2 Weeks Gains Render Stock Market Vulnerable to Profit Taking • Inter-Bank Lending May Rise as NTBs, OMO, Forex Purchase Take Toil on Liquidity

The gains in the stock market in the last two weeks may have made the market vulnerable to profit taking as investors would like to sell to recoup loss made earlier. This is as intensify mopping activities through the Nigerian Treasury Bills (NTBs), Open Market Operations (OMO) and withdrawal of money to purchase foreign currency may further put pressure on liquidity, thus lead to a hike in inter-bank lending.
Cordros Capital, a research based firm also acknowledged that though stocks’ prices are still attractive for long term play, it is also worthy of note that gains seen in the last two weeks have rendered the market vulnerable to profit taking.
The equities market closed the week on a positive note representing its second weekly gain in a row, and the first of its kind Year-to-Date. Like the previous week, the market rally was stronger in the early session of the week, while the bullish momentum weakened towards the end. The week produced four gains out of five sessions with the All Share Index consequently gaining 2.54 per cent to close at 30,103.81points. With this weeks’ gain, the market’s Year-to-Date loss has reduced to 13.14 per cent from 15.22 per cent last Friday. Remarkably, the month of February closed with the NSE ASI gaining 1.83 per cent, after losing 14.7 per cent in January. All the major NSE classified sectors contributed the gain posted this week. The Banking index topped the gainers chart with a 5.69 per cent addition, while the Insurance and Consumer indices added 2.76 per cent and 2.34 per cent respectively. The Oil/Gas and Industrials indices also gained 0.64 per cent and 0.53 per cent respectively.
Liquidity boost from Federation Account Allocation Committee (FAAC) resulted in a 383bps week-on-week decline in average yield to close the week at 14.93 per cent. The rate, which fell to 17.05 per cent on Monday, recorded an aggregate increase of 425bps on last week Tuesday and Wednesday as Cash Reserve ratio (CRR) alterations, foreign exchange (forex) funding deductions and lack of inflows weighed on liquidity. However FAAC inflows amounting to N234 billion and maturing OMO instrument worth N200 billion led to higher liquidity as rates crashed by 637bps on Thursday and Friday. In an attempt to curtail the liquidity, the Central Bank of NiCBN offered N50 billion worth 196-day bills with rates pegged at 14.45 per cent on Thursday and the same amount of 195-day bills on Friday with rates pegged at 14.47 per cent each.
The average T-Bills yield closed higher week-on-week, indicative of a return to bearish trading after the gains recorded last week. After closing 82bps lower last week, average yield stood at 15.64 per cent this Friday following price declines in every trading session, indicative of a 77bps expansion on a w/w basis. The yield expansion follows significant sell pressure on maturities at the mid and long end of the yield curve. Maturities that fall within the 90-335 DTM spectrum recorded aggregate yield expansion of about 105bps. At the NTB auction next week, the CBN is set to offer N17.85 billion worth of 91-day bills, N50 billion worth of 182-day bills and N187.12 billion of 364day paper.
Despite bullish trading for most of the week, significant sell pressure on Wednesday and Friday sent average yield 8bps higher week-on-week to close at 16.07 per cent. A bulk of the sell pressure this week came from bills within the 13.75-19.39TTM band which posted an average yield expansion of 74bps. The week began on a bullish note as PFA’s demanded for shorter dated instrument which led to an 18bps decline in average yield. However, volatility surfaced as strong sell-offs on Wednesday (+41bps) was followed with increased demand on Thursday (-57bps) and then vice-versa on Friday (+42bps), to close at 16.07 per cent.
Despite the CBN decision to shut down the rDAS/wDAS windows last week, the pressure on the Naira has continued, albeit at lower volatility, while that of the external reserves has intensified. Notwithstanding the $107million supply by Total Nigeria Plc, the naira depreciated against two of the three currencies we track. The naira depreciated by 1.70 per cent and 2.18 per cent against the Greenback and the Pound to trade at N230/$ and N213.15/£ respectively, however it gained 0.20% on the Euro to trade at N226.24/€. Since the release of the CBN circular on the 18th of February, the Naira has been falling at an average rate of 0.29 per cent per session. Meanwhile the external reserves which stood at N32.43 billion last Thursday had declined by 2.99 per cent as at this Thursday to close at N31.46 billion. The increased rate of decline in the foreign reserves can be linked to the CBN supplying more Dollars to the interbank market, as promised, in an attempt to curb volatility.
On Thursday, the apex bank refuted claims it had plans to convert the foreign domiciliary account of customers of deposit money bank into naira.

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