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The Market Today - 13 February 2019

OPEC cuts 2019 crude demand forecast                                        

The Organization of Petroleum Exporting Countries (OPEC) has cut its forecast for its share of global crude demand in 2019 by 240,000 bpd to c.30.6 million bpd. This comes amid expectations of slower global economic growth (IMF cut growth forecasts by 0.2ppts in January). and gradually increasing U.S. Shale production. Notably, the cartel reported a c.0.8 million bpd decline in output in January to 30.8 million b/d, representing an 86% compliance level to the production cuts agreed in December. The weak compliance is a worrying statistic, especially as U.S. shale producers are widely expected to continue ramping up capacity. On the positive side however, Saudi Arabia will reportedly cut down crude production to 9.8 million bpd by March, 5,000 bpd higher than its proposed cuts. Also, Venezuela’s output fell further in January, with the country’s output now around the level it was in the 1940s. Further sanctions from the U.S. could see Venezuelan production fall further. Overall, we expect these headwinds to be counteracted by OPEC supply cuts and forecast average crude price of c.$60/bl in 2019.                                         

Market climbs as positive performance continues                                    

Following another encouraging session, the NSE ASI gained 214bps yesterday thanks to positive performances across all sectors. Continuing with recent trends, market remained very active, with market turnover printing at ₦8.0 billion. Market breadth remained wide with 41 advances and 14 declines Following another positive performance yesterday, we note improved market sentiment and continued interest from investors. We expect this rally to continue in today’s session as investors continue to cherry-pick stocks ahead of the upcoming polls.                                               

Stock Watch: FIDELITYBK is currently the second-best performing stock on the exchange. The stock gained 5% yesterday to close at its year-high price of ₦2.78. The stock has gained 18% in the past three sessions to post a +37% ytd return (Banking sector: +11%).                              

Demand turns tepid as OMO auction sees no sale                                     

The CBN conducted an OMO auction yesterday, where it offered ₦65 billion across the 93DTM, 184DTM and 359DTM bills. Interestingly, the apex bank did not sell any of the bills even as some investors keyed in their bids at the recent stop rates. Meanwhile, the Interbank Call rate declined 19.16% to settle at 24.17%. With the CBN signaling an intention to cut stop rates at the OMO auctions, we expect yields in the secondary market to follow suit. Also, the CBN is expected to conduct a T-bills PMA auction today, offering ₦630 billion.