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The Market Today - 6 September 2017

Services sector remains in recession                                        

Recent data showing the Nigerian economy exited recession are very positive, particularly for consumer confidence and business investment. However, the Services sector, which accounts for over 60% of the economy and is also the most diverse sector, contracted for a fifth straight quarter (-0.6% y/y) to prolong its recession. We highlight that Nigeria’s most recent economic boom was primarily driven by an expansion in this sector of the economy, particularly in areas such as Finance, ICT, and Real Estate. Between 2010 and 2015, Services grew at an annual pace of 5.1%, compared to 4.0% for the wider economy. Moreover, budding industries such as the Creatives and Hospitality contributed significantly to job creation for youths in the country. The sector’s malaise underscores that Nigeria’s economic fundamentals remain brittle, despite the positive real GDP growth in Q2’17, and the efforts of the fiscal and monetary authorities. It is our view that weak aggregate demand could persist for the rest of the year given strained consumer wallets, and as such, we expect the Services sector to contract in 2017 (-0.4% y/y) even as the wider economy ekes out growth of 1.1% for the year.                                       

Bears continue to dominate at week open                                           

Trading resumed on a bearish note on the Nigerian Stock Exchange this week after technical difficulties shortened trading time to only two and a half hours. The NSE ASI dropped 27bps as all major sectors closed in negative territory. With the release of a positive Q2’17 GDP figure unable to shake off the negative trading trend on the Nigerian bourse, we believe the bearish sentiment will continue to dominate the market through this shortened trading week.                              

Stock Watch: GUINNESS released better than expected FY’17 earnings results yesterday with top line up 23% y/y and bottom line turning positive (₦1.9 billion vs. ₦2.0 billion LAT in FY’16). The stock gained 499bps yesterday and currently trades at ₦79.27 (YTD: -5%).                               

Yields trend southwards in FI market at week open                                     

The National Bureau of Statistics released GDP figures showing that Nigeria officially exited recession in Q2’17 (0.5%). The CBN conducted an OMO Auction yesterday, offering ₦60.00 billion across the 93DTM and 177DTM bills. On the currency front, the Naira depreciated ₦0.73 at the I&E FX Window to close at ₦360.39, whilst remaining flat in the parallel market. Bullish trading dominated the T-bills market at week-open as yields declined 26bps on average across the curve. Specifically, yields on the 14.20% FGN MAR 2024 and 16.2499% FGN APR 2037 bonds declined 9bps and 18bps to close at 16.48%, and 16.58% respectively. • With the CBN still unable to significantly mop-up liquidity in the market, we expect yields to trend further southwards in the T-bills market today. Also, we foresee another mildly bullish session in the bond space today.