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The Market Today - 23 May, 2017

MPC: Hold decision even as macro conditions improve

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) convened for its 3rd meeting of 2017 yesterday (decision to be made today) as it seeks to steer Nigeria out of a stagflation environment. Whilst the MPC refrained from altering any policy lever at the previous meetings this year – retaining the monetary policy rate (MPR) at 14% on both occasions – its dovish outlook in January made way for greater caution in March. One member voted to raise rates largely on the back of unexpectedly sticky consumer prices with April Inflation printing at 17.2%. Though we estimate another negative GDP growth figure for Q1’17 (-0.7% y/y), we expect a rebound in Q2’17 (2.2% y/y) as base effects kick in amidst an improving underlying environment. Generally, the economy looks to be on the uptrend (April Manufacturing PMI: 51.1), and fiscal policy looks set to kick off with the 2017 Budget approved by the Senate and now awaiting Presidential approval. Whilst we appreciate the argument for moving towards a handshake between fiscal and monetary policy, we highlight that price stability is the dominant factor in monetary policy so sticky inflation must be seriously considered. We expect the MPC to maintain its stance until a notable change in inflation behaviour.

Consumer Goods sector lags at week open, ASI down 12bps

Following four straight sessions of gains, the Nigerian equity market lost steam at week open (ASI down 12bps) largely weighed by declines in Consumer Goods stocks. Whilst we expect profit takers to remain on the scene in today’s session, we expect a more bullish trading bias on the exchange given that overall market sentiment remains positive.

Stock Watch: Since the release of TRANCORP’s Q1’17 result – PAT up 24% y/y, the stock has rallied 32% and currently trades at a 2017-high of ₦1.23. The conglomerate is currently on a five-session gaining streak and has returned 41% ytd.

Yields decline ahead of MPC decision

Nigeria’s fixed income market began the week on a stronger note ahead of today’s Monetary Policy Committee decision. Yields declined slightly in the T-bills market amidst some buying interest on short-dated maturities. Similarly, the bond market traded relatively bullish on a quiet trading day as yields moderated at the long end of the curve. We anticipate cautious trading in today’s session ahead of the MPC announcement at market close. We expect the MPC to retain all monetary policy tools and do not foresee significant market reaction to the decision