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The Market Today - 25 July 2017

MPC to hold monetary policy lever at current levels                                      

Today, the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) will conclude its fourth meeting of 2017. We expect the committee to hold all monetary policy levers at their current levels given the need to balance price stability goals with preserving Nigeria’s embryonic economic recovery. Sticky annual inflation (June 2017: 16.1% vs. May 2017: 16.3%) amidst elevated month-on-month inflation (H1’17 CAGR: 1.5%) and expected monetary tightening in the United States present a strong case against any form of easing. However, higher interest rates may severely curtail aggregate demand in the economy. As such, we expect the MPC to maintain the monetary policy rate at 14.0%, the cash reserve ratio at 22.5%, and the liquidity ratio at 30.0%.                                 

Nigerian bourse maintains bullish trend, ASI up 186bps                                           

The Nigerian stock market gained 186bps at week open following strong performances in the Industrial Goods and Banking sectors. We expect the bullish sentiment to persist as more companies rollout their earnings which are widely expected to be good. We also note that market heavyweight DANGCEM remained on bid at the close of yesterday’s session.          

Stock Watch: Following the release of H1’17 result (PAT of ₦4.2 billion vs. ₦12.2 billion loss in H1'16), TRANSCORP gained 805bps yesterday to close at ₦1.61. The stock has returned 85% ytd.              

CBN pauses mop-ups at week open, T-bills stay bullish                                            

Despite no OMO announcement from the CBN and system liquidity of c.N91 billion, the Interbank Call rate advanced 333bps to 17.33% at week open. Extending the positive sentiment from the close of the previous week, the T-bills market traded bullish with yields trending further southwards across the space. However, the bond market continued to trade mixed albeit with a bearish bias. We expect further yield declines in the T-bills market, barring any liquidity mop up by the CBN. However in the bond market, we expect mixed sentiment to persist through the week amidst still muted trading activity.