The Market Today - 06 December 2018

Nigeria under pressure to join OPEC supply cuts                                                             

Ahead of the OPEC general meeting in Vienna today, where a possible cut in crude production of up to 1 million bpd will be discussed, President Trump has once again called on OPEC to maintain oil production at current levels, tweeting yesterday that “The world does not want to see, or need, higher oil prices!”. That said, in spite of mounting pressure from the U.S., consensus expect the Saudi Arabia and Russia led OPEC+ to introduce a fresh round of production cuts to support prices. Meanwhile, delegates from other members of the group have expressed eagerness to include Nigeria and Libya in any production cuts. We recall that both countries were exempted from the previous cut of 1.8 million bpd in 2016 due to internal unrest and production issues. Should a new supply accord be reached, Nigeria may well have to contend with a cut in oil supply, a situation which might not tally with the 2.3 million bpd outlined in the 2019-2021 MTEF document.                                                 

The bourse remains positive despite 3 negative sectors                                                              

In spite of losses across three of four key sectors, the ASI gained 47bps yesterday, thanks to a positive performance in the Industrial Goods sector. Market breadth was even with 18 advances and 18 declines. Whilst we note the increase in bargain hunting activity, which has supported recent positive closes on the ASI, we note that the underlying investor sentiment remains weak and trading pattern, mixed. Thus, we anticipate a mixed trading session today.                                  

Stock Watch: FLOURMILL has gained in 3 consecutive trading sessions. The stock gained 422bps yesterday to settle at ₦21.00 and is currently trading at a 28% loss from its year open price.                

Liquidity constraint weighs on treasury bills market                                                      

The CBN conducted an OMO auction yesterday, offering ₦180 billion and selling ₦92 billion on the 92DTM, 183DTM and 351DTM bills at stop rates of 11.65%, 13.50% and 15.00% respectively (effective yields: 12.00%, 14.47% and 17.53%) – in line with previous auction rates. Driven by constrained system liquidity, the interbank call rate advanced 337bps, closing at 12.00%. Meanwhile, trading was mixed across the fixed income market yesterday, albeit with a bearish bias in the T-bills space – yields moved up 13bps on average. Driven by currently tight system liquidity, we anticipate further bearish trading in the market today.