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Analysts Predict Weak Start for Capital Market

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  • Analysts Predict Weak Start for Capital Market

Financial analysts say the capital market is likely to start the week on negative note following the bearish trend that trailed the market last week.

Bearish sentiments pervaded the equities market last week, as the Nigerian Stock Exchange All-Share Index declined by 1.15 per cent week-on-week to peg the year-to-date return at -5.80 per cent.

The market closed negative on four out of the five trading days of the week.

“This week, we expect the current market mood to persist in the absence of positive news flow to sway investors’ sentiments. Therefore, we advise value-seeking investors to trade with caution,” analysts at Meristem Securities Limited said in the firm’s weekly report.

Third quarter 2016 earnings, releases flooded the market on Monday last week, being the deadline for result submission by listed companies. The results were mixed across board, thus generating varied reactions from investors.

However, the volume traded and value of transactions advanced by 2.29 per cent and 12.45 per cent week-on-week, respectively.

The naira depreciated against the United States dollar by 7.42 per cent week-on-week at the inter-bank segment of the market, as the spot rate settled at N328.90/dollar. However, at the parallel market, the currency traded flat week-on-week to close at N470/dollar at the end of the week.

There was net Open Market Operation sales of N31bn, arising from repayment and auction of N138bn and N169bn, respectively. Consequently, system liquidity declined, resulting to an increase in the Open-by-Back and Overnight rates by 3.83 per cent and 2.75 per cent week-on-week accordingly, to settle the average money market rate at 13.25 per cent at the end of last week.

On what will shape the markets this week, analysts at Vetiva Capital Management Limited said, “On the equity market, save for some late session spikes during Friday’s session, we note that the NSE ASI was on a downward trend over the final hour of trade amid sell pressure across board. This points to a weak open this week.

“Although the demand for Treasury bills remained resilient at the week’s close despite consistent Central Bank of Nigeria’s mop up, we anticipate a relatively tepid trading session at the week open across the fixed income space.

“Given the significant weakness recorded at the week close, we expect the CBN intervention at the week open.”

Investors’ demand for Treasury bond instruments was quite strong last week, with a noticeable bias for shorter-termed instruments. Consequently, the average bond yield trended southward to settle at 19.58 per cent as of November 3, 2016, reflecting a 0.14 per cent week-to-date decline.

Also, the result of T-bills auction held last week showed that rates were slightly higher than at the previous action. The stop rates for the 91-day, 182-day and 364-day instruments were 14 per cent, 17.50 per cent and 18.50 per cent, respectively.

In the Treasury bond space, there were mixed reactions, as the average yield remained flat at 16.16 per cent with investors’ sentiments tilting towards the shorter end of the curve.

“We expect this trend to continue in the short term,” the Meristem analysts said.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

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Crude Oil

Oil Rises as Threat of Immediate Iran Supply Recedes

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Oil prices rose on Tuesday, with Brent gaining for a fourth consecutive session, as the prospect of extra supply coming to the market soon from Iran faded with talks dragging on over the United States rejoining a nuclear agreement with Tehran.

Brent crude was up by 82 cents, or 1.13%, to $73.68 per barrel, having risen 0.2% on Monday. U.S. oil gained 91 cents, or 1.3%, to $71.79 a barrel, having slipped 3 cents in the previous session.

Indirect discussions between the United States and Iran, along with other parties to the 2015 deal on Tehran’s nuclear program, resumed on Saturday in Vienna and were described as “intense” by the European Union.

A U.S. return to the deal would pave the way for the lifting of sanctions on Iran that would allow the OPEC member to resume exports of crude.

It is “looking increasingly unlikely that we will see the U.S. rejoin the Iranian nuclear deal before the Iranian Presidential Elections later this week,” ING Economics said in a note.

Other members of the Organization of Petroleum Exporting Countries (OPEC) along with major producers including Russia — a group known as OPEC+ — have been withholding output to support prices amid the pandemic.

“Additional supply from OPEC+ will be needed over the second half of this year, with demand expected to continue its recovery,” ING said.

To meet rising demand, U.S. drillers are also increasing output.

