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Breakfast Report - 26 August 2019

In the early hours of trading on Monday, Brent crude prices fell 1.1% with increasing tensions between the US and China weighed on investors’ confidence over global growth prospects. Brent fell as low as $58.71/bbl, the lowest since August 15, 2019. We highlight that the Chinese Commerce Ministry had announced last week that it would impose additional tariffs of 5% or 10% on a total of 5,078 products originating from the US, including crude. However, Brent price is still up c.13% ytd, as supply cuts by OPEC, coupled with U.S. sanctions on Iranian and Venezuelan oil, have helped prop up the market. Increasing volatility in oil prices have come as a result of weaker growth expectations, as fears over a slowdown in the global economy have affected crude demand. Oil receipts remain the major source of foreign currency for Nigeria, and the volatility in the global market has affected government receipts despite relatively stable production levels. With Nigeria’s budget oil price benchmark set at $60/bbl and a production target of 2.3 million bpd, current price levels do not favour government revenues, thus pressuring CBN forex reserves.

Equity: The equity market witnessed a week full of bargain hunting with most fundamentally sound stocks recording capital appreciation. The ASI recorded 3 consecutive sessions of positive returns which was last seen in May 2019. We expect a mixed trading session this week with continued positive run at the beginning of the week, while profit taking is expected later in the week.

Stock Watch: UNILEVER was among the top gainers for the week behind MAYBAKER and CUTIX, closing at ₦29.45 last week Friday. The stock, among others experienced buy sentiment, as investors took position in the stock which trades at a significant discount (43.90%) to its 52-week high (₦52.50).

Fixed Income: Hinged on an expectation of positive economic data release, we foresee persistent demand for FI securities at the start of the week.