Global Economy
Earlier this week, we saw data from China detailing that services activity growth in the country accelerated in March 2024 as new business rose at the fastest pace in three months, a sign outlook was staging an imminent recovery in the world’s second-largest economy. The Caixin/S&P Global services purchasing managers’ index (PMI) rose to 52.7 points from 52.5 points in February 2024, above the 50-mark that separates expansion from contraction for the 15th consecutive month. This was also the highest reading since May 2023. Elsewhere, in the US, we observed that Nonfarm payrolls increased by 303,000 jobs in March 2024. Data for February 2024 was revised slightly lower to show 270,000 jobs added instead of 275,000 as previously reported. This indicates that US economic growth is still solid and gives less reason for the US Federal Reserve to revert to a loose monetary policy before the end of the year.
Domestic Economy
During the week, the federal government of Nigeria, via the Nigerian Electricity Regulatory Commission (NERC), declared a hike in electricity tariffs for customers in category Band A to NGN225 per kilowatt hour (kWh), previously at NGN66 per kWh. The NERC noted that Band A consumers make up about 15% of the nation’s 12 million electricity users. Furthermore, the NERC admitted that some Band A feeders have not met the mandated minimum electricity supply hours, consequently shifting them to Band B, accompanied by a corresponding adjustment in electricity tariffs. We believe that the impact this development will have on rising prices would depend on the size of customers affected.
Equities and stock recommendation
This week, the Nigerian Equities market sustained its bearish run for the third (3rd) consecutive week, as the NGX All Share Index (ASI) lost 1.08% WoW to print at 103,437.67 points. Consequently, the market’s year-to-date (YtD) return declined to 38.33% from 39.84% YtD last week. This week, only the Consumer Goods sector closed positive, as it gained 94bps WoW. Conversely, the Banking sector (-6.73% WoW) recorded the highest loss, following the announcement of the recapitalization exercise by the Central Bank of Nigeria (CBN). The Insurance (-0.85% WoW) and Industrial Goods (-0.27% WoW) sectors also posted losses, while the Oil and Gas sector closed on a flat note for the second week running. CUTIX (+22.7% WoW to NGN3.19), MORISON (+20.5% WoW to NGN2.12) and MAYBAKER (+19.1% WoW to NGN6.55) topped the gainers chart, while STERLINGNG (-13.0% WoW to NGN4.70), JBERGER (-11.4% WoW to NGN58.50) and CWG (-10.0% WoW to NGN6.75) led the losers’ chart. In the coming week, we expect negative sentiment to persist, as investors continue to focus on higher yielding fixed income assets.
Fixed Income
Yesterday, the Central Bank of Nigeria (CBN) held a Nigerian Treasury Bills (NT-Bills) auction, offering a total of NGN161.33bn across various maturities (91- day, 182-day, and 364-day bills). Interestingly, despite investor anticipation of higher interest rates, the CBN maintained the same stop rates as the previous auction. Conversely, the average bid-to-cover ratio jumped by 696bps to 16.23x compared to 9.27x at the previous auction. This surge was driven by an increase in the demand for the instruments, particularly in the 364-day bill (NGN2.48trn vs NGN1.36trn at the last auction). However, the demand for the 91-day bill dipped slightly (NGN76.81bn vs NGN85.51bn at the previous auction). Overall, due to high investor participation, the CBN was able to sell NGN1.19trn worth of NT-bills, significantly exceeding the amount initially offered. At the secondary market, the average yield on the Nigerian Treasury bills market went down slightly by 4bps WoW to 17.66%. Conversely, the FGN bond market closed bearish as the average yield increased by 15bps WoW to settle at 19.41%. This was on the back of selloffs across all ends of the yield curve, specifically in the JAN-2026 (+54bps), FEB-2031 (+59bps) and JUN-2033 (+190bps) instruments. Overall, the Naira fixed income market closed on a bearish note as the average yield rose by 6bps WoW to 18.54%. We maintain our view of a bearish sentiment, as investors seek higher returns on short-term instruments following the CBN’s benchmark interest rate hike.
Click here for the full report.
