08, 2018 09.35AM / By ARM Research
OPEC and allies at the end of their meeting today agreed to cut production by 1.2mbpd (exceeding market expectation of 1.0mbpd), starting January 2019, with OPEC members expected to reduce production by 800,000bpd while allies agreed to lower production by 400,000bpd (Russia’s contribution to the cut was unknown at the time of writing).
The decision resulted in a jump in crude oil prices (Brent: +5.56% to $63.40, WTI: +4.99% to $54.06) during the day’s trading. The decision was on the back of glut in the market which had resulted in a decline in crude oil prices by 27% starting 3rd of October.
Notably, excess supply in the market rose to 1.9mbpd in October, from 860,000 bpd in September (average deficit of 340,000bpd recorded between January and August). We believe the cut could result in decline in average market surplus to about 400,000bpd in the medium term.
Earlier today, the Federal Executive Council (FEC) approved the proposed 2019 budget of N8.9 trillion – N200 billion lower than the 2018 budget – for presentation to the National Assembly for consideration. We note that, the 2018 budget was presented to the National Assembly in November 2017 and was not passed until May 2018 despite being an election free year.
Elsewhere, data released by the Central Bank of Nigeria revealed that foreign investors continued to attenuate their investments into the country, with capital importation over Q3 2018 declining by 48.2% QoQ to $2.9 billion, staggering below a quarterly high of $6.3 billion in Q1 18. In addition, latest data for October showed that capital importation printed at $818 million relative to monthly average of $952 million and $1.8 billion in Q3 18 and Q2 respectively.
The negative sentiment in the Nigeria equity market persisted, with the NSE ASI declining by 0.02% WoW to 30,866.82points and market capitalization shedding N269.0 billion over the week.
The loss was driven by declines in bellwether stocks in the banking (ACCESS: -3.87% and STANBIC: -3.13%), cement (DANGCEM: -1.55% and LAFARGE: -3.85%) Breweries (NB: -3.15%, GUINESS: -1.35% and INTBREW: -4.23%) and Personal Care (UNILEVER: -2.51% and PZ: -4.39%) sectors. Top decliners during the week were CONTINSURE (-12.50%), PRESTIGE (-10.91%) and MRS (-9.98%).
The apex bank during the week stepped up its liquidity mop-up, with OMO auctions on most days of the week save for today. CBN mopped up a total of N645.32 billion via OMO auction (including a stabilization security) at a higher stop rate of 13.87% (+61 bps WoW).
As a result, average yields in the fixed income market increased 74bps WoW to 15.61%, following expansion across both ends of the curve (average NTB yields: +130 bps to 15.68% and average bonds yields: +18bps to 15.54%).
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