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The Market Today - 22nd March 2017

Monetary policy path now looks bumpy
In line with market expectations, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) maintained all monetary policy levers at their previous levels. Voting 9 to 1 to hold policy rates, the MPC cited rising month-on-month inflation and elevated foreign exchange (FX) demand as dominant factors in their decision. Going forward, we believe inflation is key for future monetary policy decisions. Base effects have only started kicking in, but m/m inflation must slow for inflation readings to significantly improve. Conventional monetary policy tools have proven largely ineffective at stemming this tide, further shown by the MPC’s unwillingness to further tighten despite inflation lying substantially above the target band. Therefore, interventions will be crucial. Specifically, continued intervention in the FX market to strengthen the naira in the parallel market and boost dollar liquidity, and intervention in the agriculture sector to moderate the rise in food prices. Also, developments on the oil front will be closely watched as this will partly determine the level of CBN’s available ammunition.

Banking stocks spearhead market reversal
The NSE ASI posted a 44bps loss to end its 5-session gaining streak in a trading session which saw key sectors reverse previous day’s gains. Given the sustained negative market breadth and the negative turnaround across key sectors, particularly the banking sector, we believe the NSE ASI could be headed for another bearish session today.

Stock Watch: CADBURY released its FY’16 results yesterday. The company declared a loss of ₦296 million versus consensus estimate of ₦97 million profit. Also, the company did not propose payment of dividends – against analysts’ expectations of ₦0.25/share. The stock dipped 500bps yesterday to close at ₦7.41 – down 28% ytd.

Bond yields continue southwards on strong demand
Ahead of the Monetary Policy Committee decision to keep rates unchanged, the T-bills market traded mixed as profit taking on select short dated maturities countered modest yield moderations on the long end of the space. However, strong demand persisted in the bond market with yield moderations across all maturities. Whilst we expect yields to moderate further in the bond market given the sustained demand, we believe the T-bills space would trade cautiously amidst tomorrow’s Primary Market Auction - where the CBN will offer ₦213 billion worth of bills across the 91DTM, 182DTM and 365DTM bills.