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Breakfast Report - 04 February, 2019

The Week Ahead The Week Ahead Brent closed at $61.89/bbl on Thursday to take January’s gains to 15%, the best m/m gains since April 2016, with sentiment from traders more bullish thanks to lower OPEC+ supply, expected dips in Venezuelan crude production and a slowdown in U.S. shale production growth. We recall that OPEC+ began another round of cuts in January 2019, which is expected to mop up c.1.2 million bpd from the global crude market. Also, Venezuelan exports to the U.S. were put in jeopardy following threats made by President Donald Trump about imposing sanctions on Venezuelan oil exports. The country, which has exported roughly 0.5mb/d to the U.S. could see those numbers fall drastically should the political stand-off persist. On the other hand, Germany, France and the UK have set up a Special Purpose Vehicle (SPV) with Iran, which would enable European countries continue to trade with the Middle Eastern nation, circumventing U.S. sanctions. Whilst the channel will not be used to trade crude initially, the potential for Iran to maintain crude sales outside of U.S. sanctions cannot be ignored. With OPEC+ cuts continuing to keep crude prices above the $60/bbl. mark, we expect steady prices for the rest of the year. Equity: Following successive negative performances in four out of five sessions the ASI posted a mildly positive day on Friday, gaining 26bps d/d, albeit down 2.51% w/w. In line with trend in the past few weeks, we see the possibility of a recovery in the market this week driven by bargain hunters. That said, though we expect cautious sentiment to remain prevalent ahead of the elections, we foresee select fund managers taking positions in beaten down stocks as the elections draw closer. Stock Watch: DANGFLOUR lost 3% on Friday to bring its losses last week to 11%. The stock recorded red closes in three out of five sessions and is currently trading at ₦5.80, down 15% YTD (Consumer Goods sector: -7% YTD). Fixed Income: Despite constant liquidity tightening by the CBN last week, demand for T-Bills has remained fairly upbeat, thus we expect yields to decline further at the start of this week, albeit marginally. In the bonds space, we foresee further mixed trading with a slant towards buy-side activity.