|What shaped the past week?
Global: Global markets traded mixed this week, as investors remained unnerved by the prospect of a global recession in 2023. In the Asian-pacific region, trading was bearish w/w, amid surprise from investors over the decision of the Bank of Japan to roll out a new bond-buying operation. The yen rose 4% against the dollar on Wednesday following the announcement.
The Japan Nikkei-225 lost 4.69% w/w, while the Shanghai Composite and Australian ASX fell by 3.85% and 0.57% w/w respectively. Meanwhile in Europe, where investor focus was on the latest economic data from the region, an improvement in consumer confidence in Germany fueled pockets of buy-side activity in the market. Amid this, the German DAX rose 0.70% w/w, while the French CAC and London FTSE rose by 1.11% and 1.52% w/w respectively. Finally, investor sentiment in the U.S. market was largely bearish, as investors’ reacted to the latest economic data, which suggested an increase in unemployment and a decline in consumer demand in November. The Nasdaq and S&P 500 ended the week 2.56% and 1.08% lower respectively, whereas the DJIA was up 0.03% w/w as at time of writing.
Domestic Economy: The Naira has remained relatively stable in the parallel market (N745/$) despite sliding to N452/$ in the official market. Our prognosis going into 2023 suggests that currency performance hangs largely on higher oil production receipts and improved intervention in the foreign exchange market. Thus, should our baseline scenario of stronger oil production and a reduced subsidy bill play out, we expect increased foreign exchange inflows and a narrower FX gap. We note that the Naira is undervalued in the parallel market, though slightly overvalued in the official market. Thus, while we see the Naira slipping to
₦480/$ in the official window, our base estimate for the parallel market is hinged on an appreciation to ₦665/$ in 2023. Risks to our outlook includes subsidy retention, excessive demand volatility, unrest in the Niger Delta, political upheavals, and a sustained hardliner posture from the apex bank towards retail FX outlets.
Equities: With fund managers rebalancing their portfolios as we approach the end of the year, broad-based interest across the NGX saw the index rise 0.79% w/w, to settle at 49,706pts. For a third consecutive week, the Banking sector was the best performer, rising 1.97% w/w; ZENITHBANK rose 1.87% w/w to settle at 24.55/share, while UBA and ACCESSCORP rose 2.74% and 2.37% respectively w/w. Likewise, in the Consumer Goods space, interest in low-mid cap names saw the sector rise 0.98% w/w. Moving to the Industrial Goods space, renewed interest in JBERGER (+9.91% w/w), drove the sector 0.04% higher w/w. Finally, interest in players across the oil marketing space saw the sector rise 0.91% w/w, with ARDOVA rising 12.57% w/w, driving the sector’s performance.
Fixed Income: Fixed income investors were buy-side driven w/w, as the rebalancing period for fund managers saw them pursue a wide-range of tenors across the Bonds, OMO, and NTB segments of the market. In the Bonds space, yields on benchmark bonds eased 32bps w/w on average fueled broad-based interest across the bond curve; notably, the yield on the 12.1493% FGN-JUL-2034 bond eased 85bps w/w to 13.20%. Meanwhile, in the OMO space, yields sank 541bps w/w, due to widespread interest across the OMO curve. Likewise, in the NTB space, we observed significant buy-side action over the week, as yields eased 289bps w/w.
Currency: The Naira depreciated ₦1.11 w/w at the I&E FX Window to ₦456.50.
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February 3, 2023