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The Market Today - 3 May 2018

U.S. Fed leaves interest rates unchanged at May meeting                                                          

The United States (U.S.) Federal Reserve (Fed) left interest rates unchanged at their May meeting (concluded yesterday). The Fed acknowledged the recent rise in inflation (up to 1.9% in March), but chose to monitor how sustainable it would be before moving to hike rates at its June meeting. The U.S. Federal Reserve has hiked rates four times since the beginning of 2017 – most recently in March 2018 – and forecasts two further rate hikes in the year. We note that monetary tightening in the U.S. is likely to entice capital flows from emerging markets such as Nigeria, especially if the Central Bank of Nigeria opts for monetary easing at some point in 2018. The narrowing interest rate spreads between Nigeria and the U.S. may put some pressure on the exchange rate, though stable dollar earnings (via healthy oil sales) should support dollar supply in the country.                                                            

Flat close despite Negative sentiment                                                 

The Nigerian Stock Exchange extended gains into yesterday (ASI up 9bps) following a mixed session in which only one sector closed in the red. Following the break in the trading week, sentiment on the market remained mixed albeit with a positive tilt, we expect this sentiment to persist in today’s session.

Stock Watch: NESTLE released its Q1’18 result on Monday, reporting top and bottom line of ₦67 billion (+10% y/y) and ₦9 billion (+3% y/y). The stock shed 181bps in yesterday’s session and has returned 1% ytd, currently trading at ₦1,570.00.                                                          

Gains sustained after gap in trading week                                                          

The CBN conducted a Primary Market Auction yesterday, offering and selling ₦95 billion across the 91DTM, 182DTM and 364DTM bills at stop rates of 10.00%, 10.95% and 11.15% (effective yields: 10.26%, 11.58% and 12.54%) respectively, all lower than rates at the last PMA. With Investors anticipating lower rates at the PMA, bulls dominated the T-bills space as yields declined 9bps on average. Sentiment in the bond space was largely tepid even as yields on benchmark bonds declined 4bps on average. Whilst yields on the short end of the space advanced, notable buying was weighted across mid to long dated securities. Whilst we expect the CBN to resume with its liquidity mop-ups today – amidst an OMO maturity of ₦187 billion, we foresee rates continuing to decline in the T-bills space particularly on the long end of the curve as rates adjust to PMA levels.