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The Market Today - 19 September 2018

Risk of flooding in Middle Belt raises inflation concerns                                               

Nigeria’s food supply could be at risk due to flooding in the nation’s food basket. The National Emergency Management Agency (NEMA) declared a national emergency in four states as water levels rise in the Niger and Benue rivers. The four states are Benue, Anambra, Kogi and Delta, some of which are key producers of Nigeria’s food, and any disruption in the region would affect domestic food supply. This could increase food inflation, which remained high in August as the effects of disruption from conflicts in the middle belt raised food inflation from 12.8% y/y in July to 13.2% y/y in August.

Equity market rebounds as Banking stocks surge                                                             

The Nigerian bourse recovered from the negative start to the week to close 56bps higher. While all key sectors closed in the green, trading was supported by strong buying interest in the Banking sector. Despite the modest improvement in trading patterns, investor sentiment on the exchange remains tepid and as such we foresee a mixed trading session at mid-week.                                                    

Stock Watch: After posting heavy losses last week, FBNH has rebounded from a year-low of ₦8.00 (reached last Friday), gaining 671bps in yesterday’s session to settle at ₦8.75. The stock is currently trading at a ytd loss of 0.57% and is one of the best performing banking stocks.                                                             

Bond offer circular release to spur market activity                                                          

With the Central Bank once again refraining from mopping up liquidity, Interbank call rate declined 233bps to settle at 9.50% and liquidity hovered at ₦253 billion. Amid strong investor interest in T-bills, yields yields moderated 31bps on average. Specifically, yields on the 30DTM and 149DTM bills declined 102bps and 156bps to settle at 11.19% and 12.76% respectively. The bond market was traded more mixed with yields advancing slightly. Notably, whilst yields on the 14.50% FGN JUL 2021 and 14.20% FGN MAR 2024 bonds advanced 14bps and 13bps to close at 15.30% and 15.18% respectively, yield on the 16.00% FGN JUN 2019 bond declined 14bps to settle at 14.68%. The Debt Management Office released the September Bond Offer Circular, showing an offer of ₦90 billion, in line with market expectation and August offer (eventual sale: ₦40 billion). Given this, we expect improved certainty in the market to spur more buying as liquidity remains relatively healthy.