Expect Cautious Trading As Investors Digest Impact Of Latest CBN Rate Hike, Earnings Inflow

Market Update for July 19

The nation’s equity market on Tuesday gave up the previous session’s gains, after forming a top reversal pattern on a daily time frame to reveal a strong resistance level in the midst of increased volatility and the earnings reporting season. This happened on a day majority of the Central Bank of Nigeria’s Monetary Policy Committee voted to hike the Monetary Policy Rate (MPR) by 100 basis points to 14%, from 13% in May at the end of Central Bank of Nigeria MPC meeting yesterday. This has taken the country’s interest rates to the 2016 level where her economy entered its first recession in 25 years.

The mixed sentiment and flat position of the that halted the two consecutive sessions of bull transition on above average traded volume and par market breadth to remained above 52,000 on buying interests in insurance, energy and industrial goods to trades above the ‘T line and 20-day moving average. The outcome of the MPC meeting is expected to increase the ongoing sectorial rotation as more corporate earnings hit the market in the coming days.

Cautious trading is likely to continue in the market due to the rising inflation and rate hike across the globe, which are slowing down economic growth and pointing to a recession. However, despite the prevailing challenges and mixed outlook of many economies, there are opportunities in some sectors for medium to long-term investors to hedge against the soaring inflation and down market, even as the half-year earnings reporting season is ongoing.

With the days of surprises and disappointing earnings drawing closer, it is time to keep your eyes on price actions, if you have been ignoring the charts and fighting the trends, it is your chance to step up your game. At this current market mood, investors and traders should target leaders in the various sectors with strong fundamentals, and positive technicals as the market side trends to resist further decline.

The new market environment of rising inflation, interest rates and the coming general elections call for new trading and investing strategies, as factors that kept the market in its oscillating trend remain unchanged. This is happening amidst the expectation of interim dividend-paying corporate earnings, and others will be game-changers as we go further into the quarter with increasing political activities ahead of the 2023 general elections and the ongoing war between Russia and Ukraine. Also, inflation rates in the US hit a 40-year high at 9.1% and beyond expectation, signaling a higher rate hike by Fed, as the IMF has recently downgraded the world economic outlook due to the geopolitical crisis, rising inflation and oscillating oil prices.

To navigate the month profitably using fundamental and technical analysis to run, join investdata live sessions at noon every trading day “and also get investdata technical toolbox to play the current state of the market do suggest that discerning investors are gradually becoming greedy, while others are fearful, as seen in the recent range market. Despite the mixed sentiment witnessed, it is time to go shopping for undervalued stocks, sectors and the next insider playing opportunity.”

Technically, the NGX index’s action is on a distribution phase as indecision and cautious trading activities heightened on increase in interest rate, despite the bull trend on medium and long term remained intact on high priced stocks rally or price gain. The daily index and price actions as we go into the earnings season will give direction as to what we should do and expect in Q3, just as more insights into the entire second half will unfold. Market recovery at this point may be powerful, depending on the state of the expected corporate and economic numbers, although with the possibility of maintaining what we saw in 2021 and the Q1 corporate earnings, as portfolio rebalancing and sector rotation continue.

Market players are implored to watch the price actions and volume, which simply mean that the market tells you what to do, and not the other way around, because the price is always right and does not care whatever a trader feels. Bull markets can go on for days, weeks, months, and years, but bear markets happen unexpectedly and can quickly destroy a trader’s profits, or even trading account if a stop loss is not in use.

Oil price rebounded to $106.2 per barrel in the international market, despite the fear of recession to remain above $100 per barrel, after COVID-19 restriction has slow down China economic growth in the recent data released.  All these have continued to influence the monetary policy options of central banks as they move to checkmate impacts of the Russia-Ukraine conflict on the global economy to avoid the looming economic recession. Nigeria’s soaring inflation is a potent threat to the fixed income market and investment yields, which should be an indication that there will be a reversal of funds flowing back to equity space in no distant time, as institutional investors rebalance their portfolios.

The possibility of the trend being sustained is high, and a function of market forces and improved economic conditions during this month and beyond, following which we advise investors to play defensive stocks and reduce investment risks around the market.

Tuesday’s trading started slightly on the upside but oscillated for the rest of the day on buy interest and selloffs in blue-chip stocks, a situation that pushed the NGX’s index to an intraday high of 52,333.28bps from its lows of 52,250.79ps before closing slightly below its opening points at 52,308.88bps.

Market technicals were positive and mixed, with high volume traded than the previous day in the midst of flat breadth on a buying sentiment as revealed by Investdata’s Sentiments Report showing 70% buy position and 30% sell volume. The total transaction volume index stood at 0.88 points, just as momentum behind the day’s performance was weak as Money Flow Index is looking down at 23.68pts, from the previous day’s 32.75pts, indicating that funds left the market.

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Index and Market Caps

The benchmark NGX All-Share Index, at the close of trading slipped by a marginal 11.06bps, closing at 52,308.88bps, after opening at 52,319.94bps, representing a 0.02% drop. Similarly, market capitalization fell by N5.97bn, closing at N28.21tr, from the previous day’s N28.20tr, which also represented a 0.02% value loss.

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Meanwhile, Tuesday’s downturn was driven by profit taking in shares of MTNN, Unilever, Consolidated Hallmark Insurance Plc, International Breweries, Academy Press, Caverton, UPDC, Accesscorp, and United Capital, among others. This impacted mildly on Year-To-Date gain, as it slides to 22.46%, while market capitalization growth YTD was up slightly to N5.08tr YTD, a 26.52% rise over the opening level for the year.

Mixed Sector Indices

Performance indexes across sectors were mixed, as the NGX Insurance, Energy and industrial Goods closed higher with 0.86%, 0.79% and 0.19% respectively, while the NGX Banking led the decliners after losing 0.41%, followed by Consumer goods with 0.13% and 0.04%.

Market breadth was at equilibrium, as loser’s equals gainers in the ratio of 16:16; just as activities in volume and value terms were mixed, after players transacted 205.64m shares worth N2.79bn, with volume driven by trades in UBA, Accesscorp, AIICO, FBNH and GTCO.

RT Briscoe and GSK were the best-performing stocks after gaining 10% and 9.02%, closing at N0.44 and N6.65 per share respectively on market forces and earnings expectation. On the flip side, Multiverse and Japaul Gold lost 9.50% and 7.41% respectively, closing at N1.62 and N0.25 per share, purely on selloffs.

Market Outlook

We expect cautious trading as players digest the rate hike outcome of MPC meeting, as market expects more earnings reports and interim dividend. We note also the flow of funds into the fixed income segment on the rate hike by the CBN, as sector rotation persists. Analysts are also on the lookout for Q2 GDP and flow of funds amid oil prices oscillation. Also, the market continues to interpret the rising inflation in relation to the crude oil price and other factors, in the midst of profit-taking and portfolio rebalancing. This will result in market players targeting fundamentally sound and dividend-paying stocks in the hope of dividend announcements.

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Ambrose Omordion

CRO|Investdata Consulting Ltd

info@investdataonline.com

info@investdata.com.ng

ambrose.o@investdataonline.com

ambroseconsultants@yahoo.com

Tel: 08028164085, 08179547605

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