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The Market Today - 19 July 2017

Weaker Chinese demand may weigh on oil prices                                          

The recent weakness in global oil prices may continue, driven by concerns over Chinese consumers’ oil demand during the summer months, a seasonally stronger time of the year for gasoline consumption. China’s state-run refiner revealed that it would process 240,000 bbls per day less than expected during the summer, equivalent to 3% of China’s crude oil imports. This poses a short-term threat to oil prices, with Brent crude ($48.84 per bbl) already 2% down yesterday from the start of July on the back of rising production from OPEC-exempt countries. In the medium term, the International Energy Agency expects weaker gasoline demand growth in China as domestic consumers seek alternative modes of transport to cut pollution levels. With the global oil glut persisting, we stress that a pickup in demand is required to support sustainably stronger oil prices.                                  

ASI holds on to gains despite mixed trading                                        

Despite the mixed trading pattern observed during the session, the Nigerian bourse held on to gains, closing 41bps higher on the day. We highlight the consistently tight market breadth and dwindling market turnover as indications that mixed sentiment persists in the market and expect another session of mixed trading with modest gains. We note that H1’17 earnings are still expected to trickle in and earnings announcements could shape market performance today.                      

Stock Watch: After rising 24% in a five-session rally, FO lost 420bps yesterday. The stock currently trades at ₦57.96 and has returned 31.4% ytd.                                 

Liquidity boost sustains bullish T-bills momentum                                         

With liquidity improved on the back of a ₦28 billion coupon payment on the 14.50% FGN JUL 2021 bond, trading was bullish in the T-bills market with yields moderating across the space. Meanwhile, trading in the bond market turned mixed with sell pressure concentrated at the short end and buying interest relegated to the long end of the space. The CBN will be conducting a Primary Market Auction in the T-bills market today, offering ₦180 billion across the 91DTM, 182DTM and 364DTM bills. Whilst we expect trading to be cautious as traders anticipate the results of the auction, we believe the anticipation of the ₦97 billion OMO maturity on Thursday will drive demand in the bills market.