What shaped the past week
Global Markets
Global markets opened the week slightly positive, with the market weighing the impact of news flow on likely resignation of the Italian Prime Minister. Buoyed by the U.S. Federal Reserve announcement on further monetary accommodation through an increase its bond-buying scheme, markets continued north,with concerns around the U.S. fiscal cliff impasse squeezing market gains towards the end of the week.
Domestic Markets
In addition to the NGN888billion allocation for fuel subsidy in the 2012 budget, the Senate on Thursday approved an additional NGN161.6billion in a 2012 supplementary budget. The Federation Accounts Allocation Committee (FAAC) on Wednesday logged NGN161.59 billion to the Excess Crude Account (ECA), taking the balance up to USD9.66bn, even as the Central Bank of Nigeria this week announced that the nation's budget deficit for the third quarter stands at NGN459.1bn.
Equities: The NSE ASI closed the week up3.80%WoW, with aggressive demand in the two weighty sectors; Financials and Consumer Goods. Though interest waned in the Financials towards close of week, the Consumer Goods sustained gains to lift the market to its highest weekly gain of the second quarter. Overall market activity levels leaped 68.60% WoW with average value of transactions at NGN2.93billion.
Fixed Income:Withinflows totaling NGN367.89billion disbursed this week from statutory inflows and maturing bills, the CBN held two OMO auctions amounting to NGN273.15billion with stop rates between 13.3490% and 13.4999%, lower than last week's 13.67%.Trading in the T-bills market was relatively quiet asides focus on the short-tenor bills triggered by results of the OMO auctions. The bond market closed the week flat with modest activity on the 2019s and 2022s. The Debt Management Office (DMO) released the December Bond Auction circular, as a total of NGN76.5 billion will be offered in bond re-openings in April 2017, June 2019 and January 2022 bonds.
Money Market:Interbank NIBOR rates opened the week on a low, with the interbank and 7-day tenor rates at 11.2083% and 11.6667% as a result of the statutory inflows from FAAC late Friday. Following two rounds of OMO auctions, and subsequent maturity inflows, the rates rose to 13.5417% and 13.7917% and closed the week at highs of 14.500% and 14.8333% due to tight system liquidity.
Currency:Demand for FX in the autonomous market increased driven by expectations that the WDAS window would shut down for the year next week. The CBN ramped up its weekly sales by c9.6% WoW, selling a total of $246.054million, as greenback supply from oil majors thinned out.The Naira depreciated60kWTD at the Interbank market,to close at NGN157.70/USD.
What will shape markets in the coming week?
With the deadline for the U.S.fiscalcliff fast approaching, and the Congress still at a stalemate, global markets would likely retract gains as investors wait on the sidelines for clarity.On the domestic front, we expect activity levels to at best remain as the same levels as this week, with pockets of profit-taking in the Financials and Consumer names.
Focus for the week: Gold Trading Report
Gold closes flat on cautious trading….
Gold ended the month of November on a flat note, closing only $4.11 lower at $1,715.09 (October 2012 close – $1,719.20) after trading within a price volatility band of 4.47%. In our prognosis for the month (refer to October 2012 Gold Trading Report), we had anticipated greater support for the precious metal largely on the back of renewed concerns over the "Fiscal Cliff" which could support the QE3 program, and the likely progress in the European Central Bank's Bond Purchase Program on the Euro front, both of which remained nearly unchanged Good trend in earnings, thanks to renewed asset allocation.
Gold price drivers during the month
Following the re-election of the incumbent US president early in the month, the yellow metal traded largely flat as many investors perched on the sidelines, awaiting developments from the debates of the US policy makers who failed to reach a compromise on the terms of the 2011 Budget Control Act by month end. Also, following the International Monetary Fund's approval of another Greek bailout (partial debt forgiveness), worries over the co-operation of its European partners in the Greek debt buybacks and loan reductions dampened market sentiment, pressured down the Euro against the greenback and negatively affected the price of gold. Several news items and reports released during the month also indicated some progress in the US economy and provided support for the US dollar. These include the October US Non-Farm Payroll Report which rose by 171,000, the weekly decline in jobless claims and the US GDP growth rate which was revised to 2.7% in Q3 2012.
Naira/USD FX Performance
The Naira/Dollar Foreign Exchange Rate traded largely flat as the Naira depreciated against the USD by only 0.09% and therefore had a low impact on the price movement of the Naira NewGoldETF during the month.
NEWGOLD (Naira) Vs Gold
In the month of November 2012, the NewGoldETF traded a total of 1756 units (valued at c.N4.65 million), touched a high and low of N2,678.00 and N2,587.00 respectively and closed the penultimate month of the year 0.82% higher at N2,652.00 (October close – N2,630.00).
Our Prognosis for December 2012
During the month of December, while expected reports and events from the United States and the Euro Area such as the US Non-farm Payroll (expected to be much lower than October's due to Hurricane Sandy), weekly jobless claims, FOMC Meeting on December 12, Euro Area Unemployment Rate and ECB's Monetary Decision may effect significant price movements, we anticipate a more technical than fundamental play in the trading dynamics of gold.
Based on the precious metal's year-to-date return of 9.8%, we expect some portfolio rebalancing and moderate profit taking by portfolio managers on their year long positions, as well as, possible festive season cash-outs by investors in this concluding month of the year. We, however, also expect a mild uptick in the latter days of the month as investors may begin to take position ahead of the New Year.
In view of the above, we maintain our psychological support and resistance of $1,670.00 and $1,740.00 respectively, and foresee a slightly bearish trend for Gold in December 2012.
(For full report, kindly contact Vetiva Capital Management Limited at researchgroup@vetiva.com)
