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The Market Today - 22 September 2017

Hold decision expected from Monetary Policy Committee                                       

Ahead of the bi-monthly Monetary Policy Committee (MPC) meeting set to hold on Monday and Tuesday, we expect the committee to maintain its current monetary policy stance by holding rates at current levels. We note that at its July meeting, the MPC maintained the Monetary Policy Rate (MPR) at 14%, with the asymmetric corridor at +200 and -700 basis points and retained the Cash Reserve Requirement (CRR) and Liquidity Ratio (LR) at 22.50% and 30% respectively. Maintaining the monetary policy status quo remains the most viable option for the committee in light of sticky inflation (July: 16.0%, June: 16.1%) and a strengthening dollar as the U.S. Federal Reserve tightens monetary policy. Whilst Nigeria’s economic recovery has so far been modest (Q2’17 GDP: 0.55% y/y, Q1’17 GDP: -0.91%) and the Central Bank of Nigeria has shown an easing tilt in recent times (with rates down-trending in the fixed income market), we do not anticipate a change to the key monetary policy levers at their upcoming meeting.                                   

NSE ASI dips marginally as mixed trading persists                                        

With sentiment still largely varied on the exchange, the NSE All-Share Index (-5bps) lost marginally yesterday. Notable however, was the surge in value traded (N8.7 billion) following increased activity in GUARANTY. Despite the mildly negative close, we believe today’s trading session was overlaid with a more bullish bias – indicated by the positive market breadth and renewed interest in select stocks. That said, we expect the market to close the week on a mixed note, albeit posting a positive w/w return.                                         

Stock Watch: Despite starting off the month on a bearish note, sentiment has picked up around GUARANTY recently with the stock gaining 5% in the last four sessions. The banking large cap currently trades at ₦38.95 and has returned 58% Ytd.                             

Bullish sentiment dominates the Fixed Income Market                                            

Amidst OMO maturity of ₦141 billion, the CBN conducted an OMO auction yesterday, offering ₦150.00 billion and selling ₦207.68 billion across the 98DTM and 196DTM bills at stop rates of 16.00% and 17.95% (effective yield: 16.72% and 19.86%). Following lower stop rates at Wednesday’s Primary Market Auction and amidst the OMO maturity, sentiment in the T-bills market remained largely bullish as yields declined 25bps on average. Also, the bond market sustained bullish sentiment with yields trending southwards across the curve – yields on benchmark bonds down 14bps on average. Though sentiment is expected to remain bullish in the fixed income market at week close, we believe further liquidity tightening by the CBN will cap buying momentum in the market.