Nigerian Stocks End Week Bearish -0,2% Dragged by Bellwether Counters

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In line with our prognosis, the bears dictated proceedings in the local bourse as investors booked profits on bellwether stocks. Precisely, the All-Share Index shed 0.2% to close at 52,979.96 points. Particularly, profit-taking activities witnessed in the shares of FLOURMILL (-10.7%), WAPCO (-8.3%), INTBREW (-6.8%), and MTNN (-4.8%) led the weekly loss.

May 21, 2022/Cordros Report

Global Economy

Fuel and food prices continue to pressure the United Kingdom’s (UK) household budgets. According to the Office for National Statistics (ONS), the UK’s headline inflation maintained an uptrend for the ninth consecutive month, increasing by 200bps to 9.0% y/y in April (March: 7.0% y/y) – the highest print in the National Statistics series, which began in January 1997. The persistent increase in inflationary pressures reflects the interplay between mounting consumer demand and supply-side constraints exacerbated by the Russia-Ukraine conflict. Further analysis revealed that price pressures remain significant in the costs of housing & utilities (19.2% y/y vs March: 7.7% y/y), food (6.7% y/y vs March: 5.9% y/y), restaurants & hotels (7.9% y/y vs March: 6.9% y/y), and transportation (13.5% y/y vs March: 13.4% y/y). On a month-on-month basis, consumer prices rose by 2.5% (March: 1.1% m/m). Inflationary pressures are still biased to the upside in the near term, with the Bank of England suggesting that inflation could peak at 10.0% later this year. The preceding suggests the BOE could be pressured to keep increasing the key policy rate. Indeed, the market now expects the BOE to hike rates by 30bps at its next policy meeting in June.

According to the flash estimates from Eurostat, the Euro Area’s real GDP grew by 0.3% q/q in Q1-22 (Q4-21: 0.3% q/q). In our opinion, the flattish growth is broadly reflective of the troika impact of the (1) Russia-Ukraine conflict, (2) shrinking consumer wallets amidst soaring inflationary pressures, and (3) China’s zero COVID-19 policy to contain rising COVID-19 cases. On China’s zero COVID-19 policy, we highlight that the country’s determination to maintain its zero-tolerance approach in its major production and export cities has worsened supply chain constraints. As a result, factories have been shut down even as logistics and port activities are approaching ground zero. On a year-on-year basis, the regional bloc grew by 5.1% y/y (Q4-21: 4.6% y/y), primarily driven by the favourable base from the corresponding period of the prior year. We expect the economy to shrink in the near term, given that the full impact of the Russia-Ukraine conflict became more evident at the beginning of Q2-22. Our prognosis is further corroborated by tightening financial conditions, reduced external demand arising from China’s strict COVID-19 restrictions, and soaring consumer prices.  

Global Markets

Global stocks posted mixed performances as sentiments were shaped by (1) a slew of disappointing earnings results in the US, (2) monetary policy easing in China, and (3) mounting concerns over a potential global recession as key central banks tighten monetary policy. Accordingly, US (DJIA: -2.9%; S&P 500: -3.1%) stocks were on track to close the week in the red as weaker-than-expected results from U.S. retailers, ignited fears over the impact of elevated inflation on corporate earnings. European stock markets (STOXX Europe: -0.1%; and FTSE 100: -0.1%) were on track for a negative close as inflation concerns dented sentiments. Asian markets were broadly positive, as the Nikkei 225 (+1.2%) was lifted by bargain hunting activities in stocks considered to be cheap. Similarly, the SSE (+2.0%) closed higher as sentiments were buoyed by the People’s Bank of China’s move to lower the five-year loan prime rate (LPR) by 0.15%. The Emerging (MSCI EM: +1.0%) and Frontier (MSCI FM: +0.1%) markets stocks inched higher following bullish sentiments in China (+2.0%) and Vietnam (+4.9%), respectively.



According to the National Bureau of Statistics (NBS), headline inflation rose by 90bps to 16.82% y/y in April – its highest print in eight months. During the review month, the increased price pressures primarily reflect the pass-through impact of (1) higher global gas and energy costs and (2) increased food demand associated with the Ramadan and Easter festivities. Accordingly, food prices rose by 18.37% y/y (March: 17.20% y/y) while the core inflation (+26bps to 14.18% y/y) advanced to the highest level since April 2017 (14.75% y/y). Consumer prices increased by 1.76% (March: 1.74% y/y) on a month-on-month basis. In May, we expect the headline inflation to maintain its uptrend given the impact of the (1) ongoing planting season, (2) lingering energy prices, and (3) unfavourable base from the prior year. Consequently, we expect the headline inflation to settle at 1.65% m/m in May, with the corresponding base from the prior year translating to a 74bps increase in the y/y inflation rate to 17.56%.

The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) is expected to hold its third meeting of the year on the 23rd and 24th of May 2022. We envisage the “reactive function” of the Committee will be significantly challenged at this meeting, given (1) the hawkish chorus among global central banks and (2) unabating domestic inflationary pressures amidst the lingering Russia-Ukraine conflict. We suspect the Committee would retain the MPR at 11.5% alongside other monetary policy parameters, given the CBN’s preference for its unorthodox policies. Besides, we think considerations about the implications of a rate hike on the domestic interest rate environment may prompt the majority of Committee members to push back a rate hike until the next policy meeting in July. However, we do not rule out the possibility of a 50bps hike in the MPR given the hawkish rendition among global central banks and the indirect impact of the Russia/Ukraine crisis on domestic inflationary pressures.        

