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The Market Today - 21 February 2019

Oil continues to climb despite shale production ramp-up                                    

Crude oil prices continued their upward climb with Brent crude hitting $67.22/bbl as OPEC production cuts continue to rally the market. Reports from Russian production figures indicate a 0.08 mb/d cut from October levels also supported oil prices, while US shale production has been on the rise- the Energy Information Administration (EIA) expect shale production alone to reach 8.4mb/d in March. The projected rise in shale production cooled investor confidence in the oil rally, however, investor optimism over a potential U.S.-China deal raised hopes of an increase in oil demand. An end to the on-going trade war would drive investor sentiment and likely spur a rally in the oil market. However, the sustainability of the oil rally depends on the status of other oil producers such as Libya, Venezuela and Iran.                        

Gains persist as Consumer Goods stocks lead                                           

The market marked another positive session yesterday, with gains in three out of four key sectors. Market activity remained buoyant with total value of trades increasing to ₦5.6 billion. Market breadth turned positive with 26 advances and 15 declines. Following another positive close in the market yesterday, we highlight positive sentiment erasing the expected sell-pressure effect and expect to see more upticks driven by the continued release of company financials.                                    

Stock Watch: OANDO gained 6% in yesterday’s session to settle at ₦6.30, a seven-month high for the stock. The stock has returned 26% year-to-date, out-performing the Oil & Gas sector (-1%).                                                    

Oversubscribed bond auction closes at lower rates                                              

While the CBN held off conducting a mop-up yesterday, the DMO held its February Bond Auction, selling the full allotment of ₦150 billion across the 5-year, 7-year and 10-year maturities at stop rates of 14.52% and 14.79% and 14.94% respectively –lower than previous levels.  Meanwhile, trading in the secondary T-bills market turned mixed, with buy interest observed on the mid-dated bills and yields declining a mere 1bp on average.  Meanwhile, amidst the auction, trading in the bond market turned negative with sell-offs on select maturities, with average benchmark yields advancing 7bps.         With the CBN once again refraining from OMO activities, we expect to see increased activity in the T-bills space driven by improved liquidity. Also, with the 10-year bond closing slightly above secondary market levels, we expect slight upwards yield adjustments in the secondary market."