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The Market Today - 4th April 2017

Improved FX market liquidity offers hope

Albeit higher than February readings, March Manufacturing and Non-Manufacturing Purchasing Managers’ Indices (PMI) fell short of the 50-threshold, indicating another m/m deterioration in the business environment. Manufacturing PMI clocked in at 47.7 (February: 44.6) and Non-Manufacturing registered 47.1 (February: 44.5) in March reinforcing the view that Q1’17 GDP growth will come in negative y/y (Vetiva estimate: -0.7%). March PMI readings show no visible impact of the consistent FX sale (roughly $2.5 billion) by the CBN beginning February 21, as the headline indices continue to contract. Moreover, non-manufacturing imports (34.5) are yet to improve whilst prices continue to rise despite a falling parallel market exchange rate. Nevertheless, we anticipate some lag from this policy action and point out that the liquidity boost is good for the FX market and its impact on the economy should be more visible in the coming months. The economic parameters for Q2’17 are looking decent – oil prices and production remain favorable and FX liquidity is improving. With the Forcados terminal also expected to come online fully in this quarter, we can expect a mild improvement in the business climate. A note of caution – rigid m/m inflation and continued delays to passing the 2017 Budget could dampen business sentiment.

Bellwether stocks derail NSE ASI, down 95bps

Despite pocket of gains across board, the Nigerian equity market opened Q2’17 on the back foot, with the NSE ASI shedding 95bps - pressured by weighty losses in select bellwether stocks. That said, we expect a rebound in today’s session as sell pressure across the bellwether stocks soften even as market breath remained markedly positive.

Stock Watch: Following a 107bps positive close yesterday, ZENITHBANK stretched its gaining streak to six in a row after dropping to a year low of ₦13.30. The stock currently trades at ₦14.20 versus a year high of ₦16.00.

Late yesterday, OANDO released its FY’16 earnings. Topline and Profit from Continued Operations came in better than our estimate, supported by a healthy tax credit. In fact, profit for the year (₦3.5 billion) came in positive buoyed by Profit from Discontinued Operations. OANDO trades at ₦4.94 and has returned 5% ytd.

Bullish sentiment emerges at week open

The fixed income market opened the week on a bullish note with yield moderations observed across several maturities. We foresee further positive trading in the fixed income space given yesterday's bullish market sentiment. Nevertheless, we note that the impact of expected CBN Secondary Market Intervention Sales on system liquidity could cap demand.