Equity Market Sheds 0.31%w/w, as CBN retains all monetary policy parameters
Global market retreats, amid Fed Reserve Dovish Stance
This week, the bears advance, as nine (9) out of the fourteen global market indices under our coverage declined, while five (5) advanced. The negative performance was due to underwhelming U.S growth data, Fed Reserve dovish stance, and the continuing outbreak of the Delta variant Covid-19 cases.
According to the U.S Bureau of Economic Analysis, the Gross Domestic Profit increased at an annualized rate of 6.5% in the second quarter of 2021, an improvement from the 6.3% growth recorded in the first quarter. The increase in the second quarter reflected increases in consumer spending (which account for more than two-thirds of the U.S economy) which grew at a rate of 11.8%, after rising at an 11.4% pace in the prior period of the fiscal stimulus.
Also, Fed Reserve maintained its dovish stance on its monetary policy, and Fed Chair earlier this week said rate increases are “a ways away “and that the job market still had “some ground to cover”.
Consequently, all the major U.S indices under our coverage, DJIA Index, S&P 500 Index, and Nasdaq Composite declined by 0.36%w/w, 0.37%w/w, 1.11%w/w respectively, as disappointing earnings reports dampened the market mood.
In Europe, all the major indices under our coverage; the France CAC 40 and UK FTSE 100 Index advanced by 0.67%w/w, and 0.07%w/w respectively, save for the German DAX that dipped by 0.80%w/w.
However, all the major indices under our coverage in Asia, the Japan Nikkie 225, Hong kong HANG SENG, China Shanghai Composite, and India S&P BSE Index receded by 0.96%w/w, 4.98%w/w, 4.31%w/w, and 0.73%w/w respectively.
Furthermore, all the major indices in the emerging markets under our coverage, South Africa FTSE/JSE, Egypt EGX 30, and Argentina Merval Index expanded by 1.33%w/w, 0.90%w/w, and 1.80%w/w respectively, save for Brazil Bovespa Index that lost 2.60% w/w to close the week.
We expect mixed sentiment to prevail in the coming week as investors react to the outcome of the Fed Reserve meeting, lower bond yield, and the soaring cases of the Delta variant of the Covid-19 pandemic.
CBN retains all monetary policy parameters
The Monetary Policy Committee (MPC) of the CBN at the end of its two-day meeting on Tuesday (27/07/2021) unanimously agreed to retain all key monetary policy variables; the benchmark Monetary Policy Rate at 11.5%, the asymmetric corridor of +100/-700 basis points around the MPR, Liquidity Ratio at 30%, and CRR at 27.5%.
MPC assessment of the external sector
The committee noted that while there have been reasonable gains in subduing the pandemic, lowering restrictions, and re-opening several economies, the fast pace of mutation of the new and deadlier strains of the virus poses a downside risk to the full recovery of the global economy. Despite all these challenges, the International Monetary Fund (IMF) projected global growth at 6.0%, against the last projection of 5.5%. Also, the committee highlighted that across the Emerging Market and Advanced Economies, the inflationary trend was mixed largely due to exchange rate pressures, capital inflow reversal, high energy costs, weak supply chains, and poor response to policy stimulus.
In the global financial markets, the Committee noted the increasing demand for equities, an indication of improved investors’ confidence in the global recovery, partly due to progressive weakening of long-term sovereign bond yields, and moderation in the price of gold.
MPC assessment of the domestic sector
On the positive, the Committee noted the two consecutive quarter expansion of the GDP by 0.11% and 0.51% in Q4’20 and Q1’21 respectively. Also, the Employment Level Index, Manufacturing, Non-Manufacturing PMI improved to 46.5, 46.6, and 44.8 in July 2021, compared with 45.0, 45.5, and 43.0% in the previous month, though it is below the 50-index point mark threshold, the improvement is an indication of the global recovery of the output growth in the economy.
The Policymakers also highlighted the continued moderation of the headline inflation (Y-o-Y) to 17.75% in June 2021 from 17.93% in May 2021, the third consecutive month of decline.
Conclusively, the Committee believes that adopting a decision to tighten the MPR will reduce the supply of money. A further cut in the MPR would exacerbate inflation and increase the negative rate of return and discourage investment in the economy. Consequently, the MPC decided to hold all parameters constant because it will support the recorded growth and macroeconomic stability.
Q2’2021 Capital Importation Lags Prior Quarter by 54.06%
The total foreign investment inflows into the economy in Q2’2021, as reported in the Capital Importation report published by the NBS this week showed that Nigeria recorded a decline of 54.06% to settle at $875.62m from $1.91bn in Q1’2021. Similarly, the Q2’2021 total inflow trailed that of the corresponding period of 2020 by 32.38% to settle at $1.29bn.
A closer look at the data also revealed that all the three investment categories into which foreign investment flows; the Foreign Direct Investment (FDI), Portfolio Investment segment (comprising of bonds, equity, and money market instruments), and Other Investment declined by 49.62%, 43.40%, and 68.30% respectively to settle at $77.97m, $551.37m, and $246.27m when compared to the previous quarter.
