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The Market Today - 10 August 2017

FG approves Medium Term Expenditure Framework                                                 

According to the Minister of Budget and National Planning, Senator Udoma Udo Udoma, the Federal Government of Nigeria has approved the 2018-2020 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP). The MTEF pegs the benchmark oil price at $45/bbl, oil production at 2.3 million bpd, and exchange rate at ₦305/$. The document also projects GDP growth of 3.5%, 4.5% and 7.0% for 2018, 2019 and 2020 respectively. The Minister also said that the government is committed to increasing its revenue so as to reduce its debt burden. This follows reports that the Federal Government plans to refinance $3bn (₦905 billion) worth of naira-denominated short-term Treasury bills with dollar borrowing of up to three years’ maturity in order to lower costs and improve the country’s debt position as it recovers from a recession. We note that in recent years, Nigeria has looked to rebalance its debt towards foreign borrowing given high domestic interest rates. That said, whilst we note that interest rate on FCY borrowing is lower, we highlight that the possibility of a currency devaluation might not make this option cheaper in the long run.      

FMCG stocks shine once again in mixed trading session                                           

Lifted once again by strong interest across key Consumer Goods names, the Nigerian bourse recorded its third consecutive  green close in the week - up 38bps. Whilst we expect mixed trading to filter into today’s session, we expect the strong demand for Consumer Goods names as well as rebounding demand for select blue chips to tilt trading bias positive.   

Stock Watch: After rising to a 5-year high of ₦10.41, UBA has now shed 9% over the last 11 sessions. The banking group now trades at ₦9.49, returning 111% ytd. Notably, the bank is yet to release H1’17 results (due to audit) and market expects a largely positive performance.                                   

Yields trend northwards in T-bills market                                            

The CBN conducted an OMO auction today, offering ₦5 billion and ₦20 billion on the 183DTM and 344DTM bills respectively. Amidst the tight liquidity, bearish sentiment persisted in the T-bills market with yields advancing 14bps on average. Supported by the anticipated liquidity boost from a ₦113 billion OMO inflow in today’s session, we believe buying momentum will pick up in the T-bills market today. We also expect this positive momentum to filter into the short end of the bond space.