Breakfast Report - 30 October, 2017
The Week Ahead
At the close of last week, Brent crude price rose above $60/bbl for the first time since July 2015, following statements from Russia and a number of OPEC countries indicating that they would strongly favor extending the current output cut agreement beyond March 2018. Saudi Arabia, OPEC’s biggest producer is leading OPEC and other oil producers such as Russia to restrict oil supplies by about 1.8 mbpd under a global oil pact to drain global inventories and boost oil prices. As compliance with the deal has strengthened, the move has been able to trim global crude inventories and support prices. We note that an extension to the current deal would further firm global oil prices, providing stronger support for Nigeria’s federal revenues (2018 budget benchmark: $45/bbl) which remain dependent on oil (2017 proportion: 42%). We expect this development to be positive for Nigeria’s foreign exchange market, as well as the upstream players in Nigeria’s oil & gas industry.
The Nigerian stock market shed 15bps at last week’s close to bring w/w loss to 34bps.
We note that sideways trading persisted on Friday as investors reacted to mixed corporate earnings. We expect this sentiment to filter into this week and anticipate a negative week open even as more corporate earnings are released.
Stock Watch: UACN shed 500bps on Friday as investors reacted negatively to the release of its 9M’17 results. Notably, whilst revenue grew by 21% to ₦69 billion, PAT fell sharply by 55% to ₦2 billion. The stock closed at ₦18.05 and has returned 7% ytd.
Whilst we expect demand to remain modest across the fixed income space as investors continue to lock in current high rates, we believe that the tight system liquidity will cap activities in the space and as such foresee sustained mixed trading. Also, the CBN would be offering ₦93 billion at the T-bills Primary Market Auction this Wednesday.
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