U.S. crude production from seven major shale formations is forecast to rise by about 38,000 barrels per day (bpd) in July to around 7.8 million bpd, the highest since November, the U.S. Energy Information Administration said in its monthly outlook.

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Crude Oil

Oil Prices Rise as Demand Improves, Supplies Tighten

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Oil prices rose on Monday, hitting their highest levels in more than two years supported by economic recovery and the prospect of fuel demand growth as vaccination campaigns in developed countries accelerate.

Brent was up 53 cents, or 0.7%, at $73.22 a barrel by 1050 GMT, its highest since May 2019.

U.S. West Texas Intermediate gained 44 cents, or 0.6%, to $71.35 a barrel, its highest since October 2018.

“The two leading crude markers are trading at (almost) two-and-a-half-year highs amid a potent bullish cocktail of demand optimism and OPEC+ supply cuts,” said Stephen Brennock of oil broker PVM.

“This backdrop of strengthening oil fundamentals have helped underpin heightened levels of trading activity.”

Motor vehicle traffic is returning to pre-pandemic levels in North America and much of Europe, and more planes are in the air as anti-coronavirus lockdowns and other restrictions are being eased, driving three weeks of increases for the oil benchmarks.

The mood was also buoyed by the G7 summit where the world’s wealthiest Western countries sought to project an image of cooperation on key issues such as recovery from the COVID-19 pandemic and the donation of 1 billion vaccine doses to poor nations.

“If the inoculation of the global population accelerates further, that could mean an even faster return of the demand that is still missing to meet pre-Covid levels,” said Rystad Energy analyst Louise Dickson.

The International Energy Agency (IEA) said on Friday that it expected global demand to return to pre-pandemic levels at the end of 2022, more quickly than previously anticipated.

IEA urged the Organization of the Petroleum Exporting Countries (OPEC) and allies, known as OPEC+, to increase output to meet the rising demand.

The OPEC+ group has been restraining production to support prices after the pandemic wiped out demand in 2020, maintaining strong compliance with agreed targets in May.

On the supply side, heavy maintenance seasons in Canada and the North Sea also helped prices stay high, Dickson said.

U.S. oil rigs in operation rose by six to 365, the highest since April 2020, energy services company Baker Hughes Co said in its weekly report.

It was the biggest weekly increase of oil rigs in a month, as drilling companies sought to benefit from rising demand.

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Crude Oil

FG Spends N197.74 Billion on Subsidy in Q1 2021

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The Federal Government has spent a total sum of N197.74 billion on fuel subsidy in the first quarter (Q1) of 2021, according to the Federal Account Allocation Committee (FAAC) report for May.

The report noted that the value of shortfall, the amount the NNPC paid as subsidy, in the March receipts stood at N111.97 billion while N60.40 billion was paid in February.

In the three months ended March, the Federal Government spent N197.74 billion on subsidy.

The increase in subsidy was a result of rising oil prices, Brent crude oil, against which Nigerian oil is priced, rose to $73.13 per barrel on Monday.

The difference in landing price and selling price of a single litre is the subsidy paid by the government.

On May 19, the Nigerian Governors Forum suggested that the Federal Government removed the subsidy completely and pegged the pump price of PMS at N380 per litre.

The governors’ suggestion followed the non-remittance of the NNPC into the April FAAC payments, the money required by most states to meet their expenditure such as salaries and building of infrastructure.

However, experts have said Nigeria is not gaining from the present surge in global oil prices given the huge money spent on subsidy.

Kalu Aja, Abuja-based financial planner and economic expert, said “If Nigeria is importing Premium Motor Spirit and still paying subsidy, then there is no seismic shift.”

“Nigeria needs oil at $130 to meet the deficit. In the short term, however, more dollar cash flow is expected and with depreciated Naira, it will reduce short term deficit.”

Adedayo Bakare, a research analyst, said that the current prices do not really mean much for the country economically.

He said, “The ongoing transition away from fossil fuels and weak oil production from the output cuts by the Organisation of Petroleum Exporting Countries will not make the country benefit much from the rising oil prices.

“Oil production used to be over two million barrels but now around 1.5 million barrels. We need OPEC to relax the output cuts for the naira to gain.”

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