Nigeria’s equities market gave up gains posted from the prior week as the benchmark index dipped by 2.4% w/w to 31,142.72. Save for Wednesday, the ASI closed negative in all sessions.
Thus, the MtD and YtD losses increased to 1.8% and 0.9%, respectively. On sectoral breakdown, all sector indices – save for the Oil & Gas (+0.09%) index – closed in the red, with the Banking (-6.13%) index leading the pack, followed closely by the Industrial (-1.12%), Insurance (-0.79%), and Consumer Goods (-0.43%) indices, respectively.
We reiterate our view that the blend of a compelling valuation story, together with positive macroeconomic picture leaves scope for a market recovery in the medium term. However, we guide investors to tread the cautious trading path in the short term.
Fixed income and money market
Money market
In line with our expectations, the overnight lending rate expanded by 158 bps w/w to close at 11.67%, as outflows for the CBN’s OMO auction (NGN400.48 billion) outweighed inflows from matured OMO bills (NGN212.73 billion) and bond coupon payments (NGN51.20 billion).
Next week, inflows from matured OMO bills (NGN120.88 billion) and bond coupon payments (NGN90.97 billion) will bolster system liquidity. However, liquidity mop-up and forex intervention by the CBN are likely to exert upward pressure on the overnight lending rate.
Treasury bills
The treasury bills market was bullish due to the results of the primary market auction, in which stop rates closed lower than expected, and the lack of a long tenored offering at the OMO auction. Consequently, average yield moderated by 18 bps to 13.31%.
Demand was spread across the mid (-47 bps) and long (-47 bps) segments, with yields on the 146DTM (-75 bps) and 293DTM (-79 bps) bills contracting, respectively. On the flip side, a selloff of the 20DTm (+167 bps) led to yield expansion at the short (+71 bps) end of the curve.
At this week’s primary action, the CBN fully allotted NGN89.50 billion worth of bills – NGN5.00 billion of the 91-day, NGN14.00 billion of the 182-day and NGN70.50 billion of the 364-day – at respective stop rates of 10.75% (previously 10.90%), 12.50% (previously 13.01%), and 12.845% (previously 14.37%).
Stop rates moderated by an average of 73 bps following significant oversubscription (NGN612.23 billion), with auction recording a bid-cover of 6.71x (vs. 6.32x previously).
Yields are expected to sustain their downward trend, especially at the long end of the curve, amidst relatively healthy liquidity, and the continued absence of the long tenored OMO offering.
At the NTB auction scheduled for next week, the CBN will offer NGN48.56 billion – NGN3.00 billion of the 91-day, NGN8.39 billion of the 182-day, and NGN37.18 billion of the 364-day – worth of bills to the market.
Bond
Proceedings in the bond market were slightly bullish as local players took advantage of the still attractive yields, amidst the decline in short term rates and the moderation in the rate of inflation (11.31% in February). As a result, average yield shed 7 bps w/w to close at 14.17%.
Buy sentiment was evident at the short (-21 bps), and long (-3 bps) segments, with respective yield on the JUN-2019 (-68 bps), and APR-2037 (-16 bps) bonds declining. Conversely, a selloff of the MAR-2027 (+42 bps) bond led to yield expansion at the mid (+5 bps) segment.
We reiterate our expectation for modestly lower yields in the medium term, anchored on (1) near term moderation in inflation, (2) a resurgence in FPI inflows, and (3) likely softening in short term rates.
Foreign exchange
Extending its build-up from last week, the CBN recorded a foreign reserves accretion of USD324.24 million w/w to USD42.99 billion.
The apex bank sold USD210 million across its different strata of FX windows, distributing USD100 million to the wholesale, USD55 million to the SMEs, and USD55 million invisible segments.
Consequently, the naira appreciated by 0.07% to USD360.18 at the I&E window, and by 0.28% to NGN359 in the parallel segment.
Meanwhile, total turnover at the I&E window moderated by 39.0% to USD1.64 billion with 77.47% of trades executed within the NGN360-369/USD band. Similar to spot market, the naira appreciated across all contracts at forwards market — 1-month (+0.17% to NGN362.35), 3-month (+0.17% to NGN369.02), 6-month (+0.05% to NGN381.31), and 1-year (+0.60% to NGN401.67) contracts.
