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The Market Today - 08 February 2018

What do reeling global markets mean for Nigeria?

Taking a cue from a bearish close to last week, global equity markets have continued to trade lower this week. Particularly, investors have been spooked by the possibility of aggressive monetary tightening in the United States (U.S.) following U.S. labour data pointing to a buoyant labour market and economy. Along with expectations of a higher U.S. federal deficit, investors feared a more hawkish Federal Reserve in the near term, causing U.S. treasury yields to rise to 4-year highs and triggering a decline in the value of riskier assets. Global market volatility has also soared this week; the most widely used measure of U.S. market volatility – the CBOE Volatility Index – spiked to its highest level since 2015, and the main gauge of market anxiety in Europe saw the sharpest change since the September 2001 terrorist attacks. Notably, Emerging Markets and commodity prices have not been spared by the bearish sentiment, with oil prices touching 2018 lows following a rise in U.S. oil production. Rising interest rates in the U.S. and higher market volatility would likely trigger some capital flight from Emerging Markets such as Nigeria. Nevertheless, we consider global crude oil prices to remain the crucial variable for market sentiment in Nigeria and we would continue to monitor the path of oil prices to determine the strength of market performance and economic recovery. We however highlight that the commodity has retraced to $65.51 per barrel from its 2018 peak of $70.53 per barrel.                                                           

Red closes persist in equity market this week                                                  

The Nigerian bourse continued in negative territory yesterday (NSE ASI shed 77bps), with all but one key sector closing in the red. Whilst bearish trading continued to dominate, we believe sentiment has begun to stabilize – noting the turnaround in a key sector, as well as a last minute retreat in DANGCEM. As such, we foresee a more mixed trading pattern in today’s session, though with a bearish bias.  

Stock Watch: CAVERTON has gained 29% over the last five sessions. The stock currently trades at an 18-month high of ₦3.05 and has returned 136% ytd.                                                                                                           

Sell pressure continues to weigh on FI market                                                 

The CBN conducted an OMO auction yesterday, offering ₦20 billion and ₦30 billion on the 99DTM and 197DTM bills respectively, however, no sale was made on both bills. Off shore investors remained cautious in the fixed income market as news flow about a potential aggressive monetary policy path in the U.S. remained in focus. Given this and currently tight system liquidity, the fixed income market was largely bearish as yields on T-bills and benchmark bonds rose 11bps and 10bps on average respectively following the sell pressure. With developments in the global markets still firmly in view, we believe the cautious sentiment will continue to spur bearish trading activity in the fixed income market.