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The Market Today - 11 May 2018

Will high oil prices budge budget benchmark?                                                 

Following the strong oil prices seen in 2018 (ytd average: $69) and delayed passage of the 2018 Budget, the National Assembly may be considering raising the crude oil price benchmark from the initially proposed $47/bbl in the 2018 Budget to $50/bbl. We consider this likely as oil prices have proven unexpectedly resilient so far this year and are anticipated to remain strong for the rest of the year, supported by the OPEC deal and ongoing geopolitical challenges. Moreover, an increase in the benchmark price would boost government oil revenue projection, which would help narrow the projected deficit, reduce the need for borrowing, and also imply a lower contribution to the discretional excess crude account. We see the $50/bbl target as conservative as we project oil prices to average at least $60/bbl this year.                                                            

ASI retreats amid sell-offs in Oil & Gas stocks, DANGCEM                                                          

Selling momentum accelerated in the Nigerian equity market, with the All-Share Index shedding points for the third consecutive session following notable sell-offs in Oil & Gas stocks. Led by an early session dip in DANGCEM, the ASI remained in negative territory throughout the trading session. Amidst the weak market sentiment, we believe the ASI will round off the week in the red, extending losses to four consecutive sessions.                                                   

Stock Watch: OANDO has shed 11% over the last six sessions. We highlight that the stock was removed from the Oil & Gas index during its technical suspension which has been lifted since April 2018. The stock currently trades at a price of ₦8.15 and has returned 36% ytd.                                                        

Stop rates inch up at OMO auction                                                         

Following a ₦273 billion OMO maturity, the CBN conducted an OMO auction yesterday, selling N454 billion (offer: N250 billion) across the 119DTM and 231DTM bills at stop rates of 11.05% and 12.15% (effective yields: 11.46% and 13.16%) respectively. These rates come in only slightly higher than the stop rates from the last auction. Sell pressure was weighted heavily on the T-bills space with yields advancing 41bps on average. Whilst sentiment in the bond space was largely tilted towards selling, we saw yield moderations recorded across a handful of longer dated tenors. On average, yields on benchmark bonds advanced 6bps on the day. Whilst we expect a less active trading session at week close, we believe sentiment will remain tilted towards the sell side driven by the net liquidity outflow and the slightly higher rates at the OMO auction.