The local bourse closed in red last week, the NGX ASI declined by 0.59%, closing negative in 4 of the 5 trading sessions during the week. It fell on the back of selling pressures in large caps such as FLOURMILL (-10.48%) and CADBURY (-11.04%). Consequently, at 49,370.62 points, the equities market’s Year-to-Date return decreased to 15.58% as market capitalization fell by 0.59% to close at N26.63 trillion.
Market breadth (a measure of investor sentiment) weakened in the just concluded week, falling from 1.27x to 0.51x as 21 stocks appreciated against 41 stocks that declined. PRESTIGE and NEIMETH topped the market gainers with 18.18% and 9.29% WoW respectively, while JAPAULGOLD and COURTVILLE were the top losers with declines of 23.68% and 21.43% respectively WoW.
The activity level weakened as the total trade volume and value decreased by 12.91% and 59.65% WoW respectively. A total turnover of 823.00 million shares worth N12.228 billion in 17,482 deals were traded during the week by investors on the floor of the Exchange. Trading in the top three equities namely FBN Holdings Plc, E-Tranzact International Plc and United Bank for Africa Plc (measured by volume) accounted for 323.474million shares worth N2.520 billion in 1,457 deals, contributing 39.30% and 20.61% 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 Market
Last week, there was relatively bearish sentiment in the bond market as three of the four tenor yields under coverage closed higher while the 3-Year tenor yield compressed by 3bps. The yields on the 5, 10 and 30-Year bonds increased by 44bps, 12bps and 35bps respectively.
There was bullish sentiment in the Nigerian Treasury Bills Market as the 91, 182 and 364-day paper yields compressed by 1bp, 2bps and 1bp respectively.
In the Money Market space, the Open Repo (OPR) and Overnight (O/N) rates increased to 14.67% and 15.00% from 12.00% and 13.00% 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
Based on the NBS CPI report for July, Nigeria’s inflation increased by 19.64%, reaching its highest point in about 17 years. Similarly, food inflation jumped to 22.02% and core inflation to 16.26%, respectively. Regarding food inflation, the annual average rate in July was 0.13% higher than in June, while core inflation increased by 0.22% over the same period. The costs of liquid and solid fuels and gas saw the most significant rises in core inflation.
In addition, Nigeria’s inflation continues to test new historical highs (Annual Headline inflation is at its highest since September 2005, Yearly Food Inflation revisited highs last seen in Mar ’21 while YoY Core Inflation is fast approaching its 6-year peak). Despite the marginal decline in monthly food inflation, reflective of the global downtrend in food prices, the local economy’s legacy inflationary drivers (FX crisis, among others) persist. Notably, the perennial FX crisis held sway as the I&E Window saw a 1.51% deprecation in Jul ’22, falling to N427.45/$; the parallel market rate also crossed over N700/$.
Also, given the return to normalcy following the COVID-19 epidemic, the Central Bank of Nigeria changed the minimum interest rate on naira savings deposits from 10% in 2020 to 30% of MPR to tackle demand-driven inflationary pressures currently at 19.64%.
In the first seven months of 2022, Nigerians spent a total of N1.7 trillion electronically on utility bills such as power, Pay TV subscriptions, and other recurring expenses, according to the Nigeria Inter-Bank Settlement System (NIBSS). This amounts to a 32.1% increase over the N1.3 trillion spent in the comparable 2021, demonstrating Nigerians’ growing acceptance of electronic bill payment methods.
Global and Emerging Market Economic Updates
Last week, there were no surprises in the U.S. F.O.M.C. meeting minutes since the committee didn’t reveal anything new. The Federal Reserve emphasised its resolve to reach its 2% goal level and indicated the unlikelihood of reversing its aggressive policy stance. The federal funds rate prints at 2.25 to 2.50% as of this writing, and the Federal Reserve described its effect on economic activity as neutral. Based on attainable optimism in the economic data, the committee hopes to slow the rate of rate increases in the future.
Also, despite a 0.1% projection and a 0.8% increase last month, the U.S. monthly Retail Sales figures printed flat despite a drop in gas prices. According to the report, customers directed their spending towards online shopping, which grew by 2.7% over the same time, while retail spending at other stores increased by 1.5%. Despite predictions for flat growth, retail sales increased by 0.4% in July after excluding ex-moto cars, up from 0.9% in June.
the annual inflation rate in the U.K. increased to 10.1 percent in July of 2022 from 9.4 percent in the previous period and slightly above market forecasts of 9.8 percent. It was the highest reading since February 1982, as prices rose faster for housing & utilities (20.0 percent vs. 19.6 percent in June), recreation & culture (5.6 percent vs. 4.8 percent), food & non-alcoholic beverages (12.6 percent vs. 9.8 percent) and restaurant & hotels (8.9 percent vs. 8.5 percent). On the other hand, transportation prices eased (14.8 percent vs. 14.9 percent). Compared to the previous month, consumer prices were up 0.6 percent, below 0.8 percent in June, but above forecasts of 0.4 percent.
Elsewhere, to control inflation and stabilise the country’s falling exchange currency, the Bank of Ghana raised its benchmark interest rate by 300 basis points to 22.0% following its emergency M.P.C. meeting on August 17th, the highest rise since 2002. It brings the total increase since November to 550bps.