Nigerian Financial Markets Weekly

Nigerian Markets

Key Events this week:

Yields on the U.S. 10yr Treasury bonds declined this week, dropping to +2.632% from +2.691% last week on continued demand for safe-haven investments and on increased investors’ uncertainties of the monetary policy normalization drive of the U.S. Federal Reserve Bank (Fed). This came as the former Chairperson of the Fed – Janet Yellen indicated the possibility of the Fed cutting its benchmark interest rate if the U.S. economy was negatively impacted by the expected slowdown in global economic growth in 2019, and as released economic data from both China and the Eurozone so far pointing to continued economic slowdown in both regions in Q1 2019.

We expect investors’ uncertainties of global financial markets to remain strong in the near term, as markets await the release of U.S. Q4 2018 GDP figures. We also expect this to further drive demand for safe-haven risk assets of developed economies and increase volatility in risk asset prices for the reminder of Q1 2019.

Other Events this week included:

• Yields in the domestic debt market declined sharply this week, with maturities at the long-end of the curve dropping ca 35bps – 50bps week on week, to ca 14.40% levels on the April 2037 maturity. This was attributed to a rise in demand from both local and foreign Portfolio investors (FPIs) for government bond securities, as inflows from FPIs through the Investors and Exporters FX (I & E FX) window rose to ca $1.3 billion in January 2019 vs $0.459 billion in December 2018. We expect a rise in volatility of fixed income yields as we head into the week of general elections, and with the Central Bank (CBN) maintaining its tight liquidity stance through the conduct of Open Market Operations (OMO) auctions to reduce banking system liquidity.

• Global equities markets also tuned sharply volatile this week, on increased investors’ fears of a return of U.S./China trade tensions, after an optimistic opening on U.S. federal Reserves’ dovish inclination the previous week. This came as a CNBC report indicated the unlikely possibility of a deal been reached before the 31 March deadline, in current on-going trade negotiations between the world’s 2 largest economies. Major benchmark indices which had gained ca +4% by Wednesday, declined ca -1.5% on Friday. We expect further rise in investors’ uncertainties of
  global financial in Q1 2019 on the back of growing expectation of a slowdown in global economic growth, fears of economic slowdown in both the world’s 2 largest economies – U.S. and China, possible return and escalation of trade tensions and lower crude oil demand vs 2018.

Nigerian Financial Markets Weekly Update – 08 February 2019 (1)

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