The Market Today - 13 July 2018

Oil prices drop 6% in only a few days

Oil prices plummeted this week, dropping 6% from $78.86/bbl on Tuesday to $74.45/bbl on Thursday on the back of an escalating U.S.-China trade dispute and following reports that Libya’s oil export terminals were back online, bringing an end to export struggles in the North African country. Furthermore, early estimates suggest that Saudi Arabia and Russia combined for an additional 500,000 barrels of oil in June, though this was likely offset by production shocks in Canada and the North Sea, as well as ongoing challenges with Venezuelan crude supply. Nevertheless, the increased volatility in global oil prices may be more reflective of an escalating trade war that is creating a risk-off sentiment in the commodity market. We still expect oil prices to finish strong this year (forecast average: $67/bbl, ytd: $72/bbl), supported by strong global growth outlook and healthy demand. Banking blue-chips weigh on the Nigerian bourse.

Despite green closes across two key sectors, the Nigerian Stock Exchange posted another negative close (ASI: -7bps) in yesterday’s session, following weighty losses across banking stocks.We expect bearish sentiment to begin to taper off as investors bargain hunt on beaten down stocks, thus we expect a mildly positive close in today’s session.

Stock Watch: SOVRENINS has declined 30% over the last five sessions. The stock currently trades at a price of ₦0.21 and has declined 58% YTD compared to the Insurance sector’s 3% return.

CBN resumes OMO auction after long pause

After holding off on liquidity mop-ups for thirteen straight sessions, the CBN conducted an OMO auction yesterday offering N400 billion and selling N315 billion (same amount that matured) on the 70DTM and 210DTM bills at respective stop rates of 11.05% and 12.15% (effective yields: 11.29% and 13.06%). Sentiment in the T-bills space remained bearish amidst the auction, with yields rising 12bps on average. Specifically, yields on the 35DTM (+68bps to 12.06%) and 203DTM (+33bps to 13.00%) bills advanced. Similarly, trading in the bonds space was predominantly negative, particularly on the short end, though yields on benchmark bonds rose a meagre 2bps on average. Notably, yields on the 16.00% FGN JUN 2019 and 15.54% FGN FEB 2020 bonds advanced 17bps and 15bps to settle at 13.41% and 13.79% respectively.Amidst this, the Interbank Call rate advanced 59bps to 11.42%. Owing to the liquidity mop-up yesterday, we expect a tepid session in the fixed income market across both spaces with muted yield movements.