BY BAMIDELE FAMOOFO
Cautious trading dominated the local bourse last week on expectations of the outcome of the monetary policy meeting. Lull in activities of investors in the equities market however resulted in the All-Share Index ending the week flattish at 49,024.16 points.
Huge losses recorded by highly capitalized Tier-1 banks and Nestle Nigeria Plc dealt a big blow on the Index as returns recorded a decline. Month to Date and Year to Date returns were flat at -1.6 percent and +14.8 percent, respectively.
However, activity levels were positive, as trading volume and value increased by 78.5 percent week on week and 10.3 percent w/w, respectively.
Across sectors, the Industrial Goods (-3.0%) and Oil & Gas (+0.2%) indices advanced, while the Consumer Goods (-3.4%), Insurance (-3.2%), and Banking (-0.9%) indices declined.
At the money market, overnight (OVN) rate remained double-digit and expanded by 100bps w/w to 16.0 percent. The previous week’s expansion could be attributed to the debits for net NTB issuances (NGN37.98 billion) and the additional CRR debits in line with the new CRR levels, outweighing the inflow from FAAC disbursements. (NGN400.00 billion) and bond coupon payments (NGN38.36 billion).
Notwithstanding, we highlight that the average liquidity level for the week settled higher at a net long position of NGN182.97 billion (vs net short position of NGN26.87 billion in the previous week).
Money market analysts expect system liquidity to be pressured this week as they believe the outflows for weekly auctions (OMO & FX) will outweigh the anticipated inflows from OMO maturities (NGN60.00 billion). Thus, they expect the OVN rate to trend northwards.
The Treasury bills secondary market traded with bullish sentiments in the review week, as market participants took positions at the short and mid spectrum to cover for lost bids at the NTB PMA. Consequently, the average yield across all instruments dipped by 17bps to 7.8 percent. Across the market segments, the average yield contracted by 28bps to 7.1 percent in the NTB segment, but increased by 88bps to 10.3 percent in the OMO secondary market. At this week’s NTB PMA, the CBN offered NGN141.34 billion – NGN12.28 billion of the 91-day, NGN20.35 billion of the 182-day, and NGN108.71 billion of the 364-day – in bills. Ultimately, the CBN allotted NGN179.32 billion – NGN2.16 billion of the 91-day, NGN3.34 billion of the 182-day and NGN173.81 billion of the 364-day bills – at respective stop rates of 6.49 percent (previously: 5.50%), 7.50% (previously: 6.00%), and 12.00 percent (previously: 9.75%).
With system liquidity expected to be tight this week, experts at Cordros Securities anticipate a further increase in the average yields on T-bills from current levels.
In the review week, bearish sentiments dominated the treasury bonds secondary market, as investors’ repriced bonds upwards in reaction to the MPC’s hike in the key policy rate (15.5%). As a result, the average yield expanded by 41bps w/w to 13.3 percent, driven by profit-taking activities across the short (+45bps), mid (+50bps), and long (+28bps) segments of the benchmark curve. Specifically, there were sell-offs on the ARP-2023 (+132bps), NOV-2029 (+57bps), and APR-2037 (+83bps) bonds.
“We maintain our view of an uptick in bond yields in the medium term, as the FGN’s borrowing plan for 2022FY and expected fiscal deficit point towards an elevated supply,” Cordros Research hinted in a report.
Nigeria’s FX reserves continued its decline in the period under review, falling by USD178.56 million w/w to USD38.28 billion (29 September). Across the FX window, the naira depreciated by 0.2 percent to NGN437.03/USD at the I&E window (IEW) and was flat at NGN712.00/USD at the parallel market. At the IEW, total turnover (as of 29 September) declined by 1.4 percent WTD to USD520.32 million, with trades consummated within the NGN 410.00 – NGN453.15/USD band. In the Forwards market, the naira depreciated at the 1-month (-1.7% to NGN446.77/USD), 3-months (-2.0% to NGN453.14/USD), 6-months (-2.2% to NGN467.92/USD) and 1-year (-2.3% to NGN495.21/USD) contracts.
