and supportive of gains in the long term.
Last week also, activities at the Fixed income & money market showed resilience as the overnight lending rate shed 116 bps, w/w, to close at 12.92%. System liquidity was squeezed for the major part of the week, on the back of outflows for retail FX funding (USD210 million) by banks.
Besides, Thursday’s inflow from OMO maturities (NGN238.65 billion) and net primary market repayments (NGN71.20 billion) boosted liquidity, amidst the absence of the usual OMO auction.
The overnight money market rate is likely to expand in the coming week, as we expect the apex bank to conduct open market operations to mop up the inflow of maturing OMO bills worth NGN313.56 billion.
Within the Treasury bills segment, performance was bullish, with sentiments supported by relatively healthy liquidity and the absence of OMO auctions. Consequently, average yield moderated 59 bps to 12.39%.
Investor sentiment was positive across the short (-77 bps), mid (-55 bps), and long (-29 bps) ends of the curve, amid increased demand for the 90DTM (-143 bps), 104DTM (-107 bps), and 223DTM (-59 bps) bills respectively. Meanwhile, at this week’s primary market auction, NGN102.31 billion worth of bills were sold, against an offering of NGN170.51 billion. NGN9.52 billion, NGN33.93 billion, and NGN58.86 billion of the 91-day, 182-day, and 364-day bills were allotted at respective stop rates of 10% (previously 10%), 10.5% (previously 10.3%), and 11.5096% (previously 11.5%). Overall, the bills were under-subscribed by NGN18.41 billion.
However, market analysts at Cordros Capital are upbeat that a reversal of the bullish trend on the back of anticipated squeeze in liquidity.
Within the bond market, trading was bearish, following selloffs by foreign investors. As a result, yields rose by 25 bps on average, w/w, to 13.91%. There was sell pressure at the short (+37 bps), mid (+23 bps), and long (+15 bps) ends of the curve, with the FEB-2020 (+110 bps), MAR-2024 (+43 bps), and APR-2037 (+30 bps) bonds recording the most significant expansions, respectively.
In line with last week’s deals, several experts will this week, expect modestly higher yields in the medium term, anchored on (1) weakening signs of monetary easing, (2) capital flight amid higher yields in safe haven assets, (3) political uncertainty stemming from the upcoming elections, and (4) increased government borrowing to fund the 2018 budget.
At the Foreign exchange market, the USD/NGN remained stable during the week, with the pair strengthening by 0.28% to NGN361 in the parallel market. Conversely, in the I&E window, the naira weakened against the dollar by 0.35% to NGN362.58 – 0.44% higher than the parallel market rate.
Total turnover in the window dropped by 6.0% to USD684.76 million, with bulk of trades (86.29%; previously:98.21%) executed within the NGN360-NGN369/USD band. In the FX forwards market, the NGN/USD continued to depreciate across all major dated contracts — 1-month (-0.30%), 3-month (-0.29%), 6-month (-0.60%), and 1-year (-1.99%) – to NGN366.05, NGN373.59, NGN387.81, and NGN409.80, respectively. Meanwhile, accretion to the foreign reserves remained steady, increasing by 0.02% to USD47.80 billion (as at 4th July), from USD47.79 billion in the previous week.
