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The Market Today - 07 August 2018

Gulf challenges to lift oil prices                                                               

Global oil prices picked up on Tuesday as Brent broke the $74/bbl barrier for the first time in August following reports that Saudi Arabian production dipped in July. The expectation was that Saudi Arabia would ramp up production further in July and contribute a majority of OPEC’s planned 1 mb/d production increase, but early estimates suggest that production fell by nearly 0.2 mb/d in the Middle Eastern country. In addition, U.S. sanctions on Iran take effect this week, putting Iranian oil exports at risk. We recall that following the imposition of the previous sanctions, Iranian production slumped by more than half as the country struggled to find buyers for its crude. Given these developments, particularly the U.S.-Iran dispute, the near-term outlook for oil prices is more positive, and Brent crude could reach the $75/bbl mark last attained in early July.                                                            

Banking bulls inspire market recovery                                                  

"Despite green closes across three of the four key sectors, the NSE ASI closed marginally lower (-6bps) following a late drop in the Consumer Goods sector. We foresee another day of mixed trading with a negative tilt amidst sustained tepid market sentiment, evidenced by the low value traded and negative market breadth.                                   

Stock Watch: ZENITHBANK released its H1’18 results yesterday showing a 15% y/y decline in revenue. The company however posted a 9% gain in PAT, 6% below Vetiva estimates, and also declared a ₦0.30/share. The stock has recorded a 6.59% decline ytd and currently trades at ₦23.95.                                                     

Mixed trading persists at week open                                                    

"Despite the absence of the an OMO auction and relatively healthy liquidity (₦337 billion), the interbank call rate advanced 359bps to 7.92%. Trading in the T-bills market persisted mixed at week open, with yields across maturities relatively unchanged on average. Specifically, whilst yields on the 10DTM (-29bps to 11.06%) and 101DTM (-35bps to 10.99%) bills moderated, yields on the 38DTM (+32bps to 11.82%) and 143DTM (+12bps to 12.65%) bills advanced. Likewise, sentiment in the bond space was varied, as yields closed flat on average across benchmark bonds. Of note were the 14.50% FGN JUL 2021 bond, which advanced 4bps to settle at 13.72%, and the 16.39% FGN JAN 2022 bond which declined 3bps to 13.75%. We expect healthy system liquidity to drive stronger buying in the T-bills space in the coming session, barring a liquidity mop-up by the CBN. Meanwhile, we expect another quiet session in the Bonds space, in the absence of a significant market catalyst.