FREE

The Market Today - 24 July 2018

MPC to hold monetary levers steady                                                     

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria is expected to conclude its mid-year meeting today.  We expect the committee to leave all policy levers unchanged for the eighth consecutive time whilst possibly striking a hawkish tone. We believe one of the major considerations of the MPC would be the rising threat from capital reversals amidst the tighter monetary policy path by the United States Federal Reserve (projecting two more rate hikes in 2018). Also, despite signs of a slowing economic recovery and an impressive moderation in inflation so far this year, the committee is unlikely to tinker with the anchor borrowing rate at this meeting given an expected uptick in inflationary pressures in Q4’18 even as arguments about the efficacy of monetary easing to support private sector credit growth appears quite untenable at this time. Overall, we predict a HOLD verdict at the end of the two-day meeting.                                                    

Market closes positive on improved sentiment                                                 

The market got off to a positive start this week, with the ASI closing 30bps up, driven by bargain hunting on stocks that dipped last week – mostly across the Banking and Industrial Goods sectors. Whilst we cheer the emergence of bargain hunting, we note that trading sentiment is still relatively weak as evidenced by the low volume and value traded. Thus, we expect a tepid trading session today, albeit with a positive tilt.                                                               

Stock Watch: WAPCO released their H1’18 yesterday, with bottom-line coming 120% lower y/y. The cement company currently trades at N32.5, 28% down ytd and 30% below its year-high of N46.6.                                                                                                             

Mixed trading amidst MPC meeting                                                       

In the absence of a liquidity mop-up by the CBN, the interbank call rate declined 557bps to 9.43%. Meanwhile, buying was evident in the T-bills space, with yields declining 8bps on average yesterday, supported by modest system liquidity (N141 billion). Notably, whilst yields on the 17DTM (-51bps to 10.27%) and 122DTM (-56bps to 11.18%) bills declined, yields on the 101DTM (+39bps to 11.71%) and 360DTM (+67bps to 13.08%) bills advanced. In contrast, trading in the bond space was mixed with a negative tilt, with yields on benchmark bonds advancing 3bps on average. Particularly, while yield on the 16.00% FGN JUN 2019 bond advanced 58bps to settle at 13.05%, yield on the 16.39% FGN JAN 2022 bond declined 21bps to settle at 13.53%. Ahead of the MPC decision on policy rates today, we expect trading in the bonds space to remain tepid. Meanwhile, we expect to see continued demand in the T-bills space as system liquidity remains buoyant – barring any OMO auction.