Equity market sheds 0.12%w/w, as Headline Inflation drops further to 17.75%
Important Economic indicators dictate global market sentiment
This week, the bulls edged bears slightly, as eight (8) out of the fourteen global market indices under our coverage advanced, and others declined. The mixed sentiment was buoyed by the release of important economic data and resurgence in Covid-19 infection, brought on by the Delta variant.
According to the U.S labour Department, the Consumer Price Index (CPI) jumped 0.9% in June and 5.4% from the same month last year. This was the largest gain in 13 years. Excluding the volatile food and energy components, the so-called CPI rose 4.5% from June 2021, the largest advance since November 1991. Shelter costs, which are seen as a more structural component of the CPI and make up a third of the overall index, rose 0.9% last month, the most since October 2005. The gain was driven by a 7.9% Jump in hotel stays.
Fed Reserve Chair, said that recent price increases are a result of transitional re-opening effects, though the Fed recently acknowledge the possibility of longer-term inflationary pressure.
Also, U.S Retail Sales rose 0.6% last month. The core retail sale, which excluded some of the more volatile components of the consumer spending rose by 1.3%, while the “retail control” metric of spending, which has a large impact on U.S GDP climbed 1.1%. The retail earnings signify spending on food services continue to rise strongly, while sales of autos weakened amid a shortage of available cars due to supply chain problems.
According to the China National Bureau of Statistics, the world’s second-largest economy Gross Domestic Profit (GDP) grew by 7.9% in the second quarter from a year ago and rose 1.3% from the first quarter. Retail sales rose 12.1% in June from a year ago, and the fastest-growing category was beverages, up by 29.1% when compared to last year.
Industrial production in China grew by 8.3%, and China’s customs agency said export rose more than expected by 32.2% in June.
However, all the major U.S indices under our coverage, the DJIA, Nasdaq Composite, and S&P 500 Index, receded by 0.52%w/w, 1.87%w/w, and 0.97w/w% respectively, despite better than expected earnings and rebound in retail sales.
Similarly, all major Europe indices under our coverage, the France CAC 40, UK FTSE 100 Index declined by 1.06%w/w and 1.60%w/w respectively. Also, the German DAX Index fell likewise to 0.94 %w/w, despite the decrease in the bond yields, as investors trade cautiously ahead of next week’s European Central Bank (ECB) meeting.
Conversely, in Asia, the Japan Nikkie 225, Hong kong HANG SENG and India S&P BSE Index advance by 0.22%w/w, 1.44% w/w, and 2.41%w/w respectively. Also, China’s Composite Index gained 0.43%w/w, buoyed by expansion in its latest GDP report.
Likewise, all the major indices in the emerging markets, South Africa FTSE/JSE, Egypt EGX 30, Brazil Bovespa, and Argentina Merval Index, expanded by 0.22%w/w, 0.37%w/w, 0.42% w/w, and 1.15%w/w respectively to close the week.
We expect mixed sentiment to prevail in the coming week due to important monetary meetings, a resurgence in the Covid–19 inflections due to the Delta variant, and lower bond yield. However, strong half earnings and the positive news of China’s GDP could sway investor’s sentiment.
Nigeria Inflation drops further to 17.75% in June 2021
The Nigerian Bureau of Statistics released the monthly consumer price index for June 2021 on Friday, 16th June 2021. The headline inflation (a measure of the average change in the general price level of goods and services in the economy) declined to 17.75% (year-on-year) by 18 basis points from 17.93% in May 2021. However, on a monthly basis, there was a slight increase by 5 basis points to 1.06% in June 2021 compared to 1.01% in May 2021. This showed that the rise in the price of goods and services slowed down in June 2021 as against May 2021.
The tapering of the headline inflation rate was due to a decline in food and core inflation. Food inflation reduced to 21.83% in June 2021 (Year-on-Year) by 45 basis points from 22.28% in May 2021. However, the month-on-month food inflation rose by 6 basis points to 1.11% in June 2021 from 1.05% in May 2021.
Similarly, the core inflation contracted to 13.09% in June 2021 from 13.15% in May 2021, lower by 6 basis points. Also, on the monthly comparison, the core inflation decreased by 43 basis points to 1.24% in June when compared with 1.24% in May 2021.
Furthermore, the urban inflation declined by 16 basis points (year-on-year) in June 2021 to 18.35% when compared to 15.51% in the previous month. However, it slightly increased by 5 basis points on monthly basis to 1.09% in June 2021 from 1.04% in May 2021. While the rural inflation reduced (year-on-year) to 17.16% in June 2021 from 17.36% in May 2021. Although, on the monthly comparison, it rose by 4 basis points to 1.02% In June 2021 from 0.98% in the previous month.
The slowdown in the inflation rate was due to the base year effect arising from the data set from June 2020 in comparison with the current year (June 2021) which resulted in the narrowing of the inflation rate (year-on-year).
In conclusion, the decline in the inflation rate does not mean there is a contraction in the prices of goods and services but rather, a slowdown at the rate prices of goods and services rose in the months under review.
Bears sustain dominance on the stock market for the second consecutive week, as NGX-ASI sheds 0.12%w/w
The Nigerian Domestic Market ended w/w trading on a bearish note for the second consecutive week, as the NGX-ASI depreciated by 0.12% from 37,994 points to close at 37,947 points. Negative market performance was recorded in three of the five trading sessions.
Investors lost about N25 billion, as the Market Cap. also dipped from N19.79 trillion in the previous week to N19.77 trillion.
