FREE

The Market Today - 11 January 2019

Brent crude rebounds, climbs above $60/bbl

Brent crude prices crossed $60/bbl for the first time in 2019 yesterday, supported by OPEC+’s supply cuts, supply concerns from marginal crude producers and a more favorable global trade outlook as U.S. and China resume trade talks. We recall that OPEC and its allies agreed to a total output reduction of 1.2mb/d in 2019. However, analysts at the time raised doubts over whether the cuts would be enough to stabilise crude prices above $60/bbl. Notably, Saudi Arabia cut its crude output by 0.4mb/d in December, with oil Minister Khalid al-Falih promising a 0.8mb/d cut by the end of January. Al-Falih also said that he would not rule out calling for further action from the oil cartel, while noting the improvement in market conditions. Meanwhile, crude producers Libya and Venezuela – who were excluded from the cuts – have experienced further set-backs in oil production, leading to fears over oil supply. Should supply continue its downward trend, we foresee oil prices remaining stable above $60/bbl during the year.

Market rebounds following Banking and Industrials demand                                          

After a largely positive session, the ASI advanced 63bps yesterday driven by strong gains in three of four key sectors. Intraday activity was generally positive, with three key sectors closing in the green. Market breadth turned positive with 21 advances and 17 declines. Whilst market indicators turned positive in yesterday’s session, we note that overall investor sentiment to remain weak ahead of the general elections. Thus, we foresee a mixed to negative close to today’s session.                              

Stock Watch: Whilst the ASI has been on the decline since the turn of the year, JBERGER has seen consistent gains, rising 41% in the last seven sessions and is currently the best performing stock on the exchange. The stock currently trades at ₦28.40.                                           

Muted FI market stifled by continued CBN mop-ups                                            

Amid a ₦316 billion maturity, the CBN conducted OMO auction, offering ₦400 billion and selling ₦297 billion across the 91DTM, 189DTM and 364DTM bills at stop rates of 11.90%, 13.50% and 15.00% respectively (effective yields: 12.26%, 14.51% and 17.64%). Meanwhile, Trading in the T-Bills space remained muted with a positive tilt. Overall yields declined 4bps on average as buying was observed on the short-to-mid-end of the curve.On the other hand, trading in the bond space turned negative, with benchmark yields advancing 4bps on average as some selling was observed across the space. The CBN also sold ₦46 billion of the 364DTM bill in a special OMO. Following the net maturity, the Interbank Call rate declined 400bps to settle at 22.67%. As the CBN maintains its tight monetary controls, we expect demand in the Fixed income space to remain constrained at week close.