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The Market Today - 16 January 2018

Fuel shortages pressure PMS prices in December                                                           

According to the National Bureau of Statistics (NBS), the average pump price of Premium Motor Spirit (PMS) rose from ₦145.60/liter in November 2017 to ₦171.80/liter in December 2017. The data also showed significant deviation across states with states like Ekiti paying an average of ₦146.00/liter whilst consumers in Abia doled out ₦220.40/liter. We are unsurprised by the jump in petrol pump prices given the return of product shortages and fuel queues at the end of last year which likely exerted pressure on PMS pump prices. Whilst we note that these issues have abated, we highlight a tangible risk of resurgent scarcity as the NNPC remains the sole importer of PMS in the country. We note that at the start of 2018, the Nigerian Senate began to look into solution to the current quasi-subsidy regime in order to prevent a repeat. We expect these high PMS prices to reflect in December inflation (set to be published today) and foresee the released figures beating our prior estimate of 15.7% y/y as a result of the unforeseen spike in PMS prices.                                                                

Mixed trading on NSE at week open                                                      

The Nigerian stock exchange bounced back from the loss at the end of last week – ASI up 51bps – helped by the banking sector. Market sentiment was relatively mixed, evidenced by even market breadth and weak closes in key sectors. We attribute this to profit-taking given the strong start to the year and expect this to continue in the coming session.                                                               

Stock Watch: CCNN has gained for nine sessions since the start of the year, advancing 46% during that run. The stock currently trades at a three-year high of ₦13.84, above Vetiva target price of ₦8.39.         

Tepid start to week in Fixed Income market                                                      

The CBN conducted an OMO auction yesterday, offering ₦30 billion and ₦50 billion across the 73DTM and 164DTM bills respectively. Whilst no bids were placed on the 73DTM bill, the apex bank sold c.₦13 billion on the 164DTM bill at a stop rate of 14.40% (effective yield: 15.40%). Sentiment in the T-bills market stayed mixed albeit with some buying weighted at the mid-end of the curve. The bond market opened the week to slight sell offs – particularly at the long end of the curve. We expect trading in the T-bills market to be steered by this morning’s December 2017 inflation announcement (Vetiva estimate: 15.7% y/y) whilst investors in the bond space would continue to seek stronger indications of government bond supply.