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The Market Today - 18 January 2019

OPEC production cuts begin to yield dividend                                                  

In its January report, the Organization of Petroleum Exporting Countries (OPEC) maintained its 2019 crude oil demand growth forecast from the previous month at 1.29 mb/d, projecting total oil demand of 100.08mb/d for the year, a 1.2% y/y rise. Oil demand growth is expected to come from Asia, led by India and China. Meanwhile, the supply cut of 1.2 mb/d, which took effect at the start of the year, has sent crude prices above $60/bbl, with oil prices expected to remain stable despite a slight uptick in Non-OPEC supply of around 2.16 mb/d in 2019, slightly lower than initial prediction of 2.23 mb/d. Total OPEC production had fallen by over 0.75 mb/d in December, before the cuts officially began, this was due to cuts from Saudi Arabia who cut over 0.47 mb/d in December. Should production remain constrained, we foresee oil prices remaining stable at $60/bbl in 2019.                                                  

Market stays positive as bargain-hunting run continues                                                              

After a largely mixed session, the NSE ASI closed 40bps higher yesterday after another late surge in Industrials boosted the market. Market breadth remained positive with 23 advances and 15 declines. We anticipate a positive close to the week, amidst sustained bargain hunting activities.                                          

Stock Watch: Despite news of its majority shareholder and Chairman divesting from its downstream business, FO has gained 14% in the past seven sessions to settle at ₦30.15. The stock has gained 5% ytd, outperforming the Oil & Gas sector (-6%).                                                     

Buying returns to bond space amid tepid T-bills trading                                                               

Amidst a net OMO maturity of c.₦561 billion, the CBN held an OMO auction where it sold ₦527 billion (₦550 offered) 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%). Amidst this, the Interbank Call rate declined 517bps to settle at 13.00%. In the T-Bills space, trading turned tepid, with yields advancing 1bp on average. Meanwhile, trading across the bond space was more positive, with benchmark yields declined 6bps on average.  With investors showing a renewed appetite for bonds, we anticipate continued buying in the space, while we anticipate tepid trading in the T-bills space due to tight liquidity.