The Market Today - 19 October 2018

Government plans 5% budget slash amid public debt fears                                            

Nigeria’s debt position has become a rising source of concern for stakeholders in more recent time given the rapid rise in debt levels – total debt rose from ₦12.6 trillion in 2015 to ₦22.4 trillion as of June 30 this year – as well as worrying debt servicing figures – c.62% of revenue in 2017. In light of this, the Minister of Budget and National Planning Udoma Udo Udoma, has announced that Nigeria’s 2019 Budget is expected to be 5.15% lower than this year, coming in at ₦8.65 trillion (2018: ₦9.12 trillion). Whilst the stronger than expected rise in oil prices have supported government revenue so far this year – the at ₦2.48 trillion in the first 9 months of the year (FY’17: ₦2.6 trillion) – the country still faces medium-term fiscal challenges, with respect to sluggish growth in non-oil revenue generation and bloated recurrent expenditure that could rise even further if a minimum wage increase is implemented.  

Market rebounds as see-saw week continues                                            

"The NSE ASI reversed course yesterday thanks to the Industrial Goods sector -  the only key sector to gain on the day - driving the bourse 70bps higher. Market turnover remained above average (₦3.8 billion) for the third straight day as Banks remained the toast of investors.  Market breadth remained negative with 13 advances and 22 declines. Market activity has fluctuated during the week with sentiment persisting mixed with no clear direction to trading. Therefore, we expect the market to close out the week mixed with a negative bias.                                         

Stock Watch: ZENITHBANK released its 9M’18 results yesterday, despite showing an 11% decline in gross earnings to ₦475 billion, the company recorded a 12% rise in Profit After Tax to ₦144 billion. The stock gained 45bps to settle at ₦22.55 but has lost 12%YTD.                                                                      

Improved system liquidity to boost demand                                             

Amidst a ₦347 billion OMO maturity, the CBN conducted an OMO auction yesterday, selling ₦275 billion (₦350 billion offered) across the 105DTM, 182DTM and 329DTM bills at stop rates of 11.25%, 12.75% and 14.00% respectively (effective yields: 11.63%, 13.62%, 16.02% respectively) – higher than both the previous auction rates and current secondary market rates. System liquidity stood at c.₦570 billion and the interbank call rate declined 936bps to 13.33%. Whilst we still see room for yields in the secondary market to adjust to yesterday’s OMO levels, we expect the improved liquidity to spur some demand in the FI market. Thus, we anticipate a mixed trading session.