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Breakfast Report - 14 August, 2017

The Week Ahead                                                    

The Investors’ & Exporters’ (I&E) FX window, a market segment introduced in April 2017 by the Central Bank of Nigeria to boost liquidity and ensure timely execution and settlement of trades in the FX market grossed a total of $1.1 billion in trades for the week ended August 4, 2017. This is a marked improvement from the $614 million turnover recorded in the first week of its operation when the Central Bank was the sole liquidity provider. However, with the market-determined, transparent window quickly gaining trust from investors, the window has recorded gradual increase in turnover since inception even as the window has proven a source of relief following the discouraging FX impasse in the Nigerian economy. Notably, this has driven a resurgence in both domestic and foreign participation in the equity market with the NSE All-Share Index gaining 30% in Q2’17. Worthy of note also is the convergence between the I&E FX and parallel market rates, both now consistently trading within a ₦362 - ₦367/USD band, compared to about ₦400/USD where the parallel market was trading pre I&E FX window introduction. We expect the improved transparency and liquidity to continue to support stability in the FX market.                                            

From week open to mid-week, heightened demand for Consumer Goods names ensured green closes for the Nigerian equity market. However, tides turned on Thursday as buying momentum softened on the bourse following sell-offs in the Banking and Oil & Gas sector. At week close, the market closed 25bps higher recovering from previous day’s loss to round off a relatively positive week. Overall, the market closed the week 207bps higher, lifting ytd gains to 42%.                                       

With apparent profit-taking on some banking names despite the release of better than expected performance from ZENITHBANK, we anticipate cautious trading at the start of this week.                                            

Stock Watch: GUINNESS gained 27% last week and now trades at a 9-month high of ₦91.50. We recall that the company opened its rights issue on the 24th of July at a price of ₦58.00 per share.                                        

In the fixed income market, we expect persistent CBN liquidity mop up to cap demand on T-bills at the start of the week even as waning interest on long-dated maturities keeps the bond market relatively quiet ahead of Wednesday’s bond auction.