SAT, JUN 20 2020-theG&BJournal- Weak sentiments continued to dominate the domestic equities market, as the All-Share Index plummeted by 1.4% to 24,826.75 points – the second weekly decline in three weeks, as investors dumped DANGCEM (-6.5%), MTNN (-1.6%) and NB (-9.5%) stocks. Consequently, the YTD and MTD losses increased to -1.7% and -7.5%, respectively.
Analysing by sectors, significant losses recorded in the Oil & Gas (-4.9%), Insurance (-3.1%) and Banking (-3.1%) sector weighed on the market performance, as all three indices declined.
The Industrial Goods (+2.2%) and Consumer Goods (+1.8%) indices were the sole gainers.
Risks remain on the horizon due to a combination of the increasing number of COVID-19 cases in Nigeria and weak economic conditions.
Thus, we continue to advise investors to trade cautiously and seek trading opportunities in only fundamentally justified stocks.
Money market and fixed Income
Money market
In line with Corrdros Securities expectation, the overnight (OVN) rate expanded by 684bps, w/w, to 16.7%. Outflows from CRR (NGN216.00 billion), Sukuk bond (NGN162.58 billion) and FGN bond (NGN100.00 billion), OMO auction (NGN80.00 billion) and FX auction debits outweighed inflows from OMO maturities (NGN337.94 billion) and retail FX refunds (NGN337.94 billion).
Next week, we expect the OVN to remain elevated in the absence of significant inflows to boost system liquidity.
Treasury bills
Trading in the Treasury bills secondary market was bullish, as average yield in the space contracted by 47bps to 4.9%. Across the segments, yields contracted at the (1) OMO market by 13bps to 4.9% following improved trading volumes and (2) at the NTB market by 122bps to 2.2%, as market participants covered lost bids at the NTB PMA.
At the PMA, demand continued to outweigh supply, as there was an oversubscription of 6.1x on NGN14.61 billion worth of bills on offer. The auction closed with the CBN rolling over NGN2.00 billion of the 91-day, NGN2.00 billion of the 182-day and NGN10.61 billion of the 364-day – at respective stop rates of 1.80% (previously 2.00%), 2.04% (previously 2.20%), and 3.75% (previously 4.02%).
At the OMO auction, the CBN fully allotted NGN80.00 billion worth of bills – NGN20.00 billion of the 82-day, NGN20.00 billion of the 159-day and NGN60.00 billion of the 341-day – at respective stop rates of 4.95%, 7.79%, and 8.99%.
Demand for Treasury bills is expected to be subdued, owing to the tight system liquidity expected next week.
Bond
Trading in the FGN bond secondary market was bullish, as investors covered lost bids at the PMA. Consequently, the average yield across instruments contracted by 72bps to close at 9.4%. At the auction, instruments worth NGN150.00 billion were offered to investors through re-openings – 12.75% APR 2023 (Bid-to-offer: 3.4x; Stop rate: 8.00%), 12.50% MAR 2035 (Bid-to-offer: 2.5x; Stop rate: 11.0%), and 12.98% MAR 2050 (Bid-to-offer: 4.7x; Stop rate: 12.2%).
Despite subscriptions across instruments settling at NGN545.16 billion, the DMO eventually allotted instruments worth NGN100.0 billion, resulting in a bid-cover ratio of 5.5x.
We expect demand to be influenced by the tight liquidity next week. Nonetheless, we expect yields to pare, as investors’ demand should remain focused on this side of the market, given the relatively attractive yields compared to the treasury bills space.
Foreign exchange
For the third successive week, the CBN recorded another reserve drawdown as FX outflows outpaced inflows. The foreign reserves dipped by USD119.25 million w/w to USD36.33 billion. Nonetheless, the naira depreciated against the US dollar by 0.19% WTD to NGN387.75/USD at the I&E window and by 1.1% to NGN455.00/USD in the parallel market.
In the forwards market, the naira gained ground against the US dollar in the 3-month (+0.03% to NGN391.20/USD) and 6-month (+0.05% to NGN396.70/USD) contracts.
Meanwhile, the naira depreciated against the US dollars in the 1-month (-0.01% to NGN387.41/USD), and 1-year (0.59% to NGN416.53/USD) contracts.
Cordors Research said the widening current account (CA) position suggests that odds are stacked against the naira.
‘’Beyond that, as the economy gradually reopens, the resumption of FX sales to the BDC segment of the market will place an additional layer of pressure on the reserves as the CBN funds the backlog of unmet FX demand.’’-with Cordors Research
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