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The Market Today - 07 September 2018

Oil prices open strong in September                                              

Oil prices have enjoyed a happy first week in September, averaging $77.41/bbl mtd, compared to its averages of $74.95/bbl and $73.84/bbl in July and August respectively. This rise has occurred on the back of plunging Iranian oil exports as a result of U.S. sanctions on the Iranian economy, with oil traders shifting focus from the U.S.-China trade war which had earlier moderated prices. However, such heady prices are under threat from production increases elsewhere, with the most recent Platts survey pegging OPEC production at a 10-month high in August and the latest data from the U.S. energy agency suggesting that production there touched 11 mb/d for the first time on record. Oil demand may be the determining factor for medium-term prices, and OPEC remains bullish on this front, projecting that global oil demand will breach the 100 mb/d mark this year. We note that oil prices continue to outperform forecasts and are a strong positive for the Nigerian economy. Supported by the effect of U.S. sanctions on Iran in particular, we expect prices to remain stable for the rest of the year.                                       

Nigerian market sell-off persists as blue-chips falter                                           

The Nigerian bourse drew to a red close yesterday, shedding 88bps on the back of selling concentrated on blue-chips in the Banking and Consumer Goods sectors. With market sentiment deteriorating through the week, mostly negative trading yesterday and a broadly negative market breadth, we anticipate a negative conclusion to the week, though bargain hunting may impact closing positions.                                     

Stock Watch: GUARANTY has hit a year-low of ₦34.95. The stock has lost 14.23% ytd, shedding 8% of its value in the last thirty days and is trading 29% below our target price of ₦51.58.                                             

CBN conducts third auction, rates advance in FI market                                     

Amidst a ₦295 billion inflow via a T-bills maturity, the CBN conducted another OMO auction yesterday, where they offered ₦550 billion and sold ₦189 billion across the 63DTM, 126DTM and 182DTM bills at stop rates of 10.00%, 11.50% and 12.50% (effective yields 10.18%, 11.98% and 13.33%) respectively. In spite of the mop up however, Interbank Call rate further declined by 17bps to 3.00%. Meanwhile, trading turned tepid in the T-bills space, with yields advancing 15bps on average. Notably, sell pressure was prevalent at the short-end of the space, with yields on the 70DTM and 84DTM bills advancing 62bps and 63bps respectively to settle at 11.24% and 10.60%. Trading sentiment was also weak in the bond space, with yields advancing 2bps across benchmark bonds. Similarly, the bulk of sell-offs fell towards the short-dated tenors, with yield notably declining 34bps on the 12.098% FGN JAN 2020 bond to settle at 14.62%.