Equity Market Extends Bullish Sentiment To The Fifth Successive Week, As Nigeria’s Headline Inflation Drops Further To 16.63%
Earnings Optimism Drive Global Stocks Higher Despite Inflation Worries
Last week, bullish sentiments dominated thirteen (13) out of the fourteen global market indices under our coverage, while only one (1) index depreciated. This performance was a result of investors being cautious as they anticipated the official start of the quarterly earnings result, approval of the short-term increase of the U.S Debt Ceiling, surging energy prices, inflation, and rising expectations that the Fed Reserve will announce a tapering of stimulus next month, potentially following with interest rate hikes in mid-2022.
According to the report by the Labour Department, The U.S Consumer Price Index (CPI) for September 2021 rose to 5.4% from 5.3% in August 2021 (year-on-year) and also increased to 0.4% in September 2021 from 0.3% in August 2021 (month-on-month) as Americans paid more for food, rents, and a range of other goods, thereby putting pressure on the government to urgently resolve the strained supply chains, which are hampering economic growth.
Similarly, U.S retail sales rose by 0.7% in September 2021 to $625 billion, exceeding economists’ 0.2% decline expectations. Consumer spending at stores and restaurants unexpectedly increased, signaling a brighter sign for an economy highly dependent on consumers against the backdrop of high inflation.
Also, the number of Americans filing new claims for unemployment benefits dropped by 36,000 to a seasonal adjustment of 293,000 for the week ended October 9. This was the lowest level since mid-March 2020, showing that the shortage of workers was behind slow job growth rather than weakening demand for labour.
Federal Reserve Officials could begin tapering as soon as mid-November, according to minutes from the central bank’s September meeting released on Wednesday. The Fed would reduce $120bn ($80bn in Treasury and $40 in mortgage-backed securities) bond-buying slowly. The central bank indicated they would probably start cutting by $10bn a month in Treasury and $5bn a month in mortgage-backed securities, aiming to end the bond-buying program by mid-2022, pointing to a taper of about $15bn per month.
President Biden signed the bill approving the temporary rise in the government’s borrowing limit to $28.9trn, pushing off the deadline for debt default until December 3. This move will ward off concerns that the U.S – the world’s largest economy- would go into default for the first time, and also help the country’s government cover large tax cuts and spendings.
Positive trade figures from China showed exports grew unexpectedly by 28.1% to $305.7 billion in September, while imports grew by 17.6% to $240 billion from a year earlier in September, allaying fears about a slowdown in the world’s second -largest economy.
Consequently, all the major U.S indices under our coverage, DJIA Index, Nasdaq Composite Index, and S&P 500 Index increased by 1.58%w/w, 1.82%w/w, and 2.23%w/w respectively.
Similarly, all the major indices under our coverage in Europe; the France CAC 40, UK FTSE 100, and the German DAX Index appreciated by 2.51%w/w, 1.98%w/w, and 2.51%w/w respectively.
Also, all the major indices under our coverage in Asia, the Hong kong HANG SENG, India S&P BSE Index, and Japan Nikkie 225 increased by 1.99%w/w, 2.08%w/w, and 3.64%w/w respectively except China Shanghai Composite that declined by 0.55%w/w.
Furthermore, the major indices in the emerging markets under our coverage, South Africa FTSE/JSE, EGX 30, Argentina Merval Index, and Brazil Bovespa Index increased by 2.74%w/w, and 4.36%w/w, 5.72%w/w, and 1.61% w/w.
In the coming week, we expect mixed sentiment, as investors continue to react to the rising global inflation and energy prices which have hampered economic recovery. However, upbeat quarterly earnings from the mega-cap stocks could sway investors’ sentiment.
Inflation Rates Tapers Further to 16.63%
In Line with the official data published by the National Bureau of Statistics (NBS) on Friday, October 15th, 2021, the Headline inflation rate (a measure of the average change in the general price level of goods and services in the economy) for September stood at 16.63% year-on-year, from 17.01% in August 2021, which represent a decrease of 0.38% than the previous month. Howbeit, on a month-on-month basis, the headline increased by 1.15%, which is 13bps higher than August’s record of 1.02%.