Oil and Gas Sector emerged as the best performer during the week, with a percentage gain of +1.81%, followed by the Banking Sector with percentages of +0.09%.
While Insurance, Consumer, and Industrial Goods Sector closed negatively during the week with losses of -1.01%, -0.85%, and -0.30% respectively.
FTNCOCOA emerged as the best performing stock for the week with a w/w gain of +20.95%, while IKEJAHOTEL shed -18.83%.
A total of 1.01 billion shares worth N10.92 billion in 17,297 deals were traded this week by investors on the floor of the Nigeria Stock Exchange, as against a total of 1.35 billion shares worth N12.14 billion in 21,581 deals last week.
Twenty-nine (29) equities appreciated in price during the week, lower than forty-four (44) in the previous week. Thirty-two (32) equities depreciated in price, higher than twenty-two (22) equities in the previous week, while ninety (90) equities were recorded in the previous week.
We expect mixed sentiment this week, as bargain hunters will take advantage of the depreciated stocks, as investors may also track yield movement in the stock market.
Three trading sessions gain, lift NSI Index by 1.31%w/w
Transactions on the NASD OTC Security Exchange Market closed this week on a positive note, as the NASD Security Index NSI rose by 1.31%, representing 9.72 basic points to closed at 754.11 points against 744.39 points in the previous week. NASD OTC Market Capitalisation closed at N655. billion for the week.
Total trade activity for the week was valued at N1.52 billion in 175 deals. The most traded stocks on the exchange for
the week are; SDNGXGROUP, SDVFDGROUP,
SDCSCSPLC, SDFCWAMCO, SDNDEP, SDAFRILAND, SDFOODCPT, SDNEWREST, SDUBNPROP, and SD11PLC.
SDNEWREST emerged as the top gainer for the week, with a maximum price appreciation of +10.00%, while SDUBNPROP emerged as the top loser for the week with maximum price depreciation of -6.78%.
This week price appreciation performance was driven by appreciation in large and medium capitalized amongst which are; SDNEWEST(+10.00%), SDAFRILAND(+8.00%), SDCSCSPLC(+7.12%), SD11PLC(+6.98%), SDFOODCPT(+5.00%), SDVFDGROUP(+2.41%), and SDWAMCOPLC(+0.52%).
Consequently, investors sentiment as measured by market breadth close at 2.33x, as the market recorded 7 gainers and 3 losers.
We expect the NASD OTC Market to trade in a tight range in the coming week.
This week, the CBN held a Nigeria Treasury Bill (NTB) auction by
offering N109.43bn across three tenors to roll over matured tenors. This could be driven by the need to mop up excess liquidity in the market.
At the Primary Market Auction (PMA), the apex bank offers of N12.46bn(91-days), N25.47bn(182-days), and N71.6bn(182-days), was met with a subscription of N6.69bn, 11.82bn, and 71.6bn respectively,
out of which the CBN allotted N5.24bn(91-days), N7.46bn(182-days), and N137.3bn(364-days), bringing the total amount allotted to N150bn. As expected, investors’ appetite was tilted towards the longer end of the curve, as the 364-days paper was oversubscribed by 7.77x. The 91-days and 182-days posted subscription rates of 0.54x and 0.47x.
Stop rates for the 91-days and 182-days remained the same at 2.5% and 3.5% respectively. However, rates on the longer tenor receded further by 48bps from 9.15% to close at 8.67%, due to huge demand.
Consequently, system liquidity indicators closed lower, as Overnight Buy-Back (OBB) and Overnight (O/N) rates fell to 4.75% and 4.50% respectively, from 20.50% and 19.75% in the previous week.
In the secondary market segment for Treasury Bills, the average yield of quoted bills on the FMDQ OTC platform fell by 20bps to 6.69%, as against 6.89% last week. Also, In the secondary Open Market Operation (OMO) market, the average yield closed at 9.29%, a decline of 59bps when compared to last week.
In the coming week, we expect to see the money market trade in a tight range considering the absence of any Treasury Bills maturity. However, we expect to see some interest in other money market instruments.
This week, the Debt Management Office (DMO) on behalf of the Federal Government of Nigeria (FGN) released a bond auction circular for the re-opening of the 10-year(FGN FEB 2028), 20-year(FGN MAR 2036), and 30-year(FGN MAR 2050) tenors, with a total offering of N150bn (N50bn each), which would take place next week.
However, this week’s activities on the domestic bond market were limited to the secondary market segment, as no instrument was issued by the Debt Management Office.
In the secondary market segment for the bond instruments, the average yield of bond instruments climbed to 9.69% from 9.54%, represent a 15bps increase to close the week.
We expect investors to oversubscribe to the bond offers scheduled for next Monday, as market watchers continue to support strong interest for risk-free assets.
Foreign Exchange Market
At the I&E FX window, the Naira appreciated by 1.37%(w/w) to close on Friday (16/07/2021) at ₦410.38/USD against ₦411.75/USD from last Friday’s position. However, at the BDC, the Naira remained unchanged at ₦500.00 this Friday (16/07/2021).
The Foreign Reserve this week weakened by $16.30 million to the level of $33.10 billion (15/07/2021) from $33.12 billion (08/07/2021).
The Brent Crude price depreciated by $1.96/barrel (w/w) to $73.59/barrel this Friday
(16/07/2021) as against $75.55/barrel last Friday (09/07/2021), representing a fall of 2.59% (w/w).
Source: GTI Research