August 6, 2020/InvestmentOne Report

Please click to view the July 2020 Macro & Markets Update

·        In the outgone month, there was a further improvement in oil prices as Brent crude price continued to recover part of the losses recorded so far this year.  As such, Brent oil price gained 5% to close the month at US$43.30 per barrel.

·        Going forward, we expect weak PMI to reflect in GDP numbers in the near term. However, with the continuous easing of the lockdown , we may see PMI numbers continue to improve in the near term. 

·        The National Bureau of Statistics (NBS) released its inflation report for the month of June 2020 which revealed that headline inflation continued its upward trajectory. According to the report, Inflation increased to 12.56% y/y in June 2020 from 12.40% in May 2020. 

·        Going into the month of July 2020, we expect Inflation to sustain its upward trajectory. We see pressures on food prices remaining elevated despite the ease in lockdown policies, as restrictions on interstate travel and closure of borders continue to limit the supply of foods across the country. 

·        Lastly, we continue to keep our eyes on developments in the power and downstream oil sector, particularly regarding the potential increase in tariffs and fuel price (reflective of the recent rise in crude price and devaluation) as these would have consequential impacts on inflation to the upside. 

·        The month of July was largely quiet on the fiscal side with the FG more recently coming to terms with the country’s economic realities and taking on an austere approach with the 2020 budget. In the outgone month, we saw some positive news as FAAC numbers rose unexpectedly to N651.2billion and Brent crude posted another monthly gain to trade around US$43-44 per barrel. Also, the FG provided some updates on capital expenditures so far this year, which beat our expectations given the widespread of the coronavirus. 

·        At its fourth meeting in 2020, the Monetary Policy Committee (MPC) maintained status quo on all monetary policy parameters as it retained MPR at 12.50%, CRR at 27.50%, liquidity ratio at 30%, and asymmetric corridor at +200/-500bps around the MPR. 

·        Going forward, we see yields in the fixed income space remaining at current levels with a possibility of a downward tilt as we see more interests from the local Portfolio Managers given limited investment opportunities and elevated risk in the variable income assets. 

·        The decline in OMO rates may serve to deter FPI interest especially given the concerns over the stability of the naira in the near future. 

·        CBN’s participation in the FX market continued to be minimal during the month, especially in the parallel market — this may be due to the continued restriction on travel activities in the country and the CBNs stance of rationing dollar supply. 

·        Nonetheless, given the ongoing discussion with the World Bank and AfDB to receive new loans of about US$1.50billion and US$500million respectively, we are optimistic that these inflows should provide the necessary ammunitions for CBN to defend the local currency and provide FX liquidity in the near term. 

·        The performance of the Nigerian equities market was marginally positive in the month of July 2020, as the NSE-ASI inched up by 0.88% m/m to close at 24,693.73pts. 

·        The buy interest witnessed recently has largely been driven by domestic investors who have sought to take advantage of the cheap market valuation amidst uber-low yields on fixed income instruments. 

·        Going into the month of August, we opine that the outlook for the bourse could be positive with reactions to corporate earnings likely positive, direction of interest rates southwards and the recent currency depreciations incentivizing foreign portfolio investment.