Monthly Financial Market Update – September 2021

Macroeconomic Review
Foreign Reserve rise to 18-Month High

Nigeria’s foreign reserves rose to its highest in 19 months, growing by ca US$2.58bn in September to US$36.60bn. The expansion can closely be tied to a sustained increase in global crude oil prices, with Brent crude oil price trading at its highest level in 3 years at US$80.00 per barrel (pb) and steadied above the nation’s budget benchmark crude oil price of US$40.00pb…

In our view, we expect continued improvement in the nation’s reserve levels in the near term, on the expectation that Brent crude oil prices remain elevated while demand surges on the back of more economies re-opening as Covid-19 vaccination roll outs increase.

Bonds Market Review and Outlook

A relatively bullish start to the month (with major buying interest seen on the short end of the curve) following the decline in marginal yields at August’s FGN bonds’ auction soon turned bearish after the DMO’s surprise rate hike on the 1-year NTB paper. Overall, average yields in the secondary market inched up by 19bps M-o-M…

We expect the mixed market sentiments to linger amid rate uncertainties and DMO’s actions at subsequent auctions. Expected coupon inflows of ca. ₦194.0bn will likely spur some buyside activity, as investors will cherry-pick the relatively attractive yields.

Money Market Review and Outlook

System liquidity remained elevated at the close of September, driven by favorable flows from OMO, T-bill maturities and Bonds coupons worth ca ₦911.89 bn along with FAAC disbursements estimated at ca ₦355.0bn…

On the back of projected inflows from bond coupon payments, OMO, and NTB maturities worth ca ₦745.55bn, we expect system liquidity and interbank lending rates to remain at similar levels. However, the Apex bank’s conventional technique of tightening liquidity could potentially lead to a spike in lending rates.

T-Bills Market Review and Outlook

A shocking 40bps hike in 1-year stop rate at the first auction of the month, after an extended period of steady rate decline, spurred a mixed to largely bearish market. Overall, average secondary NTB market rates inched up by c.23bps M-o-M…

We expect market participants to trade cautiously in the last quarter of the year, albeit with a slightly bullish undertone – largely supported by impending maturities.

Weak to Bearish Sentiments as Emerging Markets dominated the Eurobonds Space with Fresh Issuances.

Activity in the Eurobond market started on a quiet note with weak sentiments dominating the trading sessions. However, news of Nigeria tapping into the Eurobonds market earlier than anticipated drove some bearish activity as market players geared up for the impending supply…

We expect the Eurobond market to continue to trade sideways, even as concerns around the new covid-19 delta strain continues to dampen market sentiment, despite soaring oil prices.

Foreign Exchange Market Review and Outlook

Amid supply shocks and devaluation concerns, the FMDQ Nigerian Autonomous Foreign Exchange Fixing (NAFEX) depreciated by 0.46% to settle at ₦413.38/US$1.00…

Despite the recent developments, we expect the demand pressure on the Naira to remain in the last quarter of the year. The Apex bank is expected to boost forex supply to banks alongside seeking regulatory sanctions on unauthorized activities in the FX market.

Equities Market Review and Outlook

As the euphoria around the release of H1:2021 and Interim dividends, diminished, investors opted to take advantage of the relatively attractive prices of fundamentally sound counters in the domestic bourse and this spurred the positive return recorded in the month…

In line with the historical trend seen in the fourth quarter of the year, we expect to see a largely positive performance for the market. This is predicated on investors continuing to take advantage of the relatively attractive cheaper pricing, especially for market bellwethers. Nevertheless, we do not rule out the possibility of bouts of profit taking immediately followed by rounds of bargain hunting.

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