Capital markets


In line with our prognosis, the bears dictated proceedings in the local bourse as investors booked profits on bellwether stocks. Precisely, the All-Share Index shed 0.2% to close at 52,979.96 points. Particularly, profit-taking activities witnessed in the shares of FLOURMILL (-10.7%), WAPCO (-8.3%), INTBREW (-6.8%), and MTNN (-4.8%) led the weekly loss. Consequently, the MTD and YTD returns for the index moderated to +6.7% and +24.0%, respectively. Elsewhere, activity levels were upbeat, as trading volume and value increased by 66.4% w/w and 16.9% w/w, respectively. Sectoral performance was mixed as the Insurance (+3.6%) and Oil and Gas (+0.3%) indices advanced, while the Banking (-1.2%), Consumer Goods (-1.0%) and Industrial Goods (-0.6%) indices declined. 

In the week ahead, we believe investors will be focused on the outcome of the MPC meeting scheduled to hold next week to gain further clarity on the movement of yields in the FI market. As a result, we envisage cautious buying actions from investors interested in cyclical stocks with attractive dividend yields. Notwithstanding, we reiterate the need for positioning in only fundamentally sound stocks as the weak macro environment remains a significant headwind for corporate earnings.

Money market and fixed income

Money market

The overnight (OVN) rate expanded by 333bps w/w to 12.5%, as debits for CRR, FGN bond (NGN378.41 billion) and CBN’s weekly auctions (OMO and FX) pressured the system and offset inflows from OMO maturities (NGN35.00 billion), FGN bond coupon payments (NGN8.50 billion) and FX retail refunds.

We expect system liquidity to remain strained next week, as expected inflows worth a combined NGN39.37 billion from OMO maturities (NGN30.00 billion) and FGN bond coupon payment (NGN9.37 billion) may not be sufficient to saturate the system.

Treasury bills

Trading activities in the NTB secondary market were mixed albeit with a bearish bias, following the uncertainty in the direction of yields at the recent primary market auctions. Thus, the average yield across all instruments expanded slightly by 1bp to 3.8%. Across the segments, the average yield contracted by 7bps to 4.0% at the OMO segment but expanded by 3bps to 3.7% at the NTB segment. 

Considering the relatively lower inflows expected in the system next week, we expect low demand for T-bills and a slight expansion in yields from current levels. However, at the NTB segment, we expect market focus to be shifted to the PMA on Wednesday, where the CBN is expected to roll over NGN153.03 billion worth of instruments.


The bulls dominated the Treasury bonds secondary market as the average yield across instruments declined by 10bps to 11.2%. We attribute the bullish sentiment to investors covering for lost bids at the FGN bond auction which was held on Monday (16 May). At the auction, the DMO offered instruments worth NGN225.00 billion to investors through re-openings of the 13.53% MAR 2025 bond (Bid-to-offer: 1.7x; Stop rate: 10.0%), 12.50% APR 2032 (Bid-to-offer: 1.5x; Stop rate: 12.5%) and 13.00% JAN 2042 (Bid-to-offer: 4.5x; Stop rate: 13.0%) bonds. Demand was moderate, with a subscription level of NGN575.62 billion, translating to a bid-to-offer ratio of 2.6x. The DMO eventually over-allotted instruments worth NGN378.41 billion (competitive allotments: NGN345.27 billion and non-competitive allotments: NGN33.15 billion), resulting in a bid-to-cover ratio of 1.5x. Across the benchmark curve, the average yield contracted at the short (-2bps) and mid (-27bps) segments as investors sold off the MAR-2027 (-17bps) and NOV-2029 (-34bps) bonds, respectively; but expanded at the long (+2bps) end following investors’ profit-taking activities on the APR-2037 (+27bps) bond.

We maintain our view of an uptick in bond yields in the medium term, as both the FGN’s borrowing plan for 2022FY and expected fiscal deficit point towards an elevated supply.

Foreign Exchange

Nigeria’s FX reserve sustained its descent for the third consecutive week, as it fell to its lowest level since 8 October 2021. Specifically, the reserves declined by USD175.17 million w/w to USD38.84 billion (18 May 2022). Across the FX windows, the naira was flat at NGN419.03/USD at the I&E window (IEW) but depreciated by 1.2% to NGN606.00/USD at the parallel market. At the I&E window, total turnover (as of 19 May 2022) decreased by 39.1% WTD to USD453.49 million, with trades consummated within the NGN410.00 – NGN453.35/USD band. In the Forwards market, the rate weakened at the 1-month (-0.1% to NGN418.63/USD), 3-months (-0.2% to NGN424.79/USD), and 1-year (-1.1% to NGN456.94/USD) contracts but was flat at the 6-Month (NGN434.54/USD) contact.

Given inflows from the recently issued Eurobond and the IMF’s SDR, we think the CBN has enough supply to support the FX market over the short term. Nevertheless, we note that foreign inflows are paramount for sustained FX liquidity over the medium term, in line with our expectation that accretion to the reserves will be tepid given that crude oil production levels remain pretty low. Thus, FPIs which have historically supported supply levels in the IEW will be needed to sustain FX liquidity levels. Therefore, in our opinion, we think (1) further adjustments in the NGN/USD peg closer to its fair value and (2) flexibility in the exchange rate would be needed to significantly attract foreign inflows back to the market.

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