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The Market Today - 15th March 2017

2017 Inflation expectations get murkier

Nigeria’s February 2017 headline inflation came in higher than expected at 17.8% year-on-year (Vetiva & Bloomberg Consensus: 17.2%). Though inevitable base effects moderated the print from 18.7% in January, an upswing in month-on-month inflation – going from 1.0% in January to 1.5% in February – limited the impact of the high base. The rise in m/m inflation shows that inflationary pressures remain in the economy, and they may even have intensified. Moreover, whilst food prices are the primary culprit, the increased volatility of petroleum product prices at the start of 2017 are a point of concern. The improvement in foreign exchange market liquidity should assuage pricing pressures here by ensuring more stable product supply but pricing pressure remains tilted upwards. Whilst we anticipate base effects will continue to drag down headline inflation numbers, the surprising rise in m/m inflation should provide pause for the Monetary Policy Committee of the CBN when they meet next week. Our March Inflation forecast has been revised to 16.6% (previous: 16.0%), bringing 2017 average Inflation forecast to 14.6% (previous: 13.8%).

ASI logs green close as key sectors rally

Although market closed higher yesterday, we highlight a bulk of the session’s advances came from the Financial Services and Oil & Gas sectors; investor appeal in other key sectors remain somewhat weak. As such, we believe trading on the Exchange would remain relatively mixed today, biased towards a positive close.

Stock Watch: WAPCO extended its year-to-date loss to 16% after declining 476bps to close at ₦34.50 – lowest in over 5 years. The cement giant, which is yet to release FY’16 earnings, currently trades at a sizeable discount to Analysts’ Consensus target price of ₦61.07.

Yields inch lower ahead of Primary Market Auctions.

Amidst the release of February Inflation which came in at 17.78% (January: 18.72%), slightly bullish trading prevailed in the fixed income space. We expect cautious trading at mid-week ahead of the Primary Market Auction. At the bond auction, the DMO will offer a sum of ₦130billion (February: ₦160 billion) across the 5, 10 and 20-year bonds whilst the CBN will offer a sum of ₦213 billion across the 91, 182 and 364-day bills. Notably, a new 10-year bond will be issued.