The Market Today - 07 December 2018

FEC holds special budget meeting as DMO issues Sukuk                                                              

President Buhari is scheduled to chair a special session of the Federal Executive Council today as the members deliberate on the draft 2019 budget. The meeting is expected to produce a completed draft of the 2019 Appropriation Bill which will be forwarded to the National Assembly. According to the earlier approved 2019-2021 Medium Term Expenditure Framework (MTEF), the 2019 Budget is expected to come in at a reduced figure compared to the ₦9.1 trillion 2018 Budget as the Federal Government seeks to reign in a widening fiscal deficit. We believe the policy makers may also propose a more conservative oil price assumption for the 2019 Budget (MTEF assumption: $60pd) given the recent pullback in the commodity’s price. Meanwhile, according to a circular from the Debt Management Office, the Federal Government has opened the second tranche of its 7-year sukuk with a ₦100 billion expected to be raised at a rental rate of 15.743%. We recall that at the first issue of this instrument in September 2017, ₦100 billion was offered at a rate of 16.47%.                                                        

ASI resumes negative performance                                                       

"Dragged by losses in three of four key sectors, the bourse recorded a 107bps loss yesterday, with the Industrial Goods sector showing a complete reversal in performance. Market breadth turned negative with 17 advances and 21 declines. Despite a few positive closes this week, market sentiment remains weak. We therefore anticipate another negative trading session driven by investor apathy.                                                        

Stock Watch: Towards market close yesterday, UACN announced the retirement of its CEO, Abdul Bello, who had just resumed on January 1st, 2018. Whilst the Group has appointed an acting CEO, we highlight that this comes at a time when the conglomerate is going through a strategic review. UACN currently trades at ₦10.00, 41% below its year open price.                                                    

CBN conducts special OMO to maintain tight liquidity                                                  

In line with recent trend, the CBN conducted an OMO auction yesterday, offering c.₦600 billion and selling c.₦404 billion on the 91DTM, 196DTM and 364DTM bills at stop rates of 11.90%, 13.50% and 15.00% respectively (effective yields: 12.26%, 14.56% and 17.64%). The CBN also conducted a special OMO, selling c.₦288 billion on the 364DTM bill at 15.00%. Despite this, the interbank call rate declined 421bps, closing at 7.79%. With the CBN maintaining a tight hold on system liquidity, we anticipate another downbeat trading session in the fixed income market today.