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The Market Today - 14 December 2018

ECB ends quantitative easing program                                                 

Mario Draghi, President of the European Central Bank (ECB), formally announced the end of the Bank's Quantitative Easing (QE) program at yesterday’s meeting. Going into 2019, the European apex bank will end net purchases under the Asset Purchase Program (APP) for the first time in four years but would continue to reinvest the principal payments of maturing instruments, even when the ECB begins to raise interest rates. The ECB President also revealed that the bank held all interest rates at previous levels at the meeting and delivered a lower growth forecast for 2019 (1.7% y/y), citing persistent uncertainties related to geopolitical factors, the threat of protectionism as well as vulnerabilities in emerging markets. We note that consensus expectation had been of an ECB rate hike sometime in 2019, but this may be threatened by a weaker growth outlook. Meanwhile, the U.S. Federal Reserve will hold its final meeting of 2018 next week, where it is expected to hike interest rates by 25bps to 2.5%.                                                              

Market dips as Oil & Gas index sheds 4%                                                            

Despite an even split between sector gainers and losers, the NSE ASI moderated 24bps thanks to a large decline in the Oil & Gas sector. Market breadth remained negative with 20 advances and 22 declines. While investor interest on select stocks remains evident, broad market sentiment has shown little sign of improvement. Thus, we expect a muted close to the week, with a negative tilt.                                   

Stock Watch: FO gained 979bps in yesterday’s session to take its gains for the week to 34%. The stock is trading 45% lower than its year-open price and is underperforming the Oil & Gas sector (-19%).                                                        

Mixed trading persists as CBN maintains tight grip on liquidity                                                

Amid a ₦499 billion OMO repayment, the CBN offered ₦500 billion and sold c.₦296 billion on the 91DTM, 182DTM and 364DTM bills at stop rates of 11.90%, 13.50% and 15.00% respectively (effective yields: 12.26%, 14.27% and 17.64%). As a result of the improvement in liquidity, the interbank call rate declined from 60.37% to close at 16.50%. We anticipate another OMO auction today as the CBN maintains its tight grip on liquidity. Thus, we foresee muted activity in the fixed income market at week close.