Dollar Gets Breather at Parallel Market, Appreciates 7.4% • As Stock Market Records Another Abysmal Performance

Although the amount of dollars sold is well below market demand, it appreciated after a long while at the parallel market, appreciating 7.4 per cent.
“Despite low activity level in the interbank and BDC segment — given the recent foreign exchange policies — we observed some level of improvement in FX rate in the parallel market this week. Parallel market rate opened the week at N243.00/$ on Monday and appreciated 7.4 week-to date (WTD) after closing at N225.00/$ on Friday. We believe the seeming improvement is linked to the excess supply in the parallel market as commercial banks halt acceptance of dollar deposit into domiciliary accounts due to too much cash in their vaults”, said analysts at Afrinvest.
The naira traded flat at N199.10/US$1.00 week-on-week (W-o-W) at the interbank foreign exchange market.
The amount of dollars sold remained reasonably below level of demand despite sale of the greenback by oil companies. The Apex bank continued to intervene at N197.00/$ in the interbank market, hence W-o-W performance remained stable in the segment.
In a related development, Nigeria’s external reserves rose 7.9 per cent in July to $31.3 billion according to the CBN. This is expected given Central Bank of Nigeria (CBN)’s increased efforts to reduce speculative attacks on the local unit.
Nonetheless, benchmark Crude Oil price (Brent) declined 3.8 per cent W-o-W and 17.3 per cent month-to-date (MTD) to $52.57 amidst global oil glut.
For the time being, CBN reiterated its stance to maintain the managed floating foreign exchange rate regime while seemingly adopting a ‘wait and see strategy’ to determine the next move. In the week ahead, we expect foreign exchange rates to remain stable at the interbank/BDC segment while pressure at the parallel market may soften as activity in that segment of the market further moderate.
Meanwhile, the rally of the Nigerian Stock Exchange (NSE) last week was a “dead cat bounce” as the Benchmark index, with All Share Index (ASI) posting a Wo-W declined last week. Equities depreciated on every trading day of the week, hence the ASI lost 2.9 per cent W-o-W to close at 30, 180.27 points. This resulted in a further slide in year-to-date (YTD) return to -12.9 per cent.
But investors gained N9.5 billion during the week as market capitalization settled at 10.3 trillion. Similarly, activity level within the market further waned as average volume and value traded depreciated 36.7 per cent and 38.6 per cent W-o-W respectively to berth at 273.2 million units and N3.6 billion respectively.
The Industrial Goods index was the lone gaining sector last week following some positive earnings results posted by WAPCO (Revenue: +12.0 per cent, pre-tax profit: +22.0 per cent) and Dangote Cement (Revenue: +15.9 per cent, pre-tax profit: +27.6 per cent). Hence, the index appreciated 2.1 per cent W-o-W as WAPCO (+4.1 per cent) and DANGCEM (+0.6 per cent) rallied. On the Flipside, the Banking Index led sector decliners, depreciating 7.0 per cent W-o-W as losses in Zenith Bank (-8.2 per cent) and First bank of Nigeria Holding (-10.4 per cent) dragged the index southwards. The Insurance Index closely trailed, losing 3.6 per cent W-o-W while the Consumer goods and the Oil & Gas indices depreciated 3.3 per cent and 2.7 per cent W-o-W respectively.
Negative investor sentiments towards the market persisted hence market breadth (advancers /decliners ratio) settled at 0.3x. This was consequent on 15 stocks which advanced against 56 declining stocks while 110 stayed flat. The gainers’ chart for the week was led by TRANSEXPR (+15.9 per cent), followed by REDSTAREX (+14.4 per cent) and ETRANZACT (+13.2 per cent) while PORTPAINT (-18.4 per cent), EVANSMED (-15.6 per cent) and PAINTCOM (-13.5 per cent) declined the most during the week. Given the current situation of the market, performance is expected to be driven by investor sentiments towards the earnings results.
Money market rates like the Open Buy Back (OBB) and Overnight (O/N) – rates closed on Monday at lower levels than they did at the close of the previous week. OBB declined 417 basis points (bps) to 10.0 per cent and O/N reduced 467bps to 10.6 per cent on Monday, relative to last Friday’s close. This was on the back of the Cash Requirement Reserve (CRR) credit done last week which resulted in a higher liquidity opening balance – N167.1bn – on Monday.
The apex bank however conducted an open market Operation (OMO) auction on Tuesday, which mopped up N91.4 billion from the banking system, although this action was off settled as the expected Federated Account Allocation Committee (FAAC) monthly budgetary allocation of N240.0 billion was made on the same day, bringing market rates down to 9.4 per cent (OBB) and 9.8 per cent (O/N). On Wednesday another OMO auction worth N70.0 billion was floated which was oversubscribed to the tune of N96.4 billion; nonetheless, OBB and O/N rates continued their decline to 6.7 per cent and 7.2 per cent respectively — a signal that there was still high level of liquidity in the system. The trend continued for Thursday and Friday; OBB declined 958bps WTD to 4.6 per cent while O/N dropped 942bps to 5.3 per cent WTD.
Average rates on Treasury Bills declined three bps W-o-W to 13.3 per cent, which is also traceable to the high level of liquidity in the banking system. No Treasury-Bill instruments matured this week. We opine that money market rates may remain low (at single-digit) in the coming week as Treasury Bills worth a total of N195.2 billion are slated to mature next Thursday. However, liquidity in the money market may be reduced by more OMO auctions by the CBN.
Activity pattern in the bond market last week was very similar to that of previous week. Average yields on bond instruments opened the week at 15.0 per cent and rose 2bps W-o-W. Marginal swings were recorded on yields across tenor during the week. However, yields on non-benchmark instruments trended six bps upwards W-o-W on account of moderate selloffs during the week while yields on benchmark instruments declined one bps W-o-W.
Generally, investors’ sentiment in the bond market improved as the Total Bond Market Index (as measured by FMDQ) advanced 0.3 per cent WTD and closed at 1,122.80 points. Hence, YTD return strengthened to 6.4 per cent.
The bond yield curve assumed a similar W-o-W trend across all FGN bonds. Nonetheless, the unmistakable outliers were yields on short term non-benchmark instruments which inched higher due to significant sell-offs by investors. We expect that this pattern may continue in the coming week as domestic investors remained driven by attractive yields while foreign player remained on the side line due to currency market illiquidity.

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