NIGERIA | Weekly Wrap-up | 15-Dec-2017 | Elixir Research

fixed-income

15 Dec NIGERIA | Weekly Wrap-up | 15-Dec-2017 | Elixir Research

Weekly Wrap-up | Nigerian equities end the week in red as Naira weakens at I&EW

 

Strong liquidity tips fixed income yields to the south

  • The banking system balance which opened the week at ₦140.46 billion, increased to ₦440.38 billion as at Thursday, signaling a strong improvement in liquidity during the week. Similarly, the standing lending facility (SLF) dropped to ₦116.73 billion from ₦178.03 billion a week ago. ₦340 billion inflow from matured T-Bills, ₦209.57 billion from OMOs and the continued pull-back from OMO auctions supported liquidity. Given the improved liquidity, overnight and OBB rates contracted by 1.92 and 1.42 percentage points to 4.33% and 3.75% respectively for the week. 
  • The fixed income market was shaped this week by the ₦340 billion T-Bill repayment, ₦209.57 billion OMO inflow and the DMO primary market bond auction. The market saw a sharp contraction in yields which spooked some foreign traders to the exit. At the shortend, the average T-Bill yield fell by 273 basis points w/w to 13.47%. The long-end saw increased activities with the average FGN bond yield dropping by 85 basis points to 13.87%. 
  • According to the Ministry of Environment, the FGN will on Monday, December 18 issue a ₦10.69 billion ($29 million) bond as the first tranche of the ₦150 billion green bond program. The 5-year green bond will be used to fund projects to reduce carbon emissions and develop renewable energy. 
  • The signs are pretty much clear that yields are expected to compress further. We anticipate robust market activity, though we begin to ponder on the question of how much lower yields can go in the interim.

 

CBN sells $210m for the week; Naira weakens at I&EW and parallel market 

  • The CBN sold $210 million at the FX intervention window this week, split into $100 million for wholesale demand, $55 million for the SMEs window and $55 million for retail (BTA, PTA, medicals and school fees
  • At the I&E window, the Naira was down by 0.15% w/w to ₦360.96/$, following the demand pressure mid-week. Also, the parallel market which had held steady at ₦363/$ for over eight session, weakened to ₦365/$ (down 0.55% w/w). However, the CBN official window appreciated by 0.05% w/w to close at ₦306.25. 
  • A total of 788.97 million Dollars was traded during the week on the I&E window, down from 1.01 billion Dollars in the prior week. 
  • Although we saw the Naira depreciate mid-week, we do not anticipate this to extend longer.

 

Nigerian equity ends the week in red

  • Much in line with expectation, trading on the Nigerian bourse took a bearish turn this week as traders booked profit across the sectors led by bank and industrials. The benchmark index ended with a 2.09% loss to close at 38,436.08 points. Year-to-date return moderated to 43.02%. We note that the sell-off halted on Friday as the market gained 1.32% (though driven mostly by DANGCEM +4.35%). 
  • The banking sector lost 5.33% w/w, depressed by STERLNBANK (-11.50%), FIDELITYBK (10.04%) and ACCESS (-9.96%). This was followed by the industrials index with a 4.79% w/w decline on the back of losses from WAPCO (-10.40%), VITAFOAM (-3.45%) and DANGCEM (-2.04%). The insurance sector was down 2.19% w/w. 
  • On the other hand, the oil & gas sector added 4.54% w/w, driven by interest in SEPLAT (+7.73%) and MOBIL (+6.37%). The consumer goods index rose by 0.68% for the week, pushed by DANGSUGAR (+8.34%), NASCON (+8.12%) and NESTLE (+3.83%).
  • Despite the profit-taking induced sell-off this week, we believe underlying market sentiment is still positive backed by increased system liquidity, and an encouraging macro picture. We expect some stronger buying in the week ahead as traders take advantage of this week’s sell-off to cherry pick.

 

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