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Research

NGX Closes the Week Negative, Despite Recording Positive in Four of the Five Trading Sessions of Last Week.

Negative performance was sustained in the domestic bourse as the bears outweighed the bulls. NGX ASI declined marginally by 0.41%, despite closing positive in four of the five trading sessions during the week. It decreased on the back of profit-taking in large caps such as NB (-9.91%) and MEYER (-9.68%). Consequently, at 51,705.61 points, the equities market’s Year-to-Date return decreased to 21.04% as market capitalisation fell by 0.11% to close at N27.88 trillion.

Market breadth (a measure of investor sentiment) increased in the just concluded week, advancing from 0.25x to 0.29x as 16 stocks appreciated against 56 stocks that declined. NAHCO and CHAMPION topped the market gainers with 10.53% and 10.00% respectively WoW, while CWG and RTBRISCOE were the top losers with declines of  14.89% and 14.29% respectively WoW.

The activity level strengthened as the total trade volume and value advanced by 19.15% and 19.19% WoW. A total turnover of 1.121 billion shares worth N13.703 billion in 22,350 deals was traded this week by investors on the floor of the Exchange. Trading in the top three equities namely FCMB, UBA and OANDO (measured by volume) accounted for 407.770 million shares worth N2.009 billion in 2,181 deals, contributing 36.39% and 14.66% to the total equity turnover volume and value respectively.

Outlook for the week

We expect negative performance to persist on the back of profit-taking activities on stocks that have significantly appreciated.

The Nigerian Fixed Income Market

Last week, there was bullish sentiment in the bond market as three of the five tenor yields under coverage declined, the 1-Year tenor yield closed flat at 3.89% while the yield on the 10-Year bond inched higher by 2bps. The yields on the 3, 5, and 30-Year bonds compressed by 19bps, 5bps, and 14bps respectively.

The Nigerian Treasury Bills Market closed bullish as the 91 and 364-day paper yields declined by 1bp and 1bp to close at 3.47% and 6.09% respectively while the 182-day paper advanced by 49bps to close at 5.68%.

In the Money Market space, the Open Repo (OPR) and Overnight (O/N) rates increased to 14.00% and 14.00% from 10.33% and 10.92% 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

The World Bank’s latest assessment of the Nigerian economy claims the policies of the Federal Government and the Central Bank of Nigeria (CBN) have contributed in making more Nigerians poor. According to the World Bank, Multiple exchange rates, trade restrictions, and distorted lending by the Central Bank of Nigeria (CBN) continue to undermine the business environment. These policies augment long-standing weaknesses in revenue mobilization, foreign investment, human capital development, infrastructure investment, and governance.

The National Bureau of Statistics (NBS) says the country generated N588.59 billion as value-added tax in the first three months of 2022. The figure represented an increase of 4.4% from the N563.72 billion generated in Q4 2021 while on a year-on-year basis, VAT collections in Q1 2022 increased by 18.58%.  Local payments recorded were N344.04 billion in Q1 2022, while foreign VAT payments contributed N117.99 billion, On sectoral contributions, the top three largest shares in Q1 2022 were manufacturing with 32.84%, information and communication with 17.10%, and mining and quarrying with 11.85%.

The federation account allocation committee (FAAC) says it shared N680.783 billion with the federal, state and local governments for May 2022. The figure represents an increase of N44.181 billion (6.7%) compared to April when the three tiers shared N636.602 billion. The federal government received N229.563 billion, states received N241.824 billion and LGAs got N175.942 billion.

Elsewhere, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) inaugurated a project committee on the reactivation of inactive oil wells in the country to boost crude oil production. As of May 2022, Nigeria produced 1.02 mb/d of crude oil compared with an average of 2.5 mb/d in 2020 attributable to a series of shut-ins occasioned by oil theft and technical issues across the nation’s oil wells. Meanwhile, the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) has maintained that petrol price will remain at N165 per litre amidst the present scarcity in some parts of the country.

Global and Emerging Market Economic Updates

The S&P Global reported the headline US PMI Composite output index at 51.2 in June, lower than 53.6 in May. This reflects a reduction in business activities, as service providers saw the weakest increase in five months. On the other hand, the U.S. manufacturing PMI printed at 52.4 in June, which was lower than 57.0 in May and the market expectation of 56, signaling a reduction in economic activities. According to the report, the headline manufacturing PMI was influenced by decline in productions and new sales, due to moderation in consumer spending linked to a high inflation environment.

According to the Office for National Statistics In the U.K, inflation hit 9.1% year-on-year in May as soaring food and energy prices continue to deepen the country’s cost-of-living crisis. Unsurprisingly, price pressures remain significant in the costs of housing & utilities (19.4% y/y vs April: 19.2% y/y), food (8.6% y/y vs April: 6.7% y/y), transportation (13.8% y/y vs April: 13.5% y/y), and furniture & household goods (10.5% y/y vs April: 10.3% y/y). On a month-on-month basis, consumer prices rose by 0.7% (April: 2.5% m/m). In a bid to stem the pace of soaring prices, the Bank of England recently increased UK interest rates from 1% to 1.25%.

Still in the UK, retail sales fell 4.7% Y-o-Y in May, easing from a 5.7% decline in April. However, the latest reading missed the market forecast, for a 4.5% drop. This comes against the backdrop of rising inflation as UK households continue to grapple with the cost-of-living crisis. The fall in retail sales was driven by a 1.6% decline of patronage of food stores.

Last week, custom data released showed that China has overtaken Germany as the biggest single buyer of Russian energy, with oil sales to China and India, another energy-hungry Asian nation, helping to fill a gap left by Europe, Russia’s biggest export market. China and India have together bought an estimated 2.4 million barrels of Russian crude oil a day in May, half of Russia’s total exports.