The Market Today - 4 May 2018
CBN signs $2.5 billion currency swap with China
The Central Bank of Nigeria (CN) completed an estimated $2.5 billion (Naira: Renminbi) currency swap agreement with the Peoples Bank of China (PBoC) at the end of April. The agreement, first discussed in 2015, comes on the back of efforts to ease trading activities and capital flows between the two countries. As part of the exchange, the CBN transfers naira to the PBoC (in exchange for Renminbi) which would provide Chinese businesses with the necessary naira liquidity to facilitate direct Renminbi to Naira transactions without the use of a 3rd currency. The same benefits would be available to Nigerian businesses in need of the Chinese currency. Considering the strong economic ties between the two countries – China is Nigeria’s largest import market – we see the swap as a ploy to improve foreign currency liquidity to facilitate trade and capital flows, and also highlight the benefit of reduced 3rd currency volatility risk.
Blue chips pull NSE under
After a series of mixed trading sessions, the Nigerian bourse succumbed to a 48bps loss yesterday, with only one key sector closing in the green. The bourse never recovered from its early dip and traded relatively bearish through the day. With red closes across key sectors and on blue chip stocks, we anticipate a tepid start to today’s trading day.
Stock Watch: Following the announcement of plans to divest all of its subsidiaries, FO shed 487bps in yesterday’s session. The stock has declined 10% over the last five sessions and currently trades at a price of ₦43.00 (down 1% ytd).
Stop rates rise mildly at OMO auction
Amid a ₦187 billion OMO maturity, the CBN resumed with its OMO auctions yesterday, selling ₦600 billion (offer: ₦500 billion) across the 105DTM and 245DTM bills at stop rates of 11.00% and 12.10% (effective yields: 11.36% and 13.17%) respectively – compared to previous stop rates of 10.95% and 12.05%. Trading in the T-bills space was largely mixed in yesterday’s session as yields remained flat on average. However, yields on benchmark bonds rose 6bps on average amid selling across most tenors. Despite yesterday’s large liquidity mop up, system liquidity remains healthy and we expect this to support some buying. However, we expect traders to take a cue from the higher stop rates at the OMO auction and also expect yields to remain sticky even amid buying.
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