In conclusion, we believe that the declining interest of foreign investors in making long-term commitments could be attributed to the weak policy environment to support business performance, exchange rate vulnerability, and insecurity (especially in the northern part of Nigeria).
Equity Market Sheds 0.13% w/w
The Nigerian Domestic Market ended w/w trading on a negative note, as the NGX-ASI depreciated by 0.31% from 38,667.90 points to close at 38,547.08 points. Negative market performance was recorded in three of the five trading sessions.
Investors lost about N63 billion, as the Market Cap. declined from N20.15 trillion in the previous week to N20.08 trillion.
At the end of the week, the Oil and Gas Sector emerged as the best performing sector with a percentage gain of +3.84%, followed by Consumer Sector with +0.06%, while the Industrial Goods, Insurance, and Banking Sector all closed negative during the week with a loss of -1.32%,-1.12%, and -0.95% respectively.
According to the NGX Weekly Summary Report, OANDO emerged as the best performing stock for the week with a w/w gain of +23.17%, while LINKASSURE shed -14.29%.
A total of 1.37 billion shares worth N11.82 billion in 22,982 deals were traded this week by investors on the floor of the Nigerian Exchange Group (NGX), as against a total of 896.17 million shares worth N5.24 billion in 11,714 deals last week.
In terms of corporate action, CUTIX PLC proposed a final dividend and bonus of N0.15 and 1 FOR 1 Share respectively, while MTN NIGERIA and CUSTODIAN INV. PLC and proposed an interim dividend of N4.55 N0.10 respectively.
Thirty-seven (37) equities appreciated at price during the week, lower than Forty-three (43) in the previous week. Thirty-five (35) equities depreciated in price, higher than Sixteen (16) equities in the previous week, while eighty-four (84) equities remained unchanged, as against ninety-seven (97) equities recorded in the previous week.
We expect mixed sentiment in the coming week, as market watchers may react to the recently released corporate earnings result, and also track yield movement in the bond market.
NSI declines by 0.26% w/w to extend bearish sentiment to two consecutive weeks
Transactions on the NASD OTC Security Exchange Market closed on a negative note, to extend the bullish sentiment to two consecutive weeks, as the NASD Security Index NSI declined by 0.26%, representing 1.93 basis points to close at 752.50 points against 754.43 points in the previous week. Investors lost N1.68 billion for the week, as the NASD OTC Market Capitalisation closed at N654.05 billion for the week.
Total trading activity for the week was valued at N723.93 million in 174 deals. The most traded stocks on the exchange for the week are; SDNGXGROUP, SDCSCSPLC, SDFCWAMCO, SDNDEP, SDNIPCOPLC, SDFOODCPT, SDAIRLIQ, SD11PLC, SDACORN, and SDAFRILAND.
This week price depreciation was a result of sell-sentiment in medium and large capitalized stocks amongst which are; SDAFRILAND(-7.41%) SDNGXGROUP(-3.74%), SDCSCSPLC(-0.27%), SDWAMCO(-0.02%),
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 N216.19bn across all tenors to roll over matured. 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 N216.19bn across the 91-days, 182-days, and 364-days tenor, but the total bid settled at N265.24bn as bid-to-offer ratio on the three tenors settled at 0.59x, 0.18x, and 2.73x respectively.
Stop rates for the 91-days and 182-days remained the same at 2.50% and 3.50% respectively, while the rate on the 364-days paper receded further by 47bps from 8.67% to close at 8.20%, due to huge buy-interest.
Consequently, system liquidity indicators closed lower, as Overnight (O/N) and Open Buy Back (OBB) dropped to 7.75% and 7.50% respectively, from 28.75% and 27.50% in the previous week.
Furthermore, the average yield of the Treasury Bills closed on a bullish sentiment to 5.90%, as against 6.90% recorded last week, representing a 100bps decline.
Conversely, the average yield on the secondary Open Market Operation (OMO) closed higher to settle at 8.69%, representing a 12bps increase against last week.
In the coming week, we expect the money market to trade in a tight range due to the absence of any maturing instrument, and system liquidity to close lower due to the August FGN Savings Bond offer.
Mixed sentiment characterized trading activities in the secondary market segment of the domestic bond market this week, as no new paper was floated in the primary market segment.
Consequently, the average yield on the secondary bond market settled at 9.25% from 9.62%, representing a decline of 37bps
We expect investors to oversubscribe to the August FGN Savings Bond offer in the coming week, 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 0.01%(w/w) to close on Friday (30/07/2021) at ₦411.44/USD against ₦411.50/USD from last Friday’s position. However, at the BDC, Naira depreciated by 2.91%(w/w) to close on Friday (30/07/2021) at ₦515/USD against ₦500/USD from last Friday’s position, due to CBN ban on forex allocation.
The Foreign Reserve grew $153.24 million to the level of $33.38 billion (29/07/2021) from $33.23 billion (22/07/2021).
The Brent Crude price appreciated by $1.97/barrel (w/w) to $75.41/barrel this Friday
(30/07/2021) as against $73.44/barrel last Friday (23/07/2021), representing a gain of 2.68% (w/w). Bonny Light also increased by $1.52 to $74.32/barrel on Friday(30/07/2021) from $74.32/barrel (23/07/2021)
Source: GTI Research