The Headline inflation year-on-year decline was influenced by the Base year effect and further slackening of the Food price inflation. The Food inflation reduced to 19.57% y/y in September 2021 by 73 basis points, from 20.30% in August 2021. However, the month-on-month food inflation rose by 20 basis points to 1.26% in September 2021 from 1.06% in August 2021.
The core inflation however increased to 13.74% y/y in September 2021 from 13.41% in August 2021, higher by 33 basis points. Also, the month-on-month comparison showed that the core inflation also rose by 47 basis points to 1.24% in September when compared to 0.77% in August 2021.
Furthermore, the urban inflation declined by 17.19%, which denotes 40bps lower than 17.59% computed for August 2021, while the rural inflation also stood at 16.08%, representing 35bps lower than the previous month.
Finally, the rise in headline inflation was tapered for a sixth consecutive time by the base effect, and despite a reduction of 73 basis points in the Food inflation in September, the harvest season effect was not felt due to the rising cost of wheat, bread, and cereals. Also, Food and non-food item prices continue to rise due to high exchange rates, insecurity issues, poor infrastructure, banditry, and other macro-economic factors. Hence, we project a minimum decline of 18bps in Headline inflation again for October 2021 to 16.45%, backed by the base year effect, the end sars protest which led to the disruption of economic activities, and unstable exchange rate.
Local Bourse Extends Positive Sentiment To Five Consecutive Weeks
Trading activities on the Nigerian equity market ended w/w on a green note to extend the bullish performance to the fifth consecutive week. Positive market performances were recorded in four of the five trading sessions. This performance was driven by sustained investors’ buy appetite in bellwether stocks. As a result, the NGX-ASI and Market capitalization appreciated by 1.39% and 1.62% from 40,868.36 points and.N21.30 trillion to close at 41,438.15 points and.N21.62 trillion respectively Consequently, the year to date (YTD) increased to 2.09%, and investors gained N328.98 billion w/w.
At the end of the week, Banking Index emerged as the highest gainer with (+2.64%), followed by Insurance Index (+1.60%), Industrial Goods Index (+0.98%), Oil & Gas Index (+0.64%), and Consumer Goods (+0.47%).
CHAMPION emerged as the best performing stock for the week with a w/w gain of +49.52%, while LEARNAFRICA emerged as the worst-performing stock with a w/w loss of -18.71%.
A total of 2.84 billion shares worth N31.65 billion in 23,355 deals were traded this week by investors, as against a total of 22.18 billion shares worth N21.96 billion in 22,438 deals
Forty-five (45) equities appreciated in price during the week, higher than Forty-two (42) equities in the previous week. Fifteen (15) equities depreciated in price, lower than Twenty-six (26) equities in the previous week, while ninety-six (96) equities remained unchanged, as against eighty-seven (87) equities recorded in the previous week.
This week, we expect bullish sentiment, as investors continue to take positions in different stocks as the market anticipates the release of 9M earnings report. Furthermore, investors will also track yield movement in the fixed income market.
NASD Market Extends Bullish Sentiment, as NSI Advanced By 1.68% w/w
Transactions on the NASD OTC Security Exchange Market closed on a positive note to extend the previous week’s positive sentiment, as the NASD Security Index NSI advanced by 1.68%, representing 12.32 basis points to close at 746.80 points against 734.48 points in the previous week. However, investors lost N21.4 billion for the week, as the NASD OTC Market Capitalisation closed at N616.99 billion for the week. The disparity between the NSI and Market Capitalisation could be a result of the withdrawal of 1.96 billion shares of the NGXGROUP from trading on the NASD OTC Securities Exchange.
Total trading activity for the week was valued at N584.46 million in 40 deals, against N10.29 billion in 110 deals recorded in the previous week. The most traded stocks on the exchange for the week are; SDCSCSPLC, SDFCWAMCO, SDNDEP, SDNASDPLC, SDLIGHTFSP, SDAFRILAND, and SDNIPCOPLC.
SDAFRILAND emerged top gainer for the week, with a maximum price appreciation of (+8.57% to N1.1), while SDCSCSPLC emerged as the top loser for the week with a price depreciation of (-2.35% to N16.6).
