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The Market Today - 23 May 2018

 IMF warns Nigeria over debt servicing                                                

The International Monetary Fund (IMF) reiterated its concerns about Nigeria’s ability to service its debt, citing the country’s high debt servicing and low revenue-to-GDP ratios as evidence that the revenue base may be insufficient to support the current debt profile. The Debt Management Office (DMO) has moved to diversify the country’s debt towards longer-term foreign borrowing in a bid to reduce borrowing costs and spread out the repayment period, but latent long-term currency risk poses a risk to this strategy. We note that one key variable in the equation is what the borrowed funds are used for; the present focus on building infrastructure and expanding the tax net could improve government revenues in the long-run.                                                                 

Nigerian bourse extends losing streak                                                 

After red closes in most key sectors on the exchange, the NSE ASI lost 43bps on the day – extending its losing streak to four sessions. Sentiment on the market yesterday was largely bearish as evidenced by widely negative market breadth, red closes across key sectors and down trending intraday trading. We expect this to continue amid sustained pressure on large cap stocks.

Stock Watch: DANGFLOUR has lost 8% in the last six sessions. The stock currently trades at a price of N10.55 and has declined 13% ytd.                                                           

Yields decline amidst MPC decision to hold rates                                                           

Interbank call rate rose 50bps to 17.00% yesterday amidst relatively unchanged system liquidity. Trading in the fixed income market turned markedly bullish yesterday as yields moderated across the curve. T-bill yields dipped 6bps on average, with notable declines on the 114DTM (152bps to 12.46%) and 296DTM (119bps to 12.90%) bills. The bond market was likewise bullish with yields on benchmark bonds declining 7bps on average. In line with Vetiva and consensus expectations, the MPC held all monetary policy levers steady at its second meeting this year. Given this, we expect yields to hold steady at the current levels, albeit with marginal upward pressure in the T-bills space as some investors unwind their bets on a rate cut.