MARKET UPDATE 29

CBN, TSA, Ministerial list, Investor Confidence and MPC Meeting

Based on the mixed performance of the nation’s capital market over the last three weeks and more recently, the side trending of the Composite NSE ASI forming an ascending triangle pattern could provide good trading opportunities after the Federal Executive Council is constituted by President Muhammadu Buhari. The only question now is which way?

The new cabinet is expected to give the required economic direction and complement the CBN's monetary policy towards revamping the nation's economy for productivity that drive real growth and development.

Also, institutions and individual investors are seemlyworried about the impact of the Treasury Single Account (TSA), whose implementation by the government started on September 15. Their worry is not baseless, given that an estimated N1.2 trillion or more was pooled out as bank vaults the form of deposits held for Federal Government Ministries, Department and Agencies (MDAs), into the CBN coffers. This, in our estimation is another way of increasing the public sector (FG) Cash Reserve Ratio (CRR) to 100 per cent, thereby putting banks on their toes, forcing them to think out of the box to drive the deposits and also lend more to the productive sector of the economy for growth. The initial fear of banks bleeding to death was however allayed last week by the interview of the CBN Governor, Godwin Emefiele, with Reuters, where he was quoted as reassuring the banks and  investors that liquidity will be injected into the economy if the need arises.

The recent rise in the inflation rate from 9.20 to 9.30 per cent calls for serious concerns, especially as the Monetary Policy Committee (MPC) meeting opens today in Abuja. Members of the committee should consider this, along with developments as it affects the TSA, currency management, the declining price of crude oil which is still on a long-term downward trend, despite the move above 50-day moving average recently which is a bullish sign.To ease liquidity in the system, the CBN islikely to increase money supply by reducing the CRR by more than 10 per cent.

The equity market closed negative on lastFriday, but the Composite NSEASI still recorded a robust 2.17 per cent gain to close at 30,332.68 from an opening figure of 29,689.08 with different of 643.60 points. On this ground, the negative year-to-date return fell to 12.48 per cent. Market Capitalisation also improved by N222 billion to close last week at N10.43 trillion from N10.21 trillion recorded in the previous week. In the same vain, all the sectorial indices for the period closed positive with the financial sector indexes: NSE Banking and NSE Insurance taking the lead with 5.07 and 3.73 per cent gains respectively. On the big board, the advancers outpaced decliners by 56 to 22. Despite the mixed performance recorded last week, market breadth was positive and strong. 

The global market on its own, is facing a confidence crisis with U.S and European stocks suffering a decline as investors and analysts reacted to the decision of the Federal Reserves to keep interest rate low because of the slow global economic growth, even as China, the second largest economy, is under serious pressure, coupled with Europe's immigrant crisis and other economic problem facing Greece.

If U.S had hike it interest rate, it would have put another pressure on the world economy especially the emerging market, as foreign investors will start calling back their funds to play financial instruments and equities.  

NSE DAILY CHART

An ascending triangle on the daily chart of the NSEASI signals a continuation or reversal of the current trend. The possibility of break out or down is equal at this point, but the increase in volume on the last trading session  of the week with marginal decline does not support the bull-run, especially as investors await the outcome of the MPC meeting on Monday and Tuesday. As the index has had mixed rally off the August 27^th lows,trying to cross the 50-day moving average which is the yellow line is a sign of strong recovery market.

Market Outlook

We expect the market to continue positive and maintain the current trend with higher possibility of breaking out the recent strong resistance level, if the outcome of the MPC meeting are positive and expected activities in the nation’s governance and fiscal environment to support the external reserves to attract more institutional investors.

STOCKS TO WATCH

ACCESS BANK, United Capital, UBA, FBNH, NB, FCMB AND CAP