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The Market Today - 17 October 2018

Oil prices dip despite budding supply fears                                    

After hitting a high of $86.74 on 3 October, crude oil prices have been on a downward trend, losing 6% over the past 2 weeks with Brent crude currently trading at $81.78/bbl. Interestingly, this decline comes in spite of a fall in U.S. crude inventories by 2.1 million barrels last week compared with analyst expectations for a rise of 2.2 million barrels. Recently, both OPEC and EIA updated their projections, cutting their 2018 and 2019 crude demand estimates, citing weaker currencies, trade wars and high prices as drivers for the cut. Nevertheless, the medium term outlook for crude prices should remain strong as declining demand is made up for by a less than rosy production outlook from certain big producers like Iran and Venezuela                                         

Market recovers after late DANGCEM surge                                               

The bourse recovered yesterday after a late surge in DANGCEM supported gains in Industrial Goods stocks to deliver a +95bps gain for the ASI. Other key sectors also closed in the green despite still mixed sentiment during the day as market turnover hit its highest point since September (₦5.3 billion). Market breadth remained negative with 16 advances and 23 declines. Despite the sudden surge in market activity, underlying investor sentiment shows little sign of a broad market improvement. As such, we expect a more subdued session today, albeit with a positive bias                                             

Stock Watch: FCMB shed 432bps in yesterday’s session to reach a year-low of ₦1.55. The stock has been on a four session losing streak, shedding 8% of its value in that time. After rising as high as 144% earlier in the year, the stock has returned +5% year-to-date.                                         

Tight system liquidity wears on fixed income market                                          

System liquidity rose to ₦190 billion, and amid this, the interbank call rate declined from 39.92% to 24.14%. Trading in the fixed income market was mixed yesterday with no clear trend in yield movement. Yields across the treasury bills space were flat (up 1bp on average), with sell-offs most prevalent on the mid-dated bills. Trading in the bond space had a slightly negative tilt as benchmark yields advanced 1bp on average. The CBN would conduct a Primary Market Action later today, with ₦148 billion on offer across the 91-day, 182-day, 364-day bills. We expect stop rates to be unchanged from the previous PMA give sticky secondary market yields since the previous auction. Furthermore, we anticipate further mixed trading in the secondary market.