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The Market Today - 21st February 2017

Another roll of the FX policy die

In a bid to increase FX availability in the official market, the CBN released a circular yesterday stating that it will be providing direct additional funding to banks for Personal & Business Travel, Medical needs and School fees at a rate not exceeding 20% above the interbank market rate (de-facto devaluation?). In line with the above, the apex bank has directed all banks to open FX retail outlets at major airports as soon as logistics permit. Also, the CBN has decided to reduce the tenor of its forward sales from its current cycle of 180 days to no more than 60 days from the date of transaction. The Apex Bank also withdrew its directive to commercial banks to allocate 60% of total FX purchases to the Manufacturing sector, however, it reiterated that provision of FX to the sector remains a priority. Theoretically, we expect this to reduce the pressure in the parallel market as some FX demand is taken off the market segment. However, the ability of the CBN to consistently and effectively meet demand will be key to the success of the policy on the long run. Whilst we highlight that the recent accretion in FX reserve provides some leeway to defend the currency, the size of the demand backlog remains worrisome. We reiterate that consistent improvement in dollar inflow as well as a more comprehensive FX policy remain paramount to providing a sustainable solution to the persistent FX conundrum.

Strong demand drives T-bill yields lower

• Amidst relatively unchanged system liquidity, Interbank Call rate rose 267bps to 20.50%. Meanwhile, the naira appreciated ₦0.25 against the dollar to close at ₦305.25 at the spot market whilst the one year forward rate remained unchanged at N349.00.
• The T-bills market traded bullish, with yields declining 113bps on average - demand weighted across the mid-long end of the space. However, the case was markedly different for short dated maturities as sell-offs drove yields higher. Notably, yields on 185DTM (-121bps) and 346DTM (-390bps) bills dropped to 17.89% and 17.86% respectively whilst the yields on the 31DTM (+181bps) and 94DTM (+200bps) bills rose to 12.39% and 17.03% respectively. Meanwhile, the persistent bullish sentiment in the bond market following last week’s PMA faded as slight yield advances were observed across the space. Particularly, yields on the 16.39% FGN JAN 2022 and 14.20% FGN MAR 2024 bonds advanced 3bps and 5bps respectively to close at 15.87% and 15.89%.
• We expect further moderation in the T-bills market particularly on longer term maturities given the positive market sentiment. For the bond market, we expect yields to inch higher as the bullish sentiment weakens.

Consumer stocks steer NSE ASI to positive open

The Nigerian Equity Market kicked off the week in the green as gains across select Consumer goods names drove the NSE ASI 34bps higher. On the global front, European markets traded higher as investors continued to digest corporate earnings releases.

The Consumer Goods sector (+216bps) was the best performer at week open, supported by strong gains in PZ (+904bps), NASCON (+455bps) and NB (+418bps). The banking Sector (-20bps) swung into negative territory following losses in ACCESS (-161bps) and UBA (-82bps). The Oil & Gas extended losses as profit taking in FO (-502bps) outweighed modest gains in OANDO (+42bps), whilst the Industrial Goods sector closed flat.

Whilst we highlight the somewhat bearish sentiment in the market (as indicated by the clear negative market breadth and red closes across other key sectors), we believe positive sentiment across select Consumer Goods names could lift the market in the coming session.

Stock Watch: NB announced a 25% y/y drop in PAT for the year ended 2016 and a final dividend of ₦2.58 was proposed by the Board of Directors. Given the better than expected dividend, we could see a rally in the stock in coming sessions.