AXA Investments MCR: Find Out How Equity and Fixed Income Performed in October

Economy Overview in October

On the Global Scene, the bullish run in the US economy continues as the US job market remained resilient in the month of October, the Non-Farm Payroll increased, as 150,000 new jobs were created, though lower than expectation of 190,000 new jobs. The job market has however continued to act as a buffer to the economy in its leaning towards a recession.

Despite the increased NFP, the economy saw a slight increase in the unemployment rate by 10bps taking it to 3.9%. This marks the highest jobless rate since Jan. 2022 with unemployed individuals increasing by 146,000 to 6.51 million.

In view of this, the FOMC decided to hold the fund rate at the current levels of 5.25% – 5.5% making it the second consecutive time that the committee is holding rate in its last 2 minutes and the third time this year

On the Domestic Scene, , the Nigerian Bureau of Statistics released the inflation report which showed headline rates for Sept’23 at 26.72% year-on-year from 25.80% recorded in the previous month signalling an increase by 92 bps. This is attributable to the persistent depreciation in the value of the Naira in the FX market. Food and core indices surged by 70bps and 95bps to 30.60% YoY and 22.10% YoY respectively. On a month-on-month basis, the index rose to 2.10% following a 3.18% increase in the prior month.

The Central Bank Governor hinted on the expectation of $10billion by the apex bank to ease the demand pressure in the FX market, back the domestic currency – Naira against foreign currencies and to also boost the confidence of foreign investors in Nigerian economy.

Despite the war in the middle east between Israel and Hamas, Crude oil price declined by 7.06% to close the month at 93.80% as the sharp uptick the crude oil prices was short-lived by the change in the expectation of market participants on the effect of the war on the crude oil market. The decline is also driven the gloomy demand outlook as US ISM PMI fell more than anticipated, China’s manufacturing PMI also declined as well as slight increase in the US SPR.

The Nigerian Capital Market

The Domestic Equity Market closed the month of October on a positive note, with a monthly return of 4.30% (v. -0.25% in Sep’23). This brought the YTD return to 35.09% (v. 29.52% in Sep’23).

The Banking sector gained 7.54% (YTD – 70.51%), Industrial sector gained 6.54% (YTD – 18.05%), Pension sector gained 4.21% (YTD – 65.59%) led the profits. However, Insurance sector lost -1.61% (59.69%)

The Nigerian Fixed income was largely bearish in the month of October, with buy interest dominating the curve across all ends. Consequently, average yields Increased by 127bps (vs 14.20% in Sep’23).

In the month of November, we expect a positive system liquidity stemming from FAAC allocations. Despite this, we expect yields to trend higher on the back of the OMO activities by the CBN, Bond auction, NTB auction as well as the CRR debits to mop-up the liquidity.

At the FGN Bond Auction, the DMO offered four maturities- Apr’29, Jun’33, Jun’38 and Jun’53 with stop rates at 14.90%, 15.75%, 15.80% and 16.60% respectively with the DMO selling a total of N334.74bn versus a total offer of N360bn across all maturities.

At the last NTB primary auction conducted during the month, stop rates stood at 5.99%, 9.00% and 13.00% for the 91-day, 182-day and 364-day papers respectively. The DMO offered N108.13bn but allocated N370.34bn across the three tenors. Average yields trend higher by 656bps to settle at 11.28%.

In November, we expect higher yields hinged on expectation of tightened liquidity due to the OMO activities by the CBN, Bond auction, NTB auction as well as the CRR debits to mop-up the liquidity.