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The Market Today - 06 December 2017

Senate passes MTEF, raises benchmark oil price                                                              

The Nigerian Senate has passed the 2018 to 2020 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP). Whilst the legislative arm maintained the oil production benchmark of 2.3 mb/d and the exchange rate benchmark of ₦305 to $1, it raised the oil price benchmark from $45/bbl to $47/bbl, resulting in an increase in projected oil revenues and a reduced borrowing target of ₦1.7 trillion (Previous: ₦1.8 trillion). This decision comes on the back of the extension of the Organization of Petroleum Exporting Countries (OPEC) output cut till the end of 2018 – an agreement expected to support global oil prices through the year. We consider the benchmark price adjustment to be reasonable given consensus expectation for oil prices in 2018 (International Monetary Fund forecast: $56/bbl) and highlight a comparison with Ghana which has set a benchmark price above $57/bbl. Finally, we are hopeful that the expeditious passage of the MTEF would ensure a similar outcome for the 2018 Budget.                                                                

Five in a row for the NSE ASI, adds 137bps                                                          

The Nigerian stock market closed in the green for the fifth consecutive session with the All-Share Index climbing 137bps on the day. Supported by the visibly stronger buying sentiment across key sectors, we expect another session of positive trading on the exchange.                                                      

Stock Watch: DIAMONDBNK has gained 21% over the last six sessions. The stock currently trades slightly below its year-high at N1.40 and has returned 59% Ytd. The Tier II bank however continues to trade at a significant discount to Vetiva’s target price of N3.43.                                                                                                   

F.I Yields decline as CBN holds off on OMO auction                                                       

As the CBN continued to hold off on OMO auctions, Interbank Call rate declined further to 16.00% (Previous: 21.50%). In the absence of any OMO auctions to further tighten liquidity, buying interest strengthened in the fixed income market. Specifically in the T-bills market, yields moderated 33bbps on average. Likewise, buying resurfaced in the bond market with yields moderating by 6bps on average. As the CBN continues to hold off on OMO auctions, we expect another upbeat sentiment in the fixed income market, with participants positioning for further liquidity boost on Thursday. Particularly for the T-bills market, we believe interest will be weighted towards mid-dated maturities where the CBN had previously concentrated its mop-ups.