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The Market Today - 7 November 2017

Nigeria ponders oil output cap as militants threaten return                                      

OPEC holds its final meeting of the year on the 30th of November, where it is expected to decide on any extension of output cuts, currently running to March 2018. Dr. Kachikwu suggested that many OPEC countries would back the cuts as “there isn’t any reason to change what is a winning formula”. Whilst hinting that Nigeria would be willing to contribute to cuts in 2018, he proposed that the country would back a cap of 1.8/1.9 mbpd (excluding condensates). According to OPEC, Nigeria’s oil production has averaged 1.8 mbpd (excluding condensates) in the last three months. Niger Delta Avengers recently declared the end to a year-long ceasefire in the oil-producing region of the country, citing disillusionment with how the federal government has dealt with their demands. Despite stronger global oil prices (Brent currently trades around a 2-year high of $64.46pb), renewed uncertainty over Nigeria’s oil volumes complicates OPEC deal dynamics for 2018 and introduces greater concern over oil export earnings in the coming year.                                                   

Equity market opens the week to marginal loss                                               

The Nigerian bourse shed a mild 2bps yesterday amidst mixed closes across key sectors. Trading activity was generally downtrending, propped by demand across select banking names. And with market breadth only narrowly positive, we anticipate another mixed trading session today.                                        

Stock Watch: Following the news of the proposed divestment from Diamond Bank S.A in a €61 million deal, DIAMONDBNK advanced 943bps yesterday to N1.16 lower than our target price of N3.43. The stock has returned 32% Ytd.                                              

Fixed Income market opens on a quiet note                                          

The CBN conducted an OMO auction yesterday, offering ₦60.00 billion and selling ₦25 billion across the 94DTM and 185DTM bills at respective stop rates of 16.00% and 17.80% (effective yields: 16.69% and 19.57%). The T-bills market was quiet with mild demand on select bills yesterday as yields moderated 9bps on average. Though similarly quiet, the bond market traded mixed for the day with yields on the benchmark bonds down by 1bp on average. Whilst mild sell pressure was observed on the short end of the curve, demand was spread across the mid and long-dated bonds. We expect the apex bank to persist with its liquidity mop up – capping demand in the T-bills market. Meanwhile trading in the bond space is expected to remain largely quiet with a mildly upbeat tilt at the mid-long end.