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The Market Today - 20 April 2018

Trump, Saudi Arabia help lift Brent towards $74/bbl                                           

Global oil prices continue to beat expectations, hovering around $74/bbl, the highest in three years. Despite rising U.S. shale production, strong compliance to the OPEC output agreement has supported global crude inventories and accelerated market rebalancing. But oil prices have also been supported by politics in the U.S. and Middle East. Firstly, President Trump has demonstrated his desire to reinstate sanctions on Iran at the end of the bilateral nuclear deal, which would pressure oil exports from the OPEC member. Meanwhile, Saudi Arabia, the de facto OPEC leader that has been slightly more cautious about rising oil prices, has welcomed the possibility of oil stabilizing at 2014-levels as it looks to list its national oil company, Saudi Aramco, and plug its fiscal deficit. Amid these, Nigeria stands to gain from healthy oil prices (c.$27 above 2018 Budget benchmark of $47/bbl) as it attempts to accelerate economic recovery. In particular, we see the improvement in oil earnings as a significant positive for Nigeria’s foreign exchange market.          

                                   

Industrial Goods sector lifts Nigerian bourse                                            

Solely lifted by positive performances in the Industrial Goods sector, the Nigerian bourse pared prior session’s loss, up 25bps. With the ASI’s green close largely driven by an uptick in DANGCEM and underlying market sentiment still visibly varied, we foresee another choppy session at week close.

                                               

Stock Watch: ZENITHBANK released its Q1’18 results yesterday, reporting top line of ₦169 billion (+15% y/y) and bottom line of ₦47 billion (+26% y/y) – above our forecasts of ₦179 billion and ₦43 billion respectively. The stock currently trades at a price of ₦27.00 and has returned 5% ytd.                                             

OMO auction returns at significantly lower rates                                     

The CBN conducted its first OMO auction for the week yesterday, offering ₦400 billion and selling ₦500 billion across the 105DTM and 245DTM bills at respective stop rates of 10.90% (Previous: 12.20%) and 11.95% (Previous: 13.99%) – effective yields of 11.25% and 12.99% respectively. Buying interest continued to dominate the T-bills space as yields declined 50bps on average. The bond market was likewise bullish as average yields on benchmark bonds declined 17bps. With the CBN consistently and significantly lowering rates at its recent auctions, we expect market participants to continue to ramp up on fixed income holdings buoyed by expectations of lower rates in the near term. In today’s session, we believe healthy system liquidity (c.₦928 billion) will uphold the bullish sentiment across the fixed income space.