FRI, MAY 01 2020-theG&BJournal- The domestic bourse maintained an uptrend this week, as gains in MTNN (+7.7%), NESTLE (+1.1%), and Tier 1 banks’ stocks boosted the market. Consequently, the All-Share index advanced by 1.9% w/w, to settle at 23,021.01 points. Accordingly, the MTD return increased to +8.1%, and YTD loss moderated to -14.2%. Sectoral performance this week was positive, as gains in the Banking (+3.8%), Oil & Gas (+1.7%) and Insurance (+1.3%) indices covered for the losses recorded in the Consumer Goods (-1.4%) and Industrial Goods (-0.5%) indices.
As risks remain on the horizon, following the increasing number of COVID-19 cases in Nigeria and as economic fundamentals remain weak, we continue to advise investors to trade cautiously and seek only fundamentally justified stocks.
Fixed income and money market
The overnight (OVN) rate contracted by 18.33ppts, w/w, to 2.8%, crashing from a 33-week high of 21.1%, as inflows from CRR refunds, OMO maturities (NGN30.66 billion), FGN bond coupon payments (NGN149.14 billion) and funding from CBN’s Standing Lending Facility to banks, improved system liquidity.
Barring any surprises from the CBN, we expect the OVN to expand from current levels in the coming week, as expected inflow from OMO maturities (NGN18.50 billion) is not significant enough to saturate liquidity.
Trading in the Treasury bills secondary market turned bearish this week, as a result of weak system liquidity, and market participants readying bids for the week’s NTB PMA. Consequently, the average yield across all instruments expanded by 6bps to 7.8% – average yield at the OMO and NTB segments contracted by 3bps and 1bp to 9.9% and 2.7% respectively. At this week’s NTB PMA, the CBN fully allotted NGN131.53 billion worth of bills – NGN5.85 billion of the 91-day, NGN3.50 billion of the 182-day and NGN49.14 billion of the 364-day at respective stop rates of 1.85% (previously 1.93%), 2.50% (previously 2.74%), and 3.84% (previously 4.00%).
In the coming week, we expect demand for T-bills to improve, as system liquidity becomes more buoyant.
The Treasury bonds secondary market opened the week on a muted note as yields ticked higher given the tight system liquidity. Nonetheless, trading was somewhat bullish, as the average yield across instruments contracted by 30bps to 10.2%. Across the curve, yields contracted at the short (-14bps), mid (-17bps), and long (-43bps) segments following buying interests in the JAN-2022 (-60bps), MAR-2027 (-59bps) and MAR-2036 (-86bps) bonds.
We anticipate higher yields at the Treasury bonds secondary market from next week, following the Senate’s approval of the FGN’s request to source its foreign borrowings (NGN850 billion) locally.
This week, Nigeria’s FX reserves remained under pressure, sliding by another USD99.64 million WTD to USD33.44 billion (30th April 2020). Consequently, the Naira depreciated by 1.11% w/w to NGN387.30/USD at the I&E window, and by 1.10% w/w to NGN455.00/USD in the parallel market. As with the spot market, the exchange rate depreciated across all contracts in the Forward market. Precisely, the 1-month (-1.0% to NGN389.26/USD), 3-month (-1.1% to NGN394.91/USD), 6-month (-1.5% to NGN404.43/USD), and 1-year (-1.9% to NGN427.43/USD) contracts declined in value. Against the gradual easing of lockdown, the CBN announced its intent to resume the provision of FX to all commercial banks for onward sales for school fees payments and SMEs wishing to make essential imports. Pointedly, the apex bank is expected to disburse USD100 million weekly for both segments going forward.
We understand that the IMF has committed to disbursing the recently approved RFI of USD3.4 billion by May. This is expected to provide short-term support for the rapidly dwindling FX reserves. Irrespective, we expect the currency market to remain largely volatile, especially as the CBN has announced the resumption of FX sales to SMEs and payment of school fees, in anticipation of the gradual re-opening of the economy.-With Cordros Research