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The Market Today - 14 March 2018

Senate to confirm Monetary Policy Committee members                                                           

Due to its inability to form a quorum (only four members were available out of the six required), the Monetary Policy Committee (MPC) was unable to hold its January meeting, leaving all policy levers at previous levels (MPR: 14%, Liquidity Ratio: 30%, and CRR: 22.5%). We reiterate that this was on the back of the Senate’s non-approval of persons nominated by President Buhari to replace the retired committee members. However, according to media sources, the Senate has rescinded its earlier decision and will commence the screening of the nominated MPC members. We see this as positive as the monetary authority looks to drive its growth agenda.

On another positive note, Nigeria’s inflation data for February registered at 14.3% y/y, lower than Vetiva and Consensus expectations of 14.7% and 14.5% respectively, as well as January reading of 15.1% y/y. In month-on-month terms, inflation remained flat at 0.8% from January. The decline in inflation was reflected in the Core Index – 12.1% y/y to 11.7% y/y, and the Food Index – 18.9% y/y to 17.6% y/y. We expect Nigeria’s inflation to persist on its downward trend in the coming months, driven by strong base effects, improved currency liquidity, and a slightly more stable energy space.                                   

Near flat close for ASI following choppy trading session                                                              

The Nigerian bourse closed relatively flat yesterday following an even split between sector gainers and losers. Sentiment on the exchange was largely mixed with choppy trading observed through the session. We expect the pattern to be repeated today, however, we don’t overlook the possibility of further earnings releases swaying the market.

Stock Watch: After rallying 26% to a 52-week high of ₦64.60, UNILEVER has declined 11% over the last three sessions. The stock currently trades at a price of ₦57.80 above Vetiva’s target price of ₦23.60 and has returned 41% ytd.                                                 

Indication of lower T-bills supply spurs buying in F.I market                                                      

In the absence of an OMO auction from the CBN, the Interbank Call rate declined to 9.50% (previous: 13.67%). Expectation of lower supply of T-bills in Q2’18 continued to support buying momentum in the fixed income market yesterday. We recall the CBN released the Q2’18 T-bills Primary Market Auction calendar on Monday showing lower supply of T-bills in Q2’18 (50% of maturing T-bills will not be rolled over). As such, yields in the T-bills space declined 12bps on average. This sentiment was also reflected in the bond market as yields on benchmark bonds moderated 18bps on average. Buying momentum was spread across the curve, though weightiest on the shorter end. The CBN is offering ₦95 billion across the 182DTM and 364DTM bills at today’s PMA. We foresee significant demand at this auction, given expectation of lower supply in the coming months, and as such expect rates on the offered bills to come in lower than previous auction levels.