<\/p>\nWhat shaped the past week? – As trading activities further slowed down over the week, the market remained in the reds for the most part. The Conglomerates (-1.4%) and Banking (-1.3%) sectors led week-on-week losses while the Construction (+7.8%) and Breweries (3.7%) sectors were at the top of the market. Sectors were on the decline as early as Monday, with the Breweries (-123bps), Banking (-37bps) and Conglomerates (-29bps) sectors, wearing down gains in the Building Materials (+62bps), Food & Beverages (+ 30bps) and Petroleum Marketing sectors. On the back of this, the Index declined 11bps, laying the ground for further losses on Tuesday, through the Petroleum Marketing (-101bps) and Food & Beverages (-50bps) sectors. The only remarkable gain among sectors for the day was in the Breweries sector, which climbed 141bps to soften the market\u2019s descent to 9bps. A deepening of losses followed on Wednesday, when the market lost 47bps. Gains in other sectors had little any impact on the Banking sector\u2019s 147bps dip as trade volumes fell for the third straight day.<\/span><\/p>\nHowever, the bulls ran the rest of the week as refreshed interest in the upper tier Banks trickled into other sectors of the market. Through this, the Construction, Petroleum Marketing and Banking sectors gained 3.08%, 1.19% and 0.90% on Thursday, spurning losses in the Conglomerates (-122bps) sector. On Friday, the Index consolidated on Thursday\u2019s 38bps gains with a further 44bps uptick, booked through the Breweries (+296bps) and Conglomerates (+108bps) sectors.<\/span><\/p>\nA few more results were released during the week. Notable amongst these were COSTAIN\u2019s and NASCON\u2019s FY\u201910 and Q1\u201911 numbers. COSTAIN\u2019s FY\u201910 revenues grew 52% to N9.6 billion, while PAT fell 115% to N97.9 million. Both bottom and top lines however declined over Q1\u201911 by 29% and 195%, to N1.4 billion and a loss after tax of N83.92 million. NASCON\u2019s numbers exhibited similar trends, growing its sales to N8.89 billion in FY\u201910 and booking a profit after tax of N1.65 billion (-10.53%). In Q1\u201911, its turnover fell 16.39% to N3.53 billion, while after tax losses set in to the tune of N154.21 million.<\/span><\/p>\nOn the economic scene, the Monetary Policy Committee hiked the Monetary Policy Rate by 50bps t0 8%, in the fifth tightening measure taken since September last year. Further to this, the Cash Reserve Ratio was increased by 200bps to 4%. With these steps, which are to take effect on June 8, 2011, the MPC hopes to rein in inflation and curb the sustained decline of the Naira since year open. In a related development, the National Assembly finally passed the 2011 Appropriation bill which showed a 10% cut to N4.4 trillion from the earlier amended version by the law makers.<\/span><\/p>\n52 losers outclassed 30 gainers for the week. Despite three days of gains, market breadth stayed negative as the gains on the last two days fed in mainly from few large caps. CONOIL and PLATINUM manned the top and bottom of the market with 14% and -19% respectively.<\/span><\/p>\nWhat will shape the market this week? – While the previous week was underpinned by losses, strong gains hit at the end of the past week to lead the market back into the greens. As well, we saw trades regain some intensity as investor confidence received a slight boost. As Nigeria swears in her new administration this weekend, we expect that a peaceful transition (following relatively credible elections) will buoy investor confidence some more; thus, informing our expectations of modest gains in the week ahead.<\/span><\/p>\nFocus for the week: MPC hikes rates: MPR up 50bps, CRR up 200bps<\/span><\/p>\n– MPC decision defies consensus<\/span><\/p>\nThe Monetary Policy Committee (MPC) raised the benchmark interest rate for the fourth time since the initiation of tightening in Sept\u201910. Following her 220th Meeting, the Committee hiked the MPR by another 50bps (from 7.5% to 8%); thus, defying market consensus and our expectation of an unchanged policy rate. In addition, the Cash Reserve Ratio (CRR) was raised by 200bps to 4% (effective June 8, 2011). This action was premised on the need to curtail inflation and defend the local currency (Naira) as the MPC believes that the post-election pressure on Naira is largely fuelled by liquidity-induced speculation, especially with the liquidity impasse of the AMCON deals.<\/span><\/p>\nWhile the ease in inflation rate in April suggests forbearance in tightening, fears of imported inflation on the back of a depreciating Naira seems to have informed the Committee\u2019s decision as the increased systemic liquidity continues to fuel supply of the LCY across markets. Notably, the Naira has lost 0.96% and 1.73% in the official and interbank markets respectively, post general elections.<\/span><\/p>\n– We pay more attention to the 200 bps increase in CRR<\/span><\/p>\nThe effect of the CRR hike may further suppress the sluggish growth in private sector credit as it contains the money creation potentials of the deposit money banks. While the rate hike will impact cost of capital across all instruments, the sterilization effect of the 2% increase in CRR has a potential freeze of some c.N220 billion in liquidity.<\/span><\/p>\n– Implications<\/span><\/p>\nCredit: While it is apparent that at the June Auction, the Government may not get the benign marginal rates of 11.039% (3-year) and 12.230% (5-year) which it enjoyed at this month\u2019s Auction, it is also likely that private sector credit growth will stifle further from its current level of -6.85% YoY, with implications for private consumption expenditure.<\/span><\/p>\nForeign Exchange: While we think the rising interest rates may suppress speculative supply of Naira in the weeks ahead, we conservatively maintain our position that our view of Naira stability in H2\u201911 will be driven more by some measure of fiscal consolidation, and imminent growth in FX inflows.<\/span><\/p>\nRates: Market tightness will push up rates marginally at the Interbank Market. Under a tighter liquidity scenario, some banks may be forced to take on higher cost deposits thereby capping the upside to Net Interest Margin (NIM) expansion.<\/span><\/p>\nFixed Income: Bond Yields which had initiated a reversal due to lower inflation at 11.3% will ratchet up, especially at the shorter end of the curve which we believe is more sensitive to the policy rate. This is supported by a base case possibility of reduced demand from Deposit Money Banks (DMBs) – the largest provider of liquidity in the secondary bond market.<\/span><\/p>\nEquities: We expect to see further appetite for cash and money market instruments as rates become more attractive. Nevertheless, our expectation of increased inflows of private investment hinged on exchange rate stability will modestly sustain our outlook on equities.<\/span><\/p>\nPlease see below our Stock Selections for the week.<\/span><\/p>\n<\/div>\n<\/p>\nView the original here:
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