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The Market Today - 01 February 2019

CBN PMI report indicates slower pace of growth in January                                                       

Purchasing Managers’ Index (PMI) figures from the Central Bank of Nigeria (CBN) indicate that the economy expanded at a slower pace in January, with Manufacturing PMI dipping from 61.1 to 58.5 and non-Manufacturing PMI declining from 62.3 to 60.1. Within the manufacturing sector, all 14 sub-sectors surveyed reported m/m growth. Once again, employment levels in both the manufacturing and non-manufacturing indices expanded in January to stand at 56.4 and 57.7 respectively, marking the twenty-first consecutive month of growth, however, the pace of growth contracted compared to December, likely as a result of reduced activity following the festive season. However, expectations of even stronger sustained growth in the first month of the year driven by electioneering activities may be proven unfounded if the pass-through of campaign spending into the economy is underwhelming. Overall, we remain optimistic for modest growth for FY’19, with our forecast GDP growth of 2.7% y/y for the year remaining unchanged.                                                               

Selling intensifies as key sectors shed points                                                    

The market lost 189bps yesterday after declines in all key sectors. Investor sentiment turned bearish, with a broadly negative market breadth and slightly higher turnover. Market breadth turned negative with 8 advances and 32 declines. With investor sentiment deteriorating over the course of the week, and persistent sell-offs across key sectors, we foresee a negative tilt to today’s session. However, we do not rule out the possibility of bargain buying boosting the index.                                                        

Stock Watch: ACCESS has lost 12% in four consecutive sessions this week to close at ₦5.75. The stock is currently down 15% ytd, underperforming the banking sector (-2%).                     

Tepid trading persists in FI market amidst lower demand                                                           

Amidst a ₦191 billion T-bills maturity, the CBN conducted an OMO auction yesterday, selling c.₦401 billion (₦550 billion offered) across the 112DTM, 203DTM and 364DTM bills at stop rates of 11.00%, 13.50% and 15.00% respectively (effective yields: 11.31%, 14.47% and 17.64%). The CBN also sold ₦50 billion on the 264DTM at a special OMO auction.  Meanwhile, the Interbank Call rate declined 646bps to settle at 10.29%. With the CBN aggressively mopping up liquidity yesterday, we foresee a quiet day in the treasury bills space to end the week. We also expect quiet trading in the bond space due to the high levels of activity observed at the PMA on Wednesday.