Weekly Commentary and Stock Recommendation: 2nd April – 5th April 2024
Global Economy
Earlier this week, we saw data from China detailing that services activity growth in the country accelerated in March 2024 as new business rose at the fastest pace in three months, a sign outlook was staging an imminent recovery in the world’s second-largest economy. The Caixin/S&P Global services purchasing managers’ index (PMI) rose to 52.7 points from 52.5 points in February 2024, above the 50-mark that separates expansion from contraction for the 15th consecutive month. This was also the highest reading since May 2023. Elsewhere, in the US, we observed that Nonfarm payrolls increased by 303,000 jobs in March 2024. Data for February 2024 was revised slightly lower to show 270,000 jobs added instead of 275,000 as previously reported. This indicates that US economic growth is still solid and gives less reason for the US Federal Reserve to revert to a loose monetary policy before the end of the year.
Domestic Economy
During the week, the federal government of Nigeria, via the Nigerian Electricity Regulatory Commission (NERC), declared a hike in electricity tariffs for customers in category Band A to NGN225 per kilowatt hour (kWh), previously at NGN66 per kWh. The NERC noted that Band A consumers make up about 15% of the nation’s 12 million electricity users. Furthermore, the NERC admitted that some Band A feeders have not met the mandated minimum electricity supply hours, consequently shifting them to Band B, accompanied by a corresponding adjustment in electricity tariffs. We believe that the impact this development will have on rising prices would depend on the size of customers affected.
Equities and stock recommendation
This week, the Nigerian Equities market sustained its bearish run for the third (3rd) consecutive week, as the NGX All Share Index (ASI) lost 1.08% WoW to print at 103,437.67 points. Consequently, the market’s year-to-date (YtD) return declined to 38.33% from 39.84% YtD last week. This week, only the Consumer Goods sector closed positive, as it gained 94bps WoW. Conversely, the Banking sector (-6.73% WoW) recorded the highest loss, following the announcement of the recapitalization exercise by the Central Bank of Nigeria (CBN). The Insurance (-0.85% WoW) and Industrial Goods (-0.27% WoW) sectors also posted losses, while the Oil and Gas sector closed on a flat note for the second week running. CUTIX (+22.7% WoW to NGN3.19), MORISON (+20.5% WoW to NGN2.12) and MAYBAKER (+19.1% WoW to NGN6.55) topped the gainers chart, while STERLINGNG (-13.0% WoW to NGN4.70), JBERGER (-11.4% WoW to NGN58.50) and CWG (-10.0% WoW to NGN6.75) led the losers’ chart. In the coming week, we expect negative sentiment to persist, as investors continue to focus on higher yielding fixed income assets.
Fixed Income
Yesterday, the Central Bank of Nigeria (CBN) held a Nigerian Treasury Bills (NT-Bills) auction, offering a total of NGN161.33bn across various maturities (91- day, 182-day, and 364-day bills). Interestingly, despite investor anticipation of higher interest rates, the CBN maintained the same stop rates as the previous auction. Conversely, the average bid-to-cover ratio jumped by 696bps to 16.23x compared to 9.27x at the previous auction. This surge was driven by an increase in the demand for the instruments, particularly in the 364-day bill (NGN2.48trn vs NGN1.36trn at the last auction). However, the demand for the 91-day bill dipped slightly (NGN76.81bn vs NGN85.51bn at the previous auction). Overall, due to high investor participation, the CBN was able to sell NGN1.19trn worth of NT-bills, significantly exceeding the amount initially offered. At the secondary market, the average yield on the Nigerian Treasury bills market went down slightly by 4bps WoW to 17.66%. Conversely, the FGN bond market closed bearish as the average yield increased by 15bps WoW to settle at 19.41%. This was on the back of selloffs across all ends of the yield curve, specifically in the JAN-2026 (+54bps), FEB-2031 (+59bps) and JUN-2033 (+190bps) instruments. Overall, the Naira fixed income market closed on a bearish note as the average yield rose by 6bps WoW to 18.54%. We maintain our view of a bearish sentiment, as investors seek higher returns on short-term instruments following the CBN’s benchmark interest rate hike.
Click here for the full report.
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Weekly Commentary and Stock Recommendation: 2nd April – 5th April 2024