Key Events this week:
Yields on Nigeria’s domestic fixed income market dropped to their lowest in 7months on Friday, with the
long-end of the yield curve dropping below the 14% mark during trade on a rise in demand for both
government bonds. Yields on the nation’s Eurobonds also dropped today, with the 2049 maturity losing ca -15bps. This comes after the declaration of current President, Muhammadu Buhari as the winner of the just concluded general elections, with investors’ expectation of a possible relaxation in current tight monetary policy stance by the Central Bank (CBN) post elections.
We expect continued demand for the nation’s fixed income risk assets at current levels and in the near term, on investors rising optimism of a continuance in government’s fiscal and monetary policies of the previous 4years, and as Foreign Portfolio Investors (FPIs) source for higher risk-adjusted returns in Emerging (EMs) and Frontier (FMs) markets.
Other Events this week included:
- Yields on U.S. treasury bonds rose to a 4week high this week, after the release of the U.S. Q4 2018 GDP growth rate figure which showed a better-than-expected growth of +2.6% year-on-year (y/y) vs market analysts’ expectation of +2.4% y/y. This comes on the back of continued positive growth in personal consumption of +2.8%, non-residential investment of +6.2% and fixed investment growth of 3.9% in Q4 2018. Despite the quarter-on-quarter softening in economic growth, average yearly GDP growth rose to its highest in 3yrs at 3.1%, boosting investors’ optimism of economic growth in 2019, with the 10yr U.S. bond treasury yield rising to ca +2.713%. We maintain our expectation of a more challenging year for global economic growth, with both U.S. and China expected to grow a slower paces in 2019, on the back of continued uncertainties of U.S./China trade tensions and expectation of lower crude oil demand vs 2018. We also expect this to keep the U.S. Federal Reserve Bank benchmark rate at current levels for a better part of 2019.
- Global financial markets traded on a positive note, with the Chinese SHANGHAI index gaining ca +6.77%, on increased investors’ optimism of U.S./China trade negotiations, after the U.S. President – Donald Trump, extended the earlier 01 March deadline for a deal to be reached between the world’s 2 largest economies. We expect investors’ optimism and sentiments of U.S./China trade tensions to pull investors’ interest in global risk assets into positive territory vs Q4 2018. However, we expect the trade boost from this will not sufficiently pull global growth higher than previously forecasted at 4.5% by the International Monetary Fund (IMF).
Banking system liquidity opened the week positive at ca ₦43.23bn. Inflows of ca ₦32bn from Coupon
payment and ca ₦399bn from maturing Open Market Operations (OMO) treasury bills on Thursday further improved system liquidity with the Central Bank of Nigeria (CBN) conducting an OMO auction on Thursday, where it reduced its stop rate by -70bps and took out ca ₦1.075tn. System liquidity open the last trading day of the week on a positive note of ca ₦76bn.
Significant rise in demand saw a very bullish trading week in the treasury bills market for a 4th consecutive week, particularly after the Debt Management Office (DMO) and Central Bank (CBN) reduced the stop rates at both the Primary Market Auction (PMA) and Open Market Operations (OMO) held this week, and supported by significantly improved banking system liquidity. The Central Bank (CBN) conducted another OMO auction on Thursday, takin out ca ₦1.075tn. Average rates declined ca -51bps week-on-week. Please find below the summary of the PMA and OMO auctions held this week:
|Primary Market Auction (PMA) – 27 February 2019|
|Amount Offered:||₦ 24.372 billion||₦ 38.751 billion||₦ 51.995 billion|
|Subscription:||₦ 40.554 billion||₦ 75.821 billion||₦ 610.978 billion|
|Amount Allotted:||₦ 24.372 billion||₦ 38.751 billion||₦ 51.995 billion|
|Range of bids:||10.4000% – 13.0000%||12.5000% – 14.5000%||14.0000% – 16.0000%|
|Open Market Operations (OMO) – 28 February 2019|
|Amount Offered:||₦ 50.00 billion||₦ 100.00 billion||₦ 250.00 billion|
|Subscription:||₦ 55.51 billion||₦ 92.59 billion||₦ 1,217.10 billion|
|Amount Allotted:||₦ 55.51 billion||₦ 92.59 billion||₦ 927.75 billion|
|Range of bids:||10.8500% – 11.9000%||12.5900% – 13.5000%||13.9000% – 15.0000%|
Open Buy back (OBB) and Overnight (O/N) rates closed at 16.33% and 17.42% from 18.83% and 20.25% levels respectively, the previous week. Average fixed deposit rates amongst banks monitored showed at the end of the week:
– tier-1 rated banks at 3.00% for 30 – 60 days tenor on ₦10mln – ₦100mln.
– tier-2 rated banks at 7.00% for 30 – 60 days tenor on ₦10mln – ₦100mln.
Activities in the bonds market was significantly bullish as well, with demand seen in the across the curve particularly on the February 2028 maturity. Average yield dropped -bps week-on-week, with the February 2028 maturity losing ca -113bps week-on-week.
The equities market declined week-on-week, for a 2nd consecutive week, on continued sell-offs by investors. The Nigerian Stock Exchange All Share Index (NSE ASI) lost -2.12% week-on-week to close at 31,827.24pts, with market’s year-to-date returns at +1.26%. This was largely attributed to price decline in Guaranty Trust Bank Plc (-7.07%), Nestle Nigeria Plc (-4.43%) and Zenith Bank Plc (-6.99%).
The Naira depreciated against the dollar at the interbank market window, at ₦306.85/$1 from ₦306.80/$1. At the parallel market, the Naira remained stable against the U.S. Dollar and Euro at ₦360/$1 and ₦408/€1 respectively, while depreciating against the Pound Sterling at ₦472/₤1 from ₦470/₤1. The Naira appreciated week-on-week at the Nigerian Autonomous Foreign Exchange (NAFEX) window at ₦361.13/$1 from ₦361.44/$1.
|AIICO Money Market Fund (AMMF)|
|Net Yield (As at current date)||13.28% per annum|
|Added Benefit||Personal accident insurance cover|
|AIICO Capital Guaranteed Income Note (GIN) Rates p.a.|
|Amount (NGN)||30 Days||60 Days||90 Days||180 Days||364 Days|
|10,000,001 – 50,000,000||10.00||10.50||11.00||12.00||13.00|
|50,000,001 – 100,000,000||11.00||11.25||11.50||12.50||14.00|
|100,000,001 – 400,000,000||12.00||12.25||12.50||13.00||14.50|
|Trading Treasury Bills Rates p.a.|
|Maturity Dates||Tenor (Days)||Discount Rate||Effective Yield|
|Select Macro-economic Indices|
|Inflation % (December 2018)||11.37 (-0.61% ytd)|
|PMI (January 2019)||57.10|
|MPR (%)||14 (-5%/+2% around mid-point)|
|Brent Crude Price US$ pbbl||66.13 (-1.56% w/w)|
|External Reserve (US$’billion)||42.33 (-1.82% ytd)|
|GDP % (Q4 2018)||+2.38% (Q3 2018: +1.81% y/y)|
|NSE All Share Index (ASI)||31,718.70 (-2.12% w/w; +1.26% ytd)|
|Market Capitalisation (₦’Trillion)||11.83|