20 June 2018 ( Lagos ) : Supported by an improved oil price and production outlook, Moody’s Investors Services recently affirmed a B2 stable outlook for the Nigerian economy. The ratings agency however expressed concerns over the country’s over dependence on oil revenues as recent diversification efforts by the government have not taken off.

 With the passage of the PIB pending, the agency also foresees challenges in attracting new investment to the oil sector as the industry reform has been slow and implementation remains weak. This has been a recurring concern by the IMF, World Bank and now Moody’s. Analysts also reiterate that greater diversification efforts are needed to strengthen economic growth and mitigate against potentials shocks to oil price and production. 

Financial Market Update

Yields trend south at week open 

The CBN conducted an OMO auction yesterday, offering ?350 billion and selling N137 billion across the 93DTM and 219DTM bills at respective stop rates of 11.05% and 12.15% (effective yields: 11.37% and 13.11%). Following the mop up, Interbank OBB rate advanced 616bps to 9.83%.

Meanwhile, trading in the T-bills space was mixed yesterday, with yields trending in opposite directions. Notably, whilst yields on the 16DTM (- 68bps to 11.31%) and 240DTM (-52bps to 13.37%) bills declined, yields on the 86DTM (+178bps to 12.99%) and 177DTM (+91bps to 12.74%) bills advanced. 

However, sentiment in the bond space was largely negative, with yields on benchmark bonds advancing 12bps on average. Notably, yields on the 16.00% FGN JUN 2019 and 12.50% FGN JAN 2026 bonds advanced 84bps and 10bps to settle at 12.76% and 13.62% respectively.

Despite the OMO auction and consequent mixed sentiment in yesterday’s session, analysts anticipate a relatively positive session today as system liquidity remains buoyant (estimated at N377 billion) barring a CBN liquidity mop-up. 

Bearish sentiment filters into week open 

With all key sectors save for the Consumer Goods sector closing in the red, the Nigerian equity market opened the week with a negative performance (ASI down 66bps).

Rebounding from a negative performance at last week’s close, the Consumer Goods (+6bps) sector was the only gainer on the bourse, after gains in INTBREW (+654bps) and NB (+9bps) erased dips in FLOURMILL (-489bps) and UNILEVER (-364bps). Meanwhile, the Banking (-225bps) sector was the biggest loser on the day on the back of losses in UBN (-403bps), UBA (-364bps), ZENITHBANK (-341bps) and GUARANTY (-120bps). Furthermore, The Oil & Gas (-41bps) and Industrial Goods (-36bps) sectors closed under, following declines in CONOIL (-625bps), FO (-487bps), CCNN (-545bps) and WAPCO (- 26bps).

Market breadth stayed negative with 13 advances and 37 declines. 

Market Outlook

Given the largely bearish session yesterday – all key market indicators were negative – analysts foresee another negative performance today.

Stock Watch

ZENITHBANK has shed 9% over the last seven sessions. The stock currently trades at a price of N25.50 and has declined 0.6% YTD, compared to the positive 0.9% YTD return for the Banking sector. Analysts highlight that the Banking sector traded high volumes and value yesterday, accounting for over half of the trades on the exchange. 

Source: Analysts from Vetiva Capital Management Limited