FREE

The Market Today - 25 July 2018

Yuan fluctuations a red flag for Emerging markets                                                          

The standoff between the U.S. and China continues to threaten emerging markets as well as global growth. There are concerns that China is embracing “purposeful devaluation” as a policy tool even as the Yuan slips and the Dollar strengthens amid the trade tensions. Despite accusations of currency manipulations by President Donald Trump, the Chinese government continues to deny the allegations stating that the country has no desire to boost its exports through competitive devaluation. Whilst the devaluation of the Yuan might be positive for the recently concluded $2.5 billion currency swap deal between China and Nigeria, it would most likely encourage more imports into the country as Chinese goods begin to appear cheaper – leading to further deterioration in the country’s trade as local industries lose competitiveness.                                                              

Bears return as Industrials weighs on market                                                    

The market returned to the red (ASI: -70bps) as traders sold off on blue chips across key sectors, particularly the Industial Goods’ DANGCEM and WAPCO. With unimpressive earning from select stocks further exacerbating the weak market sentiment, we foresee another negative close in today’s session even as more corporate results are released.                                                            

Stock Watch: WEMABANK has gained 19% in the last five sessions to settle at N0.75. The bank is an outperformer across the banking sector with ytd returns of +44% vs. 14.80% average for lower Tier peers.                                                       

Positive sentiment dominates despite liquidity mop-up                                                             

"The CBN conducted an OMO auction yesterday offering N350 billion and selling N236 billion on the 86DTM and 205DTM bills at respective stop rates of 11.05% and 12.15% (effective yields: 11.35% and 13.04%). Despite this, the interbank call rate declined to 7.17% (previous: 9.43%). Demand was pronounced in the T-bills space ahead of the conclusion of the MPC’s two-day meeting, with yields moderating 18bps on average yesterday. Specifically, yields on the 51DTM (-95bps to 11.02%), 100DTM (-74bps to 10.97%) and 240DTM (-70bps to 12.93%) bills declined. Similarly, sentiment in the bond space was largely positive with buying weighted towards the shorter dates tenors. Yields on benchmark bonds dropped 8bps on average. Notably, yields on the 16.00% FGN JUN 2019, 15.54% FGN FEB 2020 and 12.40% FGN MAR 2036 bonds declined 39bps, 65bps and 6bps to settle at 12.66%, 12.96% and 14.17% respectively. System liquidity remains healthy (N573 billion) despite the OMO auction on the back of FAAC inflows and as such we expect continued buying in the T-bills space today. Whilst the MPC’s decision to keep all monetary policy levers unchanged was in line with market expectation, we foresee cautious trading in the Bonds space ahead of the Bonds PMA today where the DMO will be offering N90 billion on the 5-yr, 7-yr and 10-yr bonds.