MARKET UPDATE FOR THE WEEK ENDED AUGUST 5

Weak Economic Data, Corporate Earnings Pull NSE Indices Down

Activities on the floor of the Nigerian Stock Exchange closed on a negative note last week, the first in the month of August, as the market continued the July bear rally in apparent reaction to weak economic data and unimpressive Q2 corporate results amidst the lack of positive economicinformation and policy news.

As the so much talk on the budget 2016 may not deliver as expected due to the continuing alleged padding of the document, misplaced priorities and revenue shortfall to implement the budget are part of the factors heating up the economy. Moreso, output continues to drop in the heel of rising interest and inflation rate as monetary and fiscal policy fails to complement each other to give clear economic direction.

The seeming mixed sentiment during the week was due to investors repositioning their portfolio in line with earnings performance of quoted companies to protect their capital in expectation of growth and dividend. Profit booking by traders seen in few stocks that rallied for few days resulted from the unstable economy that discourages the investing community from thinking long and rather cash out any profit made to grow income.  

Meanwhile, the composite NSE All-Share Index shed 584.07 points to close at 27,425.86 from an opening figure of 28,009.93 points, representing 2.09% decline on a weak transaction volume, with selling volume position of 100% and buying volume of 0% for the week to reverse the previous week's growth. Similarly, market capitalisation for the period under review closed lower at N9.42tn from an opening value of N9.62 trillion. The bearish sentiments revealed the dwindling investors and traders’ confidence in the market and economy, especially with the weak corporate earnings that reflect the state of the economy. The top advancers log were a mix of small and high cap stocks that beat market estimates with their Q2 numbers, especially the oil and gas sector that reported impressive second results. The NSE ASI's year-to-date as mentioned earlier returned to negative 4.25%, while market capitalisation for the same period was down by over more than N256bn.

The market breadth turned negative but weak  for the week as the number of decliners overtook advancers  in the ratio of  40:22on weak volume of trade with more  selling positions as against the previous week's indicating  smart money on accumulation move.

The global markets were up due tosome encouraging key economic data and positive statement from the major central banks that further assisted investors on the world financial outlook, as corporate earnings remained light and mixed.

The U.S markets, Germany‘s DAX, Britain’s FTSE and Japan’s Nikkei were all in the green. The economic data that filled the U.S markets were positive to further move the indices higher as Federal Reserve opted to keep interest rates unchanged to grow the economy.  Non-farm payroll and ISM Manufacturing Index beat expectation to shown improvement in the U.S economy on the strength of positive employment data and increasing in wages that support strong consumer spending.This resulted in further movement in equity prices.

In Europe, the Bank of England cut rates by 25 basis pointsand renewed its commitment to restate the quantitative easing programme to make funds available to drive the British economy following the recent decision to exit the Euro zone by buying €60bn of government bonds and €10 billion of corporate bonds to sustain the region's economic growth.

Many Euro zone countries have dragged down the region's growth, despite improvements in Spain after the European Central Bank (ECB) decision to retain interest rate, while promising to provide a stimulus packages to cushion the effects of Brexit, a situation that is raising growth prospects in the economy.

In Asia, China's economy posted 6.7% year-on-year growth of its GDP for Q2 which signifies recovery of domestic growth and demand.The Japanese Yen saw strong gains last week, following the Bank of Japan’s monetary policy decision last Friday. The BoJ announced that it would implement further easing actions into the economy by doubling its yearly purchases of ETFs to ¥6tn, and doubling its US Dollar lending programme to foreign companies.

Nonetheless, the market felt that the Japanese central bank could have done more as they were expecting even more easing, including a rate cut into further negative territory. 

Oil prices continued to oscillate during the week toremain low in the recent months after theEIA on Wednesday reported an increase in crude stock piles of 1.4 million barrels for the prior week. The biggest surprise came from gasoline inventories which dropped by 3.3 million barrels, versus expectations for a fall of only 300,000 barrels leading to the strong rally. Prices had broken below $40 prior to the EIA's report to trade at $39.20, before bouncing back to close the week at $41.54.Britain’s exit from the EU will slow down the global economy, thereby lowering energy demand as Nigeria's crude production bounced back.

Back home, the NSE ASI opened the week in downward trend on the first trading day of the week, it was maintained on the second and third trading sessions trending southward. It however bounced back to green on the fourth trading session but reversed on the fifth trading session to close in the red by shedding 1.17%, the highest for the period.

NSE sector indices were all in the red, except for the NSE ASem Index that closed flat. Transaction levels as measured by aggregate volume and value decline by 37% and 20.19% in contrast to last week’s closing levels. In the week under review, a total of 1.19bn shares valued at N13.03bn were exchanged in 18,548 deals, compared with 1.87bn shares valued at N16.22bn exchanged across 21,181 deals in the previous trading week.

During the week also, more than 40 companies made available their Q1 and Q2 earnings reports to the investing community in compliance to their post-listing requirement. They included Mobil Oil, Eterna Oil, Champion Breweries, Forte Oil, Consolidated Hallmark Insurance, International Breweries , Honeywell Flourmills, Diamond Bnak, Ecobank Transnational Incorporated , Custodian & Allied Insurance,  Sterling Bank, Presco, Dangote Sugar, Redstar Express, Transnational Corporation and Universtity Press, among others

There were also full-year earnings reports from Skye Bank Plc, Universal Insurance and CUTIX.Interim dividend of 1.5kobo was declared by Unitycapital Assurance.

Total Nigeria plc   and Airline Service, led the advancers chart with 33.34% and 22.19% gains respectively, while the flip side was topped by Seplat and Fidelity Bank which suffered 18.54% and 14.63% decline respectively.

Market Outlook

The market last week was down as investors and traders  reacted to the weak economic data and corporate earnings of the season that were below expectation, given that the nation's economic situation had impacted negatively on the company results, especially the new CBN flexible exchange rate policy that threw many importing companies and companies with foreign loans in red overnight. 

The candlestick formation pattern as at close of trading last Friday signifies reversal on a low volume, indicating smart money move to markup. However, wait for confirmation  as market forces this morning on the exchange will determine the direction, especially as we  expect inflation report  for July and other  economic data this week.

STOCKS TO WATCH

Dangote Sugar, Presco, RedStar Express, FCMB, UBA, Eterna, Ucap, Access Bank and Champion Breweries.

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