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The Market Today - 30 January 2019

U.S. Federal Reserve expected to hold rates at first meeting                                                    

The Federal Open Market Committee of the U.S. Federal Reserve (Fed) will conclude its first meeting in 2019 today, with the U.S. central bank not expected to hike rates at this meeting. This represents a switch up from its earlier hawkish tone in December, with many analysts predicting as many as three rate hikes in H1. Since then however, optimism over global trade has grown dimmer, U.S. home sales fell and consumer confidence has weakened. This, along with the slow release of key data points, due to an extended government shutdown has switched Consensus expectation to a HOLD scenario. The decision to hold rates would be encouraging for developing markets, as higher interest rates in the US and the consequent capital reversals stalled emerging markets’ recovery in 2018. That said, we do not see much relief as we still expect the end of Quantitative easing in Europe and political uncertainty in Nigeria to keep many foreign investors on the sidelines in H1. Overall, economists still predict two more hikes from the U.S. Fed this year.                                                  

Banking sector loses 145bps as tepid trading persists                                                    

The market posted another 53bps loss yesterday, dragged by a heavy decline in the Banking sector. Other sectors also performed poorly as market turnover remained subdued. Market breadth remained negative with 14 advances and 27 declines. We expect another tepid trading session, driven by lingering uncertainty surrounding the upcoming elections, with investors continuing to keenly observe unfolding events. Thus, we expect further losses in the market.                                                               

Stock Watch: STERLNBANK advanced 268bps yesterday, its fourth positive close in the past five sessions, to settle at ₦2.30 (highest price since February 2018). The stock has gained 21% so far this year, outperforming the Banking sector.                 

Bullish sentiment persists across the FI market                                                

At an OMO auction yesterday, the CBN sold c.₦78 billion (₦130 billion offered) across the 86DTM, 198DTM and 282DTM bills at stop rates of 11.90%, 13.50% and 15.00% respectively (effective yields: 12.24%, 14.57% and 16.97%). In spite of the mop up, the Interbank Call rate declined 590bps to settle at 10.17%. The CBN will be conducting both the Bond and T-bills PMAs today, offering ₦150 billion and ₦255 billion at the respective auctions across the usual securities. We foresee stop rates closing in line with previous auctions amidst healthy interest from market participants. That said, we anticipate tepid trading across both markets as investors focus on the auctions.