Monthly Financial Market Update – October 2021

Macroeconomic Review
Global Crude Oil Prices Soar on Energy Supply Concerns and OPEC+ Decision

International benchmark Brent crude prices soared through October, just as industries began to recover fully from the effects of the last year’s demand dip caused by the pandemic. During the month, oil prices rose swiftly as the Organization of Petroleum Exporting Countries and its allies (OPEC+) reiterated that it would not increase the quota on production volumes despite rising crude demand.

Despite pressure from the United States (one of the world’s top oil consumers) and large importers to boost production output, the major energy producers agreed at the recently concluded OPEC+ meeting to stick to the current policy of ramping up production by 400,000 bpd to ensure a stable and balanced market.

Money Market Review and Outlook
Lower System Liquidity as Supply wanes

Inter-bank system liquidity was tighter in October, averaging ca ₦5.09bn, lower than ca ₦77.67bn recorded the previous month, due to reduced inflows from OMO maturities and bonds coupon payments. As a result, Interbank rates closed higher for the month, as the Open Buy Back (OBB) and Overnight (ON) rates closed at an average of 12.79% and 13.30% from 12.18% and 12.87% in September.

In the coming month, we expect rates to trend further northwards, on expectation of decreased inflows to the banking system, as only N539.48bn in expected to impact the system from bonds coupon payment, OMO and NTB maturities.

T-Bills Market Review and Outlook
Bullish Market driven by Lower Stop Rates for the 1-year NTB papers

The NTB market started October with sell-offs, following the 30bps rate hike on the 1-year NTB paper at the last auction in Sept’2021. However, with CBN offering lower than (₦20.0bn to ₦50.0bn) the maturing amounts (₦70.0bn to ₦100.0bn) at the OMO auctions, there were excess funds that needed outlets to be deployed to…

We expect market participants to continue to trade cautiously, albeit with a slightly bullish undertone – largely supported by impending maturities.

Bonds Market Review and Outlook
A Mixed Market amid Uncertainty in Yield Direction

The long end of the yield curve opened with sell-side interest, as the market had a knee-jerk reaction to the rate hike on the 1-year NTB, while the short to mid tenors traded sideways with a slightly bullish undertone, as investors cherry-picked the relatively high yield papers…

We expect the bonds market to be choppy, amid thin coupon credits and year-end profit taking.

Eurobond Market Review and Outlook
Mixed market with a bearish undertone

Activity in the Eurobond market was bearish during the early part of the month, with some sell-offs seen across board, majorly due to the rise in U.S. 10-year treasury. Average rate closed c.30bps higher in the first 2 weeks…

With the Feds reducing asset purchases by $15bn a month but emphasized labour market development related to rate hikes, this should see more engagement in the Eurobond space, mostly sideways.

Foreign Exchange Market Review and Outlook
Naira depreciates further at Official Window

The FMDQ Nigerian Autonomous Foreign Exchange Fixing (NAFEX) closed at to ₦415.10/US$1.00 for the month. This represents a ₦1.72 depreciation from ₦413.38/US$1.00 recorded in September. Forex turnover, however declined month-on-month by 13.58% to US$3.86bn in the month under review.

We expect rates to remain at current levels in the absence of any significant change in market dynamics. However, we expect to see increased volatility in the pricing of the Naira on the back of expectation of increased demand for the green back as we approach the yuletide season.

Equities Market Review and Outlook
Bargain Hunting in Bellwethers Buoys Market

The positive trend in the domestic bourse intensified in October, as investors increasingly took advantage of bellwethers trading at relatively attractive entry prices, especially technology stocks. On the back of this bullish trend, the overall performance of the Benchmark index turned positive in the month, settling at +4.4% YTD following an expansion of 4.5% in October with the All Share Index closing at 42,038.60 points. Market breadth, a measure of investor sentiment was positive, settling at 2.0x as 57 stocks advanced while 28 declined.

Following successive months of significant gains in the market, we expect to see increased profit taking in the market, especially in bellwethers that have appreciated over the past months. Nevertheless, we believe that some buy interest will return to the market closer to the end of the year as fund managers rebalance portfolios for the close of the year.

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