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The Market Today - 20 July 2018

Chinese demand to buoy global gas market                                                         

The International Energy Agency (IEA) was relatively bullish in its 2018 outlook on the global natural gas market, citing Chinese environmental policy as a strong driver for demand growth in the sector. The IEA forecasts annual growth of 1.6% over the next five years, with China accounting for 60% of this growth in demand. The Chinese government has intensified its focus on environmental sustainability in recent times, prompting a national shift from coal to natural gas as a primary energy source, and according to the IEA, this would lift China above Japan as the world’s largest impoter of natural gas by 2019. We note that Nigeria is primed to benefit from this growth as it has the largest gas reserves in Africa, but the gas sector is underdeveloped in comparison to the oil sector, though recent efforts on the gas commercialization front should reap dividends.                                                

Consumer Goods large caps keep ASI under pressure                                                   

Dragged by negative closes across major Consumer Goods names, the NSE ASI (-76bps) slid to its fourth loss of the week. However, activity improved on the exchange, with top Banking names leading the charge. With market sentiment picking up yesterday, we foresee a slightly positive session as investors bargain hunt on beaten down stocks.                                                 

Stock Watch: ETI released their H1’18 results yesterday. The company saw a fall in its top-line to N385 billion (-1% y/y) but saw an increase in its bottom line to N52 billion (+37% y/y). The stock is currently trading at N20.70.                                                

Negative sentiment dominates as CBN mops up liquidity                                                           

Amidst a ₦430 billion OMO inflow, the CBN conducted an OMO auction yesterday, offering N550 billion and selling N496 billion on the 91DTM and 210DTM bills at respective stop rates of 11.05% and 12.15% (effective yields: 11.36% and 13.06%). Driven by the net outflow, the Interbank Call Rate advanced 116bps to 6.83%. Following the mop up, sentiment turned negative across the T-bills space, with yields advancing 19bps on average. Notably, whilst yields on the 77DTM (-116bps to 10.40%) and 196DTM (-27bps to 12.48%) bills declined, yields on the 56DTM (+102bps to 11.99%) and 168DTM (+48bps to 12.71%) bills advanced. Meanwhile, following the release of the Q3’18 Bond Issuance Calendar yesterday – indicating a potential increase in supply of the 5yr, 7yr and 10yr tenors at the auctions compared to the previous quarter – trading in the bond space was dominated by negative sentiment, with yields on benchmark bonds advancing 6bps on average. Particularly, yields on the 12.50% FGN JAN 2026 and 10.00% FGN JUL 2030 bonds advanced 20bps and 10bps to settle at 14.11% and  14.12% respectively. We expect a quiet close to the week on account of weak system liquidity. We also anticipate tepid investor sentiment ahead of the MPC meeting next week.