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The Market Today - 8 November 2017

President Buhari presents budget to National Assembly                                          

President Buhari presented the 2018 budget to the National Assembly yesterday. Total expenditure was confirmed at ₦8.6 trillion (2017: ₦7.4 trillion), with total revenue estimated at ₦6.6 trillion (2017: ₦5.1 trillion), resulting in a projected deficit of ₦2.0 trillion (2017: ₦2.4 trillion). The key parameters were maintained from the 2018–2020 Medium Term Expenditure Framework – benchmark oil price: $45/bbl; oil production: 2.3 mbd; and exchange rate: NGN305/USD. Breaking down revenue, oil revenue is expected to come in at ₦2.44 trillion (37% of revenue) with non-oil coming in at ₦4.17 trillion (63% of revenue) – compared to a split of 42% and 58% respectively in 2017. In line with recent trend, capital expenditure is set at 30% (₦2.4 trillion) of the year’s budget. Also, the government plans to diversify its debt portfolio by shifting towards more external borrowing, however Debt Servicing Cost remains higher at ₦2.0 trillion (2017 projected: ₦1.7 trillion). We highlight that the main challenges for budget implementation would remain the speed of eventual passage and ensuring that revenue and borrowings come in as expected.                              

NSE ASI bounces back in positive session                                            

In spite of mixed closes across key sectors, the Nigerian bourse made a comeback in yesterday’s session (ASI up 22bps). Demand on select banking names persisted on the Nigerian bourse in yesterday’s session, with increasingly positive market breadth also pointing to an overall upbeat sentiment on the bourse. We expect market to continue to show positive strength in today’s session.                             

Stock Watch: NB has shed 10% over the last ten sessions after posting lower than expected 9M’17 earnings (PAT 28% below Vetiva estimate). The stock currently trades at ₦144.10 and has declined 2.6% ytd.                                

Bond yields inch higher as liquidity squeeze persists                                    

The CBN conducted another OMO auction yesterday, offering ₦10 billion and ₦40 billion across the 100DTM and 198DTM bills respectively. The apex bank sold ₦48 billion mostly on the 198DTM bill at stop rates of 16.00% and 17.80% (effective yields: 16.73% and 19.70%) respectively. Though activity remained calm in the T-bills market, sentiment in the space was mixed with buy sentiment sustained on the short dated maturities (yields down 45bps on average), whilst mild sell pressure was recorded on the mid-long end (yields up 4bps on average). Demand remained noticeable across a few bonds, whilst sizeable sell pressure from tight system liquidity constrained buying on the long end. Amidst tightened system liquidity, sentiment in the fixed income market is expected to remain broadly mixed in today’s session. However, as participants position in anticipation of the OMO maturity on Thursday, we expect trading sentiment to be tilted towards the buy side.