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The Market Today - 18 October 2018

Senate approves $2.8 billion Eurobond, issues debt warning                                                     

The Senate has approved the Federal Government’s planned $2.8 billion Eurobond issue according to news reports. However, legislators have advised the government to limit foreign borrowing and rather focus on boosting revenues to finance expenditure. According to the head of the Debt Management Office, the sale of the Eurobond is expected within the year and would represent the first foreign borrowing effort to fund the 2018 budget. We recall that President Buhari signed the country’s biggest budget ever (₦9.1 trillion) in June 2018 with an increase in infrastructure spending and Nigeria’s economy is expected to grow by 1.9% this year. The government has also appointed advisers to manage the transaction.                                                        

ASI reverses gains as Q3 earnings season kicks off                                                          

The market returned to negative territory yesterday, shedding 87bps on the back of losses across all key sectors. Market activity remained above average (₦3.7 billion) with majority of the activity focused on the banking sector. Market breadth remained negative with 11 advances and 23 declines. Market activity remained negative throughout the day with activity on DANGCEM intensifying the negative movement. We expect market activity to maintain the bearish course in today’s session.                                                           

Stock Watch: GUARANTY released its 9M’18 results yesterday, showing a 9% rise in gross earnings to ₦337 billion and a 13% increase in Profit After Tax (PAT) to ₦142 billion. The stock gained 95bps to settle at ₦37.00 against the run of sell-offs in the Banking sector.                                                  

Higher PMA rates drive bearish trading                                                               

The CBN conducted a Primary Market Auction yesterday, selling ₦142 billion (₦142 billion offered) across the 91DTM, 182DTM and 364DTM bills at stop rates of 10.96%, 12.69% and 13.45% respectively (effective yields: 11.27%, 13.55%, 15.44% respectively). The stop rates came in higher than both the previous auction rates and current secondary market rates. System liquidity stood at ₦180 billion and the interbank call rate declined 147bps to 24.14%.  Notably, yields on the 14.20% FGN MAR 2024 and 12.40% FGN MAR 2036 bonds declined 6bps and 7bps to settle at 15.10% and 15.24% respectively. We expect more negative trading in today’s session as yields in the secondary market converge towards auction levels.