Global Market Review and Outlook

Central banks around the world launch emergency rate cuts

In the previous week, development around COVID-19 continued to dictate the direction of the market, as major indices under our coverage in Europe, US and BRICS continued to decline. Various economies embarked on expansionary fiscal and monetary policy actions to manage the direct and indirect impact of the outbreak. Notably, in a bid to spur economic activities in the time of crisis, more than 30 countries announced a rate cut during the week. Specifically, the Bank of England cut its key policy rate to an all-time low of 0.1percent, a follow-up on an initial rate cut of 50basis points (bps) in March-2020. Apart from rate cuts, apex banks across the world continued to roll-out liquidity injection programs to spur growth.

On the latest development around COVID- 19, major economies remain under pressure as number of average daily new cases continue to increase especially in US, Italy and Spain. However, a tiny ray of hope emerged during the week as some scientists were reported to have made a headway with drug combinations and have proceeded to start human trials of the vaccine drugs.

In the crude oil market, prices stayed below $ 31/ b throughout the week. Notably, oil prices dipped significantly to a record low of $24/b. However, prices rebounded after the U.S. President made his first comment about the ongoing price war, stating that he would get involved in the global price war at an appropriate time, which oil trader interpreted to be soon. Talking about the oil price war, Russia plans to add an additional 72,000bpd to production in April-june.

This week, we expect to see more policy actions/ p ronouncement s and continued volatility in the global financial market as well as crude oil market.

Domestic Market Review and Outlook YTD loss moves to -17.3percent

In the previous week, the performance of the Nigerian equities market continued to be lacklustre, as the NSE All Share Index dropped by 2.4percent week- on- week (w/w), to 22,198.4 pts. This was expected, given the continued risk-off sentiment in Nigeria’s financial instruments, fuelled by the decline in oil prices and the outbreak of COVID-19. As a result, Year to date loss accumulated to -17.3percent at the end of the week. Also, market capitalization took a haircut worth N278.8billion, closing at N11.6trillion. Elsewhere, activity levels declined last week, as average volumes and value traded dropped by 29.3percent and 25.5percent, to 560.8million and N6.5trillion respectively.

Across the sectors under our coverage, the previous week was mixed, as three out of five sectors closed positive. The Insurance (+2.8percent) sector was on top of the list, as investors bought MANSARD (+ 6.1percent), CORNERST (+ 9.4percent) and AIICO (+6.9percent). The Banking (+0.3percent) sector followed suit, owing to price increases in ACCESS (+8.3percent), ETI (+ 6.5percent) and WEMA (+11.1percent). The last gainer was the Oil & Gas (+0.2percent) sector, pulled up by OANDO (+10.5percent). On the other side of the fence, the Industrial goods (- 4.9percent) sector topped the losers’ chart, due to a huge decline in DANGCEM (- 15.2percent). Finally, the Consumer goods (-3.2percent) sector lost points, dragged by NESTLE (- 7.1percent), INTBREW (-4.4percent) and FLOURMILL (-9.8 percent). In the Telecoms space, MTNN (+10.5percent) gained last week, while AIRTEL remained flat.

Elsewhere, investors’ sentiment improved, with a market breadth of 1.3x, as 32 stocks gained while 24 stocks declined. Also, in terms of corporate actions, Julius Berger Plc released its FY-2019 audited financial results, growing Revenue by 36.9percent to N266.4billion and Profit after Tax by 43.6percent to N7.6billion. A final dividend of N2.75 was also declared, with a proposed bonus share proportion of 1 for 5.

This week, we expect market sentiment to remain volatile, given the circumstances surroundingthemacroeconomy and oil prices. We also expect investors to react to more dividend pronouncements and position in stocks with good fundamentals, given the current depressed prices.

Money Market: A week of unsuccessful OMO auction

Last week, the overall system liquidity levels remained elevated, as naira inflows outweighed outflows. Notably, inflows were in the form of OMO maturities (N344.5billion), NTB maturities ( N47.6billion) and Bond coupon payment (N91billion) while outflows were in the form of NTB (N47.6billion) and weekly wholesale FX sales. Overall, average interbank funding rates (OBB and OVN rates) which started the week at c. 17.8percent level ended the week at 5percent.

At the primary market segment, the CBN floated an unsuccessful OMO auction on Thursday to mop-up some of the OMO inflows. However, the result of the auction printed “No Sale” across all tenors, with subscription level at its lowest for the year (Total Bid to Cover Ratio: 0.1x). This was as foreign investors stood aloof amid worrying macro fundamentals and a possible devaluation of the naira. Meanwhile, despite the negative real interest rate on FGN T-bills, total demand continues to outweigh supply at the primary market (Total Bid to Cover Ratio: 2.7x; Previously 2.8x). Accordingly, the FGN successfully rolled over its maturing bills worth N47.6billion, at a relatively lower rate across tenors: 91-day bill at 2.30percent (previously 2.49percent); 182- day bill at 3.40percent ( previously 3.78percent) and 364-day bill at 4.60percent ( previously 5.30percent).