The CBN released its Purchasing Managers’ Index (PMI) for May with both Manufacturing (56.5) and Non-Manufacturing (57.3) indices posting m/m improvement. Although the pace of improvement came in slower than that of the previous month, the above-50 readings point to further economic expansion as the positive macroeconomic environment (strong crude oil prices, moderating inflation, and stable FX liquidity) continues to support economic activities. We highlight that this represents the fourteenth and thirteenth consecutive months of expansion for both Manufacturing and Non-Manufacturing PMI respectively, indicating steady economic improvement. With the President expected to sign the 2018 budget soon, we expect fiscal stimulus to further support economic growth. However, we note that uncertainties could taper business activities as electioneering comes in focus. 

Quiet trading session amidst OMO auction 

The CBN conducted an OMO auction yesterday, selling N561 billion (offer: N800 billion) across the 112DTM and 231DTM bills at respective stop rates of 11.05% and 12.15% (effective yields: 11.44% and 13.16%). Amidst this, the Interbank Call rate advanced 108bps to 2.83%.

Sentiment in the T-bills space was mixed with a bearish tilt as yields advanced 6bps on average. Notably, whilst yields on the 35DTM (+27bps to 13.07%) and 217DTM (+43bps to 13.43%) bills advanced, yields on the 49DTM (-28bps to 12.00%) and 112DTM (-62bps to 12.06%) bills declined. Sentiment in the bond space was quiet with varied sentiment even as yields on benchmark bonds shed 1bp on average. In particular, while yield on the 16.00% FGN APR 2019 advanced 19bps to settle at 12.23%, yield on the 16.39% FGN JAN 2022 bonds moderated 18bps to settle at 13.24%.

Despite still healthy system liquidity (N515 billion) we expect to see further mixed trading across both spaces of the fixed income market at week close with relatively more muted activity.

Losses intensify on NSE, ASI slips into the red ytd 

With all key sectors closing in the red, the Nigerian Equity market recorded its twelfth consecutive session of losses as the ASI dipped 130bps on the day and slipped into negative territory for the year, down 36bps ytd. 

The Consumer Goods (-259bps) sector was the biggest loser yet again as sustained declines in INTBREW (-964bps), NESTLE (-438bps) and NB (-191bps) overshadowed gains in DANGFLOUR (+213bps) and DANGSUGAR (+265bps). Likewise, the Industrial Goods (-170bps) sector closed in the red, following negative performances in WAPCO (- 492bps) and DANGCEM (-103bps) wiping out gains in CCNN (+10.12%). The Banking (-110bps) sector also dipped following losses in ACCESS (-459bps), ETI (-274bps) and GUARANTY (-122bps). Lastly, the Oil & Gas sector shed 34bps on the day with declines in FO (- 909bps) beating out advances in SEPLAT (+116bps). 

Market breadth remained negative with 21 advances and 28 declines. 

Market Outlook 

Amidst increased market activity, all market indicators point to sustained negative trading sentiment on the exchange with losses intensifying across all key sectors. Thus, we expect the bearish trend to persist at week close. 

Stock Watch

ZENITHBANK has shed 9% over the last seven sessions, down 0.6% ytd, worse than the Banking sector’s 0.3% ytd decline. The stock currently trades at its lowest price this year (N25.50), below our target price of N34.22.