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The Market Today - 26 May, 2017

OPEC extends production cut by nine months
The Organization of Petroleum Exporting Countries (OPEC), in conjunction with non-OPEC partners, have agreed to extend production cut by nine months. The previous agreement which is due to end in June was made to reduce a global oil glut weighing heavily on prices. However, five months into the deal, increasing shale production levels have capped the effect of the deal on global oil prices. Despite the announcement, oil prices subsequently fell as market observers were hoping for more aggressive action from the meeting. Positively for Nigeria, OPEC also agreed an extension of our exemption from the deal. We note that while the deal extension should support prices going forward, the effect could once again be capped by further increases in shale production. Also worthy of note is the approval of the Petroleum Industry Governance Bill by the Nigerian Senate. This bill, part of a larger bill which has been discussed in the National Assembly at different times since 2008, seeks to introduce much needed reforms to governance in the oil sector. Though the bill must now be approved by the House of Representatives and signed by the Presidency, we see this as a very positive development for the Oil & Gas industry.

ASI surges as blue chips post gains
With the Banking and Consumer Goods sectors closing in the green, the NSE ASI closed 64bps higher, extending gains to three consecutive sessions. Given the resilient volume and value traded on the exchange, coupled with a positive market breadth, we believe that investor sentiment remains strong. Consequently, we anticipate another green close for the ASI at week close.

Stock Watch: FIDSON has refuted the news currently in circulation about a possible merger with fellow pharma competitor, MAYBAKER. FIDSON has been on a bullish run in recent times, rising 85% since the start of May while MAYBAKER has added 20% over the past seven sessions. FIDSON and MAYBAKER have returned 59% and 55% respectively ytd.

With the senate passing the PIGB and the OPEC deal extension, we foresee possible buying interest in the Oil & Gas sector.

Bills turn bullish as liquidity pressures ease
The bond market sustained mixed trading yesterday with yields moving in opposite directions, albeit with a more bearish bias compared to prior sessions. Meanwhile, with system liquidity pressure eased following the OMO maturity. Whilst we expect the mixed bias in the bond market to persist at week close, we foresee a more bullish sentiment in the T-bills space (barring any significant mop up) amidst the reduced strain on system liquidity.