January 3, 2020/Cordros Report

In this report, we discuss the outlook for macros and markets, with a focus on the global economy, domestic economy and the markets.

Global Economy 

The global economy faces more turmoil in 2020, but we remain largely optimistic in our outlook, given supportive fiscal and monetary policies across major economies. On crude oil, supply adjustments will support prices in 2020, but demand will be the primary driver going forward. As such, we forecast Brent crude oil price will average c.USD60.00 per barrel in 2020.

Domestic Economy 

At home, Nigeria’s fiscal authority is yet to implement any significant reform, and at the time of writing, there are no major structural readjustments slated to commence in 2020. While the economy should benefit from exchange rate stability given the still healthy FX reserves, possible implementation of VAT hike, the impending electricity tariff revision, and the impact of the continued land border closure on food prices will exert upward pressure on inflation. In response, we suspect that the monetary policy committee will leave the MPR unchanged, despite its recent focus to redirect credit to the private sector. Elsewhere, on the NGN10.6 trillion budget approved in 2020, we assumed a budget implementation rate of c.90.0%, and our scenario analysis suggests that the budget deficit could range between NGN2.83 trillion to NGN4.78 trillion.

Equities 

Our base case for equities posits muted stock market performance for the year. Fundamentals are not strong enough to drive a natural correction in the equities market, however, recent policy directives from the CBN might offer some respite to the domestic bourse in the absence of much needed market friendly reforms.

Fixed income 

For the fixed income market, our expectation for yields in 2020 is closely linked to the current sectioning of the fixed income market, and how long it is likely to last. In our view, this will be the major determinant of the direction of rates next year, among other factors including (1) persistence of trade tensions and how that will impact global growth, (2) policy response in major and the impact on the rate environments in these jurisdictions, (3) CBN’s policy initiatives to boost credit to the private sector and (4) willingness of the MPC to maintain positive real return to investors.

Click here to read PDF copy of abridged report