Financial Market May Bounce Back This Week … As Bitterness Over Weak Q3 Results Subsides, Weekend Injections Increase Liquidity

After weeks of aggressive sell-offs, particularly with some heavy-weight stocks and increase in credit balance to the tune of over N500 billion following last week Thusday and Friday injections, it is expected that the stock market may be bullish and rates decelerate this week.
Following the aggressive sell-offs this week, especially in some heavy weight counters (OANDO, FBNH, and UBA), analysts at Cordros Capital expect the equities market to experience some relief next week as investors return to take advantage of low prices on offer. 
“Furthermore, Friday marked the conclusion of the 9M’15 earnings season (all things being equal) where results have largely been disappointing and have served as major negative catalyst. We also think that the absence of negative earnings to spook investors will support next week’s relief rally”, they said.
The Nigerian All Share Index closed last week in the red, shedding 2.78 percent from the previous week. The week began on negative note following a number of turbulent developments. These include an overhang from OANDO’s Friday’s release of its shocking full year 2014 numbers, revelations on Sunday that UBA and FBNH were fined N2.9 billion and N1.9 billion respectively for failing to fully comply with the Treasury Single Account deadline, NCC’s Monday announcement that it fined MTN Nigeria’s largest Telecommunication operator $5.2 billion for failing to comply deactivate un registered lines, and a shock announcement from the Financial Reporting Council of Nigeria (FRCN) that it was suspending key executives and board members of STANBIC and KPMG for financial irregularities. 
The combination of the aforementioned developments on Monday and continuous flow of weak corporate earnings weighed heavily on investor sentiment. Thus, the All-Share Index (ASI) shed points in the first three sessions of the week, with Friday’s 0.91 percent decline indicating that the Thursday gain was more of a dead cat bounce. 
The Banking and Oil & Gas sectors came under the most pressure following declines UBA (-13.58 percent), FBNH (-14.00 percent), OANDO (-39.66 percent), and SEPLAT (-1.90 percent).
Market breadth was negative with only 13 gainers and 51 losers, compared with 27 gainers and 36 losers in the previous week. Market activity picked up significantly from last week with volume traded increasing by 36.8 percentto 1.36 billion shares, worth N14.8 billion in 14,772 deals. Sterling Bank (258.93 million), Zenith Bank (235.78 million), and Guinea Assurance (100.00 million) accounted for 43.9 percent of shares traded during the week. Zenith Bank (N4.2 billion), NB (N2.6 billion), and WAPCO (N1.3 billion) were the top traded stocks by value, accounting for 55.5 percent of shares trading during the week.
At the inter bak  market, the rates are expected to fall following liquidity injections the previous week. Credit balance in the system though unconfirmed as at weekend, however, it is estimated that over N500 billion will be in the system following the Thursday and Friday injections. Thus, with the exception of significant deductions for foreign exchange (forex) funding and Cash Reserve Ratio (CRR), it is expected that there will be flat to declining rates this week.
With yields currently trading at Year-to-Date (YTD) lows, rates will likely moderate on profit-taking activities this week. More so, outflows from the scheduled Nigeria Treasury Bills (NTB) auction this week (totaling N122.96 billion – N45.18 billion of the 91-day, N23.43 billion of the 182-day and N54.35 billion of the 364-day bills) will taper liquidity in the system.
Observation at the Naira money market segment suggests that there would be enough liquidity in the banking system this week week. Though sell-offs from the offshore institutional investors will likely continue we expect a matching-to-superior demand from the locals – given that returns across the markets (equities, T-bills and money market) are currently generally poor.
The local currency, in the interbank market is expected to maintain stability at current levels.
Last week, average rate in the naira money market closed 122bps lower w/w to 11.92%. The system opened up on Monday, with liquidity close to N500 billion. Though the banking 16.00 percent system credit balance dropped in subsequent sessions (to N240 15.00 percent billion on Thursday), rates remained soft as dealers focused on 14.00 percent expected liquidity injection. The Open Marker Operation (OMO) bills worth N187 billion hit the 13.00 percent system on Thursday, in addition to budgetary allocations to states 12.00 percent and local government worth about N185 billion. Aside the 6- 11.00 percent month NIBOR (which rose by 36bps w/w), rates contracted across 10.00 percent all other tenures, led by the over-night which fell by 438bps w/w. 9.00 percent.
The treasury bills space was largely liquidity driven. Average yield declined 57bps w/w to close at a T-Bills.
Yields dragged in the first two sessions of the week – expanding three basis points (bps) and 1bps – as profit takings from last week extended. However, maturing OMO bills worth N187 billion, coupled with inflows from budgetary allocations (N185 billion) supported the market to a three day bullish streak. Unsurprisingly, yields on all traded bills recorded contractions, with the short dated bills beating up much of investors’ appetite (-126bps on average) compared to the intermediate (-74bps) and long end (-28bps). The 27D bill declined the most by 277bps to close at 1.84 percent.
The bond market regained momentum following last week’s sell- off. Once again, liquidity (both present and expected) in the system empowered the local dealers to buy and push yields down in this market. 
During the week, the offshore institutional investors did most of the selling (as the deadline for the JP Morgan exit closes last week Friday) while the locals did the mopping. The market closed positive in four of the five sessions of the week, with average yield consequently closing 14.05 percent (15bps lower w/w). Sell-off was strong at the long end – MAY 2028, MAY 2029 and NOV 2029 bonds recorded 26bps (77bps in total) average yield expansion. Conversely, demand was strong at the 1.2 short to intermediate wherein bonds maturing between AUG 1.1 2016 and MAR 2024 recorded 28bps (282bps in total) average yields contraction. 
The naira at the interbank market appreciated against two of the three currencies. It gained 0.12 percent against the Euro to 0.7 N219.05, 0.12 percent against the British Pounds to N305.40. The Naira however declined by 0.08 percent on the US Dollars to N199.20.
Allocations to the federal government and the various states of the federation declined further in the month of September, as revenue continued to drop due to declining prices of oil in the global market. A total of N389.936 billion was shared by the three tiers of government at the meeting of the Federation Account Allocation Committee (FAAC) for September, representing a drop of N52.670 billion from N442.606 billion that was shared in August. Briefing journalists after the FAAC meeting in Abuja on Wednesday, the Permanent Secretary, Federal Ministry of Finance, Mrs. Anastasia Nwaobia, said the gross total revenue received for September was lower than N369.140 billion received in the previous month by N47.144 billion adding that revenue from crude oil and gas was negatively impacted in August 2015 due to a shut down for production maintenance at different periods at the oil terminals. She also disclosed that there was a revenue loss of $32.07 million as a result of drop in the average price of crude oil from $56.76 t0 $47.32 in August, noting that the current revenue challenge was further worsened with a decline of over N44 billion in non-oil revenue collections.
There is indication that the Federal Government may have effected a massive cut in the 2015 economic growth rate projections amidst faltering economic performance indices. 
Governor of Central Bank of Nigeria, CBN, Mr. Godwin Emefiele, who gave this hint in the September 2015 Monetary Policy Committee, MPC, details released on Wednesday, by the apex bank, said the growth rate measured by Gross Domestic Products, GDP, is now 2.6 percent, down from 5.5 percent. With this development the official growth rate has been pegged far lower than projections by the International Monetary Fund, IMF, and other international and local financial institutions. Following the faltering oil prices and other macroeconomic predicaments faced by the Nigerian economy since this year, IMF had downgraded the growth projections to 4.8 percent, while African Development Bank, AfDB, puts the growth mark at 5.0 percent.

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