Breakfast Report - August 14, 2019

The Week Ahead                                                       

Last week, Brent crude price hit a 7-month low, with the benchmark falling to as low as $56.75/bbl, down 5% w/w. The bearish trading pattern was driven by increasing global growth pessimism on the back of the most recent breakdown in trade talks between the U.S. and China. To recap, the U.S. announced a new round of tariffs on Chinese imports from September 1, prompting a decision by Beijing to weaken the Renminbi against the U.S. dollar – an action that makes U.S. imports more expensive. However, Brent rebounded to above $60/bbl at the start of this week on the back of news that the new round of tariffs would be delayed. Whilst the outlook for demand remains weak, U.S. oil stockpiles have continued to rise, adding further pressure on oil prices. At current price, Brent crude currently trades just at Nigeria’s budget benchmark of $60/bbl, with further uncertainty increasing the country’s inherent risk of oil revenue shortage.                                               

Equity: The Nigerian Equity market remained pressured as market bellwethers continued to drop to year-lows. We expect the bearish trading pattern to persist, as the general sentiment around the market remains weak.                                                       

Stock Watch: The five Tier I banks recorded declines as sell pressure on the heavyweights drove the Banking index 159bps down. We expect the sector to remain pressured until the release of H1’19 results. However, the current prices of the big names in the sector creates an ample opportunity for long term investors. The Banking sector depreciated by 6.05% w/w.                                                

Fixed Income: With a PMA scheduled for today and a truncated trading week, we expect yields to advance at a slower pace in the T-bills space. We also expect bond yields to continue to advance, as sentiment remains weak.