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The Market Today - 20 March 2019

NASS approves ₦30,000 as minimum wage                                              

Yesterday, the upper chamber of the National Assembly has approved the payment of ₦30,000 as the new minimum wage for workers. This follows the approval by the Ad-hoc Committee on the National Minimum Wage last week and the initial approval by the House of Representatives in January. The bill is currently awaiting presidential assent and is widely expected to be passed into law this year amidst significant pressure from labor and trade unions. If approved, we expect this to stimulate aggregate demand in the economy even as the effects are also felt in inflation levels. We are however concerned about the impact on the country’s wage bill. In 2017, FG spent c.70% of its revenue on personnel costs. This is expected to increase following the approval and implementation. Whilst we foresee a delay in implementation in the private sector, the increase in minimum wage is expected to lead to an increase in cost of production which would in turn cause a cost-push inflation. Meanwhile, implementation in the public sector is expected to be faster, although this might be slowed down by access to revenue to fund this wage increase as several months’ salaries are still owed to state workers.                                       

Consumer Goods stocks drag market performance                                               

Following the heavy decline in Consumer Goods sector, the All-Share Index shed 14 bps, marking its fourth consecutive run of negative trading.  Market breadth remained negative with 16 advances to 18 declines. Given the persistent weak mood in the equities space, we foresee another round of negative trading in today’s session.                                              

Stock Watch: NB declined 667bps yesterday to settle at ₦70.00, its lowest price since July 2010. The stock has lost 18% this year and is trading at a 19% discount from Consensus target price (₦83.59). 

CBN lowers stop rates at OMO auction                                           

The CBN conducted an OMO auction yesterday, selling ₦116 billion (₦100 billion offered) across the 93DTM and 205DTM bills at stop rates of 11.80% and 13.14% respectively (effective rate: 12.17% and 14.19%) – lower than stop rates at the previous OMO auction. Meanwhile, the Interbank Call rate advanced 142bps to settle at 12.00%. The CBN would be offering c.₦49 billion in a Primary Market Auction today, we expect stop rates to come in-line with previous auction levels. We foresee a quiet secondary market amidst the auction as investors focus on the primary market.