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Nigerian Stock Exchange

Bears exude dominance over the Bulls as the NGX ASI declined by 0.33%, to close the week negative.

The Nigerian Equities Market 
The Bears dominated the Bulls for majority of the week as the NGX ASI declined by 0.33%, closing negative in 4 of the 5 trading sessions during the week. It decreased on the back of profit taking activities in large caps such as MRS (-9.96%) and SEPLAT (-6.06%). Consequently, at 47,282.67 points, the equities market’s Year-to-Date return decreased to 10.69% as market capitalisation fell by 0.35% to close at N25.48 trillion.
Market breadth (a measure of investor sentiment) decreased in the previous week, falling from 1.09x to 0.47x as 45 stocks declined against 21 stocks that appreciated. PZ and UACN topped the market gainers with 17.01% and 14.55% WoW respectively, while CORNERST and SCOA were the top losers with declines of  21.62% and 15.90% respectively WoW.
The activity level was weakened as the total trade volume and value decreased by 12.50% and 13.45% WoW respectively. A total turnover of 2.449 billion shares worth N20.653 billion in 20,764 deals were traded during the week by investors on the floor of the Exchange. Trading in the top three equities namely FCMB Group Plc, ETranzact International Plc, and Fidelity Bank Plc (measured by volume) accounted for 1.472 billion shares worth N5.064 billion in 1,006 deals, contributing 60.12% and 24.52% to the total equity turnover volume and value respectively.

Outlook for the Week
We expect positive performance to return in the coming week as the equities market still presents decent opportunities for investors chasing positive real returns on investments.

The Nigerian Fixed Income
Last week, there was mixed sentiment in the bond market as two of the five tenor yields under coverage closed lower, the 1-Year tenor yield closed flat at 3.89% while the yields on the 5 and 10-Years tenor bond increased by 5bps and 34bps respectively. The yields on the 3 and 30-Year bonds compressed by 6bps and 10bps respectively.

There was a relatively bullish sentiment in the Nigerian Treasury Bills Market as the 91 and 182-day paper yields compressed by 139bps  and 47bps to close at 1.88%  and 3.07% respectively WoW while the 364-day paper yield increased by 3bps to close at 4.02% WoW.

In the Money Market space, the Open Repo (OPR) and Overnight (O/N) rates increased to 9.00% and 9.67% from 4.50% and 5.00% respectively WoW.

Outlook for the week
We expect market activity in the fixed income market to be influenced by liquidity levels and foreign investor participation.

Local Economic Updates
Last week, the NBS released the Inflation rate report for Feb’22. Based on the report, the rate inched up to 15.70% from January’s 15.60%. The increase was majorly driven by Core Inflation which rose by 14bps to 14.01% y/y while food inflation increment slowed down by 2bps to print at 17.11% y/y.

Despite the support provided by the high base effect, the headline inflation inched up, reversing the previous month’s moderation on the back of the increasing oil prices, coupled with the lingering fuel scarcity in the review period. Also, as the Russia-Ukraine crisis intensified, petroleum products (oil and diesel) skyrocketed, impacting transportation costs. While the base effect helped in the yearly food inflation (as it slightly moderated), the monthly food inflation on the other hand inched upward on the energy-driven increase in the freight cost of food products.

For March 2022, we expect the prolonged fuel scarcity and geopolitical tension in Eastern Europe (resulting in increases in commodities and energy prices) to outweigh the last high base effect for the year. In addition, the supply disruptions arising from the Russia-Ukraine crisis could lead to a shortage in essential commodities items, given their significant positions in the world supply.

Also, according to the recently released trade report by the National Bureau of Statistics (NBS), total exports increased by 80.5% y/y in Q4-21 to NGN5.77 trillion (Q3-21: +71.6% y/y) given the growth across all the components of the country’s exports. Notably, crude oil exports (74.0% of total exports) grew by 69.3% y/y in line with the rally in crude oil prices (average of USD79.55/bbl. in Q4-21. vs Q4-20: USD44.29/bbl.).
Meanwhile, total imports grew by 69.4% y/y to NGN5.94 trillion in Q4-21 (Q3-21: +67.6% y/y) amidst the (1) recovery in domestic demand and (2) elevated global price level. Accordingly, the trade deficit settled at NGN173.96 billion in Q4-21 (Q3-21: NGN199.31 billion). Given the revised figures for 2020FY and 9M-21, we highlight that the trade deficit settled at NGN1.94 trillion in 2021FY (2020FY: NGN178.26 billion trade deficit).

Global and Emerging Market Economic Updates
Last week, in line with our expectations, the Federal Open Market Committee (FOMC) voted to increase the target range for the federal funds rate to 0.25% – 0.50% (previously: 0.00% – 0.25%) whilst guiding that further increase in the target range will be appropriate.
In addition, we highlight that the Committee expects to begin reducing its holdings of treasury and mortgage-backed backed securities at a coming meeting.

In arriving at its decision, the Committee judged that while indicators of economic activity and employment have continued to strengthen, inflation remains elevated, reflecting (1) supply and demand imbalances related to the pandemic, (2) higher energy prices, and (3) broader price pressures. Besides, the Russia- Ukraine conflict has aggravated the uncertainties regarding the United States inflation path.

The Monetary Policy Committee (MPC) of the Bank of England (BOE) voted by a majority of 8–1 to increase the key policy rate by 25bps to 0.75%, representing the third consecutive increase and returning the benchmark rate to the pre-pandemic level.

According to the Committee, an increase was warranted at the meeting given the (1) tight labour market conditions, (2) unrelenting domestic price pressures, and (3) increased risks that the inflationary pressures will persist. That said, the Committee judged that some further modest tightening in monetary policy might be appropriate in the coming months, depending on the evolution of the inflation’s medium-term prospects.
In the oil market, Brent Crude price still closed above $100/barrel amid the second week of consecutive decline. After a volatile trading week, Brent Crude printed lower by 4.21% to $107.93/barrel.