The Market Today - 13 December 2018

Demand-Supply outlook puts OPEC deal in spotlight                                                     

In its December report, the Organization of Petroleum Exporting Countries (OPEC) maintained its 2019 crude oil demand growth forecast from the previous month at 1.29 mb/d. Demand for OPEC crude in 2019 is forecast at 31.4 mb/d, about 1.0 mb/d lower than estimated 2018 level. The supply cut of 1.2 mb/d, effective from January 2019 for six months is expected to support price stability whilst the group projects growth in Non-OPEC supply of around 2.16 mb/d in 2019, slightly lower than initial prediction of 2.23 mb/d. In 2018, Non-OPEC supply growth stood at 2.50 mb/d, much higher than anticipated, amid production ramp up in North America. Despite OPEC agreement over the output cut (last Friday), oil prices have remained low around $60/bbl, and weakened demand puts further pressure on OPEC and allies to ensure strict compliance to the agreement.                                                              

Industrial sector thrives amidst downturn                                                          

The ASI recorded a reversal in yesterday’s trading session, dipping 25bps following losses across three key sectors with the Industrial Goods sector recording the only positive performance on the day. Market breadth turned positive with 21 advances and 20 declines. With the market persistently weighed down by investor apathy, we anticipate another negative close today. That said, we reiterate the possibility of bargain hunting supporting a positive close.                                               

Stock Watch: STERLNBANK gained 10% in three consecutive sessions to settle at ₦1.85. The stock has gained 71% YTD, making it one of the best performing stocks in the Banking Sector.                                                          

Bond circular re-affirms primary market supply                                               

The CBN conducted another OMO auction yesterday, selling c.₦26 billion (offer: ₦100 billion) on the 92DTM and 267DTM bills (no sale on the 176DTM) at stop rates of 11.90% and 15.00% respectively (effective yields: 12.27% and 16.85%). Despite the mop up, the interbank call rate declined 833bps to close at 56.67%. According to the December bond offer circular released yesterday, the DMO would offer ₦70 billion across the 5, 7 and 10-year tenors next week. With many traders anticipating higher stop rates at the auction, we foresee some sell pressure on the securities on offer today. Also, whilst we note that ₦549 billion is due to mature today, we expect the CBN to conduct another OMO auction to stifle demand in the T-bills space.