Higher PMA rates turn T-bills bearish 

01 November 2018 : The CBN conducted a Primary Market Auction yesterday, selling N145 billion (N145 billion offered) across the 91DTM, 182DTM, 364DTM bills at stop rates of 10.98%, 13.49% and 14.40% respectively (effective yield: 11.29%, 14.46% and 16.81% respectively). Notably, the rates were higher than previous PMA stop rates and current secondary market levels. Meanwhile, system liquidity improved to N320 billion on the back of Federal Allocations to state governments, while the Interbank Call rate declined 417bps to settle at 4.33%. 

Following the release of the PMA results in the latter half of the session, trading turned mixed with a bearish bias in the T-bills secondary market. Overall, yields advanced 6bps on average with pressure on the 29DTM (up 65bps to 12.10%) and 274DTM (up 53bps to 15.62%) bills. Meanwhile, the bond market was also mixed, albeit with a positive tilt, with an average 5bps decline on benchmark bonds. Whilst the 16.25% FGN APR 2037 bond declined 12bps to settle at 15.16%, the 13.98% FGN FEB 2028 bond advanced 10bps to settle at 15.54%. 

Following higher PMA stop rates and the anticipation of even higher rates at today’s expected OMO auction, analysts foresee continued bearish trading in the T-bills space and a trickle-down effect in the bond market. 

ASI pares gains at month end, sheds 92bps m/m 

The ASI lost 212bps following significant declines across three of the four major sectors. Intraday activity was negative throughout the session as investor sentiment remained poor. 

The Industrial Goods (-204bps) sector was the biggest loser following a dip in DANGCEM (-324bps). Meanwhile, the Consumer Goods sector (- 156bps) also lost after a decline in NB (-636bps) outweighed gains in INTBREW (+10%). The Banking sector (-92bps) also closed negative on the day driven by losses in GUARANTY (-132bps), UBA (-125bps) and ZENITHBANK (-84bps). Notably, the Oil & Gas sector (+74bps) was the sole gainer as upticks OANDO (+495ps) and FO (+185) drove the sector. 

Market breadth was broadly negative with 15 advances and 30 declines. 

Market Outlook 

Following yesterday’s bearish activity and a widely negative market breadth, analysts anticipate continued negative trading in today’s session. 

Stock Watch: FLOURMILL released its Q2’18 results yesterday, reporting a 10% decline in revenue to N270 billion and a profit after tax of N8.3 billion (Q2’17 PAT: N9.4 billion). The stock declined 420bps yesterday to settle at N18.25.

Reporting for EasyKobo on Thursday ,1 November 2018 in Lagos, Nigeria

Source: Vetiva Capital Management Limited