Global Events
The knock-on impact on the global economy sustained pressures, as it stays rooted in the war between Russia and Ukraine.
The NATO Allies braced up to further strengthen support for Ukraine’s defense following the alleged Bucha massacre carried out by Russia. To this effect, the European Union, being the biggest buyer, gathered momentum to ban Russian coal imports which is to take full effect by August 2022. The United States’ distress was again reflected in its additional ban on Russian largest banks and the freezing of Russia’s central bank, which has exposed Russia to some possibility of a default in its coupon and bond payment. Regardless of Russia’s economic power, the additional sanctions would severely cause a negative effect even as the world would share part of it.
This extended crisis which would alarm a revision in anticipated normalization has triggered the International Energy Agency to release an additional 120 million barrels of their emergency oil reserve. As a result, we saw crude oil prices momentarily fall below the $100/barrel mark before securing a slight rebound. How much and how long this would play out in taming oil price, as well as petrochemicals, would also be hinged on demand pressures and the extent to which supply is disrupted.
Regarding the US. red-hot inflation which has welcomed a hawkish stance by the Feds, in the last meeting, the FOMC’s minutes disclosed the move to embrace an aggressive balance sheet reduction. This entailed the sale of government securities worth about $95 billion on a monthly basis, that is, $60 billion in Treasuries and $35 billion in mortgage-backed securities. As a result, the U.S. 10-year Treasury yield crossed the 2.70% mark for the first time in three years, signaling the market’s anticipation to buy at better rates subsequently.
Amidst market volatilities, it will be interesting to see the U.S. GDP and CPI data next week as well as Nigerian GDP and Inflation data to gauge the economic stance and expectations in the short to medium term.
Money Markets
System liquidity remained relatively elevated for most of the week, supported by some inflows. As a result, the Open Buy Back (OBB) and Overnight (O/N) rates both declined by 442bps to 5.75% and 6.25%, respectively.
We expect interbank rates to nudge upwards next week, due to the anticipated PMA and the retail FX auction, amidst tightened system liquidity.
Treasury Bills
The treasury bills market was mostly quiet during the week. However, we saw some selloffs at the long end of the curve later into the week. Consequently, average benchmark yield rose by 6bps to 3.35%.
We expect the market activities to be skewed towards the PMA next week.
Bond Market
The local bond market traded bearishly at the start of the week, following the bond calendar release. However, we saw some buy interests towards the end of the week, particularly at the short end of the curve. Nonetheless, average benchmark yield rose by 27bps to 10.94%
We anticipate a similar trend next week, albeit less aggressive.
Eurobond Market
The Eurobond market was relatively bearish for most of the week, as the hawkish aggressiveness of the U.S. Federal Reserve rattled global sentiments. However, we saw some slight interests in selected maturities given their attractive offers. Average benchmark yield surged by 12bp to 7.80%, week on week.
We expect the market to remain susceptible to the bias of the U.S. Fed and the Eastern European conflict.
FX Market
The Naira depreciated against the US Dollar by 1bp to $1/₦416.67 at the Investors and Exporters FX Window this week.
Equities Market
The equity market closed bearish this week, as the benchmark All Share Index declined by 45bps to close at 46,631.46 points, while Year to Date return and Market Capitalisation settled at 9.17% and ₦25.15 trillion, respectively. Nevertheless, market breadth closed positive at 1.03x, as we recorded 31 advancers as against 30 decliners.
Both volume and value traded declined by 11.75% and 20.18%, week-on-week, respectively. The most traded stocks by volume were FIDELITYBK (237.36 million units), TRANSCORP (147.54 million units) and ZENITHBANK (69.90 million units), while ZENITHBANK (₦1.59 billion), GTCO (₦1.34 billion) and FIDELITYBK (₦819.25 million) topped the value chart.
We expect the market to sustain the weak trend next week, in the absence of any catalyst.