1 mb/d increase in oil production – OPEC
What shaped the past week?
Trading in global markets this week was steered by growing concerns over escalating trade tensions between the U.S. and its major trading partners, with both parties looking to hike tariffs on select traded products. After trading lower on Monday and Tuesday, sentiment in European and Asian markets perked up slightly at mid-week despite lingering trade concerns. However, global markets retreated into negative territory on Thursday as uncertainty over the outcome of Friday’s OPEC meeting compounded trade concerns. At week close, markets regained some ground, driven by greater clarity over OPEC action at Friday’s meeting.
The Organization of the Petroleum Exporting Countries (OPEC) and partner non-OPEC countries met on Friday to determine the fate of the current oil deal. The group agreed on a 1 mb/d increase in production while keeping the output agreement in place till year-end. The output hike would be apportioned across member countries, and some may struggle to achieve their new production targets amid output disruptions. Even as Nigeria’s production has dipped on the back of the Force Majeure on Bonny Light exports, U.S. sanctions on Iran may also affect crude exports from the Arab nation. In addition, Venezuela’s output has dropped significantly as the country battles with a major economic crisis which has hit crude oil investment. In light of this, the expected increase in oil supply should be materially weaker than the 1 mb/d target. Overall, the move should be positive for global oil prices as the decision to keep the deal in place signals OPEC’s willingness to continue to support prices. Moreover, rising global demand and geopolitical tensions offer further support for oil prices.
Negative trading pervaded the equity market in the shortened trading week, with the ASI dipping 66bps at week open. The bourse posted milder losses on Wednesday, shedding 15bps on the day. Bears continued to hold sway on Thursday, with the market shedding 117bps on the back of a steep decline in DANGCEM at the beginning of the session. Trading sentiment remained downbeat at week close with the ASI shedding 76bps on Friday. We note that all key sectors lost this week, with the Oil & Gas (-594bps), Industrial Goods (-302bps), Banking (-196bps w/w) and Consumer Goods (-50bps) sectors all closing in the red. The market lost 274bps w/w.
At week open, the CBN conducted an OMO auction, offering N350 billion and selling N137 billion on the 93DTM and 219DTM bills. Consequently, trading in the T-bills space was mixed on Tuesday. At midweek, the CBN conducted a Primary Market Auction, offering N66 billion and selling N39 billion across the 91DTM, 182DTM and 364DTM bills at respective stop rates of 10.00%, 10.30% and 11.50%, all lower rates than at the previous PMA. Driven by higher Primary market levels, sentiment turned mixed with a bearish bias for the rest of the week, with average yields on T-bills advancing 20bps on average. Similarly, trading in the bond market was mixed with a bearish bias through the week, with average yields on benchmark bonds advancing 24bps w/w.
The CBN continued its regular spate of FX interventions in the FX market, notably infusing $210 million through multiple windows at week open. Amidst this, the naira appreciated N0.07 w/w at the I&E FX Window to close at N361.00 against the dollar but remained flat w/w in the parallel market at N361.00.
What will shape markets in the coming week?
Sentiment this week was largely bearish, characterized by huge losses in select large caps. Though there is still room for further losses, we foresee bargain hunting at week open as investors take position on depressed stocks.
Fixed Income market
Barring an OMO auction by the CBN to mop-up liquidity at week open, we expect buoyant system liquidity (N842 billion) to support buying at the start of next week.
We expect the naira to remain stable across the various windows of the currency space as the CBN continues to intervene in the FX market.
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