The Market Today - 07 February 2019
Reviewing fiscal sustainability of sub-nationals
Whilst much ado has been made about the precarious fiscal position of Nigeria’s Federal Government, perhaps little alarm has been raised about states’ debt sustainability. According to the National Bureau of Statistics, whilst total State+FCT revenues for H1’18 came in at ₦2.1 trillion, total domestic debt stock printed at ₦3.4 trillion. Moreover, all 37 sub-nationals had external debt of $4.2 billion, roughly translating to ₦1.5 billion at NGN360/USD. Notably, 58% of Total state revenues come from FAAC allocations and with a majority of FAAC allocations coming from crude revenues, sustainability of states is also tied to crude futures. That said, there is a wide berth between states in Internal revenue generation, with Lagos, Rivers and Ogun leading the pack whilst Yobe earns the least.
Positive streak persists amidst mixed sector performance
The NSE ASI recorded another 16bps gain yesterday after an even split between sectors performances. Notably, significant interest in banking stocks remained amid new interest in Consumer Goods stock. Market breadth turned positive with 18 advances and 16 declines. In spite of another positive market performance yesterday, we foresee another mixed trading day with a positive bias amidst continued interest in select stocks.
Stock Watch: DANGFLOUR has gained 9% in the past three sessions, to settle at ₦6.35. However, the stock has lost 7% YTD, underperforming the Consumer Goods sector (-5% YTD).
Yields advance on T-bills amidst healthy OMO auction sale
The CBN conducted an OMO auction yesterday, selling c.₦66 billion yesterday (₦70 billion offered) across the 99DTM, 190DTM and 330DTM bills at stop rates of 11.00%, 13.50% and 15.00% respectively (effective yields: 11.34%, 14.52% and 17.35%). Meanwhile, the Interbank Call rate advanced 117bps to settle at 20.67%. Yesterday, trading in the treasury bills market remained mixed, albeit yields advanced 4bps on average amidst the mop up. On the other hand, the bond market turned bullish, with yields on benchmark bonds declining 3bps on average. With ₦315 billion hitting the system via OMO maturities today, we expect the CBN to conduct another OMO auction. Following this, we foresee tepid trading in the fixed auction market.
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