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The Market Today - 03 August 2018

Update on global central banks                                               

This week was an important one for international monetary policy as both the U.S. Federal Reserve (Fed) and UK Bank of England (BoE) concluded their monetary policy meetings. The U.S. Fed left interest rates unchanged while maintaining their bullish economic outlook for the year and pointing towards a rate hike in September and possibly in December. Meanwhile, the UK BoE hiked its base rate by 25bps to 0.75% (highest since March 2009) amid greater confidence in near-term economic growth and sticky inflation above the bank’s 2% threshold (2.4% in past three months). Reactions to the BoE decision have been mixed on the back of concerns that Brexit negotiations would weaken the economy and force the apex bank to reverse the course of monetary policy. We note that developments in the U.S. and UK are consistent with our outlook of higher global interest rates which might pressure Nigeria’s external borrowing costs and induce a greater risk of capital flight ahead of the elections.                                                      

Banking bulls inspire market recovery                                                  

Leading the charge on a mid-session recovery, the Banking sector inspired the Nigerian equity market to a positive close (+21bps) yesterday. Meanwhile, NOTORE, an indigenous fertilizer manufacturing and trading company was listed on the exchange by way of introduction, at a price of ₦62.50.  In spite of the green close, we note that trading pattern was mixed – indicated by the intraday chart. Barring any major earnings announcement, we expect trading patterns to remain mixed today.                                                             

Stock Watch: ETI has gained 10% in the last 5 sessions. The stock is currently trading at a year high price of ₦21.95 and has returned 29.12% ytd.                                                            

Yields stay the same at OMO auction, unchanged since May                                                     

"Following a liquidity inflow of N324 billion, the CBN conducted its first OMO auction this week, offering N600 billion and selling N363 billion across the 91DTM and 203DTM bills at respective stop rates of 11.05% and 12.15% (effective yields: 11.36% and 13.03%). Amidst this, the interbank call rate advanced 41bps to 3.33%. Meanwhile, trading was mixed across the T-bills market, with yields closing relatively flat vs previous session. Notably, whilst yields on the 28DTM (-65bps to 10.10%) and 350DTM (-44bps to 11.97%) bills moderated, yields on the 91DTM (+73bps to 11.49%) and 182DTM (+45bps to 12.44%) bills advanced. Trading in the bond space was similarly mixed, albeit with buy pressure on the mid-dated tenors. Consequently, yields fell 4bps on average across benchmark bonds. Specifically, whilst yield on the 15.54% FGN FEB 2020 bond declined 8bps to 13.26%, yield on the 16.39% FGN JAN 2022 bond advanced 6bps to 13.73%. In the absence of a liquidity mop-up and any significant market catalysts, we expect a quiet trading day in the fixed income market today as the week comes to a close.