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The Market Today - 08 March 2019

QE: One ends, another begins                                                  

At the end of 2018, the ECB officially announced the end of its €2.5 trillion stimulus program, signaling the end of Quantitative Easing across the western world. We recall that post-2008, various Central banks embarked on monetary stimulus programs to improve demand in their economies and bail out distressed Systemically Important Banks. The expectation was that the bank would subsequently embark on a policy normalization path, with interest rates rising across member countries. Notably, the U.S. had already begun to do this, with the U.S. Federal reserve hiking rates nine times between 2015 & 2018 and planning at least three more hikes in 2019. However, amidst slower than expected global growth, driven by rising protectionist actions, the rhetoric has changed. Specifically, the U.S. Fed adopted a more dovish stance at its January meeting and the ECB recently announced plans to hold interest rates at their current historic low “at least through the end of 2019”. More interesting, however, is that the ECB has seemingly backtracked, introducing the Targeted Long-Term Refinancing Operation (TLTRO III), another stimulus program which is scheduled to run until March 2021 and will help banks roll over €720bn (£617bn) of ECB loans. This is a step back for monetary normalization in advanced economies and we expect this to somewhat ease currency pressure on the Naira in 2019                                                               

Sell-off persists despite earnings releases                                                         

The NSE ASI once again closed in the red after negative performances in all key sectors dragged the market to a 22bps loss. Despite earnings releases, market activity remained below average at ₦2.7 billion.  Market breadth remained negative with 11 advances and 25 declines. With a mixture of bearish sentiment and investor apathy prevalent in the market despite earnings releases, we foresee a negative close to trading today. However, we do not rule out the possibility of bargain hunting on select stocks.                                                   

Stock Watch: GUARANTY released its FY’18 results yesterday, reporting topline of ₦434 billion and bottom-line of ₦184 billion (FY’17: ₦419 billion and ₦167 billion respectively). The stock declined 79bps in yesterday’s session, closing at ₦37.65.                                                           

Market bounces back amid mild buy interest                                                    

In view of a ₦229 billion OMO repayment, the CBN conducted an auction, selling ₦294 billion (₦400 billion offered) across the 91DTM and 175DTM bills, at stop rates of 11.90% and 13.45% respectively (effective yields: 12.26% and 14.38%).  Meanwhile, sentiment turned bullish in the T-bills space, as average yields declined 29bps with buy-side activity prevalent across the space. Simultaneously, activity in the bond space was also positive, with benchmark yields declining 4bps on average as a result of buy-sentiment observed at the mid-end of the curve. With system liquidity currently healthy at ₦197 billion, we foresee a continuation of buy-side activity in the T-bills space in today’s session. We also expect the bond space to trade sideways at week close due to  mild investor interest.