This week’s price appreciation resulted from investors’ buy-sentiment in medium and large capitalized stocks among which are; SDAFRILAND (+8.57% to N1.1), and SDFCWAMCO (+2.37% to N120.8).
However, the market breadth closed at par, recording 2 losers and 2 gainers.
In the coming week, we expect mixed sentiment in the NASD OTC market, as investors cherry-pick volatile and attractive stocks.
NTB Auction: Stop Rate on the 364-day T-bills declined by 25bps to 7.25%
This week, the CBN held a Nigeria Treasury Bill (NTB) auction by offering N121.66bn across all tenors, to roll over matured N121.66bn worth of bills. This could be driven by the need to mop up excess liquidity in the market.
At the Primary Market Auction (PMA), the CBN offered a total of N121.66bn across the 91-days, 182-days, and 364-days tenor, but the total amount sold settled at N187.23bn as subscription rate on the 91-days and 182-days printed at 0.97x and 0.88x respectively, while the 364-days was over-subscribed by 4.46x.
Stop rates for the 91-days, 182-days, and 364-days remained the same at 2.50%, 3.50%, while the stop rate declined by 25bps from 7.50% to 7.25%.
Consequently, system liquidity indicators closed higher, as Overnight (O/N) and Open Buy Back (OBB) advanced to 20.00% and 19.50% respectively, from 14.50% and 14.00% in the previous week.
Trading activities for the week on the secondary Treasury bills market closed relatively on a quiet note. Activities were seen on the short to mid tenor bills
Furthermore, the average yield of the Treasury Bills closed on a bullish sentiment to 5.20%, as against 5.27% recorded last week, representing a 7bps decrease.
The OMO Bills market traded on a calm note as interest was observed from the mid to long tenor bills, particularly on the 4-Jan-22, 11-Jan-22, 1-Mar-22, 8-Mar-22, 15-Mar-22, and 16-Aug-2022 bills.
Similarly, the average yield on the secondary Open Market Operation (OMO) closed flat at 6.47%.
In the coming week, we expect bullish performance in the secondary market due to excess liquidity in the market. We also expect the system liquidity to close lower due to the FGN October Sovereign bond auction.
Bearish Performance On The Secondary Bond Market
This week’s activities on the Bond market were limited to the secondary market, as investors position themselves for next week’s Sovereign bond auction. Trading activities were relatively active, as interest was observed across all tenors.
We observed divergence between the short to long tenor paper, as the short tenor papers closed majorly with buy-sentiment particularly on the 16.39 27-JAN-2022, 12.75 27-APR-2023. The longest tenor papers closed with sell-sentiment particularly on the 9.80 24-JUL-2045, 14.80 26-APR-2049, and 12.98 22-MAR-2050.
The average yield on the bond traded on the FMDQ market closed at 8.25% from 8.13%, representing a 12bps increase.
In the coming week, we expect investors to oversubscribe to the Sovereign bond offers (12.50% FGN JAN 2026, 16.2499% FGN APR 2037, and 12.98% FGN MAR 2050) scheduled for Wednesday 20/10/2021, as market watchers continue to support strong interest in risk-free assets. We also anticipate improved activities, as market participants try to cover lost bids from the auction.
System liquidity indicators closed higher, as Overnight (O/N) and Open Buy Back (OBB) increase to 20.00% and 19.50% from 14.50% and 14.00% respectively in the previous week.
Foreign Exchange Market
At the I&E FX window, the Naira depreciated by 0.19%(w/w) to close on Friday (15/10/2021) at ₦415.07/USD against ₦414.30/USD from last Friday’s position.
The Foreign Reserve grew by $1,436.04 million to the level of $39.62 billion (07/10/2021) from $38.18 billion (07/10/2021).
The Brent Crude and WTI Crude appreciated by $2.47/barrel (w/w) and $2.93/barrel (w/w) to $84.86/barrel and $82.28/barrel this Friday(15/10/2021) as against $82.39/barrel and $79.35/barrel last Friday(08/10/2021), representing an increase of 3.00% (w/w) and 3.69% (w/w). Similarly, Nigeria’s Bonny Light also increased by $2.16 to $84.34/barrel on Friday(15/10/2021) from $82.18/barrel (08/10/2021), representing a rise of 2.63% (w/w)
Source: GTI Research