FREE

The Market Today - 31 July 2018

Oil output reaches 2018 peak in July                                             

The effects of OPEC’s decision to increase its production ceiling at its June meeting are already being felt as a Reuters survey indicated that the group’s output rose to a 10-month high in July. OPEC pumped an extra 70,000 barrels a day in July (following earlier ramp up in June), with total output reaching 32.64 mb/d—still a 111% compliance to cuts agreed last month. Unsurprisingly, most of the increase can be traced to Saudi Arabia, though the likes of Kuwait and the UAE also boosted output. However, production fell once more in Iran and Venezuela as they battle with U.S. sanctions and economic malaise, respectively. The rise in production—and the distribution of the increase—is in line with our expectations and we anticipate even more supply in the coming months as production stabilizes in Libya and Nigeria, and other OPEC countries take advantage of the higher supply cap. Nevertheless, oil prices are likely to remain resilient in the near term, propped by healthy global demand.                                               

Blue-chips propel market to strong close                                       

"The equity market enjoyed a positive session yesterday. Amid green closes in three of the four key sectors, gains across blue chip stocks drove the index 84bps higher. Although market turnover is largely unchanged, sentiment has been buoyed by more positive earnings releases in recent sessions. Therefore, we foresee further modest buying to be driven by incoming positive earnings.                                       

Stock Watch: NB released its H1’18 results after market close yesterday, showing a 5% decline in revenue and a 19% y/y decline in PAT. The stock gained 48bps yesterday to settle at N104.50, and has returned -23% ytd.                                               

Fixed income market kicks off week mixed                                   

Despite relatively healthy system liquidity (₦187 billion), interbank call rate advanced 259bps to 9.42% at week open. Trading in T-bills was mixed albeit with a bullish tilt as yields moderated 7bps on average. In particular, whilst yields on the 45DTM (-56bps to 11.72%) and 157DTM (-47bps to 12.43%) bills dipped, yields on the 129DTM (+20bps to 12.82%) and 171DTM (+17bps to 12.50%) bills advanced. Trading in the bond market was likewise mixed as yields trended in opposite directions—2bps down on average. Whilst yields on the 15.54% FGN FEB 2020 and 12.40% FGN MAR 2036 bonds declined 17bps and 13bps to 13.56% and 14.19% respectively, yield on the 16.39% FGN JAN 2022 bond advanced 13bps to 13.68%. We expect healthy system liquidity to encourage modest demand, barring any CBN liquidity mop up. In line with recent trend, we expect demand to be weighted towards T-bills.