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The Market Today - 19 December 2017

2018 Budget passage target likely to be missed                                                

The Nigerian Senate resumes today but will go on recess before the end of the week until the 9th of January 2018, eroding all chances of the 2018 Federal Budget being passed on the 1st of January, as initially planned. We recall that recent budgets have suffered from delayed passages (2017 passed in June 2017, 2016 passed in May 2016) often due to conflict between the Executive and Legislative arms of the government. These delays have hamstrung the effectiveness of fiscal stimulus, and with Nigeria’s economic recovery relatively tepid so far (Q3’17 GDP growth: 1.4% y/y), speedy passage of the budget is required to provide the necessary fiscal support to the growth agenda. That said, the 2017 Budget will run till June 2018, meaning that fiscal activities should not be materially affected by 2018 Budget delays – though it once again prevents Nigeria from resuming its regular fiscal year of January to December.                                                                  

Bears prevail at week open, ASI down 124bps                                                  

The Nigerian stock market opened the week on a negative note on the back of declines in heavyweight DANGCEM. Looking beyond the DANGCEM dip, market sentiment was relatively mixed – most apparent in slightly positive market breadth. We foresee that choppy trading pattern persisting in today’s session.

Stock Watch: FLOURMILL has lost 14% over the last six sessions. The stock currently trades at ₦30.00, below Vetiva’s target price of ₦40.82 and has returned 62.25% Ytd.                                                                       

Bears return with OMO mop-ups to open the week                                                       

After 13 straight sessions with no liquidity mop-ups, the CBN opened the week with an OMO auction, offering ₦450 billion and selling ₦353 billion across the 101DTM and 255DTM bills at stop rates of 13.15% and 14.95% respectively (effective yields: 13.65% and 16.69%). Bears resurfaced in the fixed income market at week open amidst the apex bank’s sizable liquidity mop-up. Supply was more evident across the T-bills space as yields advanced 55bps on average. Likewise, in the bond space benchmark bonds advanced 11bps on average. With the CBN performing a balancing act between keeping a cap on system liquidity and gradually moderating fixed income rates, we foresee a more sporadic pattern in the apex bank’s OMO auctions. That said, we expect a tepid trading pattern in today’s session if the mop-ups persist.