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The Market Today - 08 November 2018

Federal Reserve expected to HOLD interest rates                                     

The Federal Open Market Committee of the U.S. Federal Reserve is expected to hold interest rates at this month’s meeting scheduled to conclude today, while maintaining the hawkish language from recent meetings. The Fed has raised rates three times—by 25bps each time—already this year and has signaled one more rate rise in December, followed by two more by mid-2019. A rise in weekly wage of 3.3% annualized in Q3’18 and a booming economy (Q3’18 GDP growth of 3.5% annualized) have buoyed the Fed in its monetary tightening efforts. The effect of this has been an increased in U.S. bond yields, with the 10-year bond peaking at 3.23% in September. Rising interest rates would push up the cost of external borrowing for Nigeria, a significant outcome given the recently approved $2.8 billion external borrowing plan and continue driving capital outflows out of emerging markets.                                             

Market returns to negative territory after Industrials sell-off                                        

Yesterday, the NSE ASI moderated 14bps, driven by losses in three of the four key sectors. Meanwhile, market activity was unusually high at ₦9.4 billion (the highest since August), as a result of a large trade in ZENITHBANK. Market breadth turned positive with 18 advances and 17 declines. Despite the increase in market activity, market sentiment was mixed to negative, with down-trending intraday movement and losses in key sectors. Therefore, we expect trading to remain negative in today’s session.                              

Stock Watch: GUARANTY has lost 4% in the last eight sessions to settle at ₦37.05. The stock is currently trading at a 9% YTD loss and is currently trailing Vetiva Target price of ₦51.53.                                             

Trading turns bearish amid tight liquidity                                     

With the CBN holding off on conducting an open market operation, system liquidity stabilized at ₦170 billion and the Interbank Call rate declined 100bps to settle at 8.83%. With market liquidity likely to strengthen after a ₦307 billion OMO maturity today, we expect the CBN to conduct an OMO auction. Therefore, we expect muted demand in the T-bills market. Meanwhile, we foresee further mixed trading activity in the bond space, as investment sentiment remains tepid.