Please click to view the August 2020 Macro & Markets Update

·        The National Bureau of Statistics released the Q2 2020 GDP numbers which showed that the economy fell by 6.10%y/y in real terms (the worst quarterly performance in 15years) compared to a growth of 1.87% y/y in Q1 2020 and a growth of 2.12% y/y in Q2 2019. We highlight that the country recorded declines in both oil (8.93% of the GDP) and non-oil (91.07% of GDP) sector which fell by 6.63% and 6.05% respectively in Q2 2020. 

·        Going forward, we expect oil output to continue to decline as Nigeria complies with OPEC cap of 1.4million barrels per day (excluding condensates). We believe issues such as FX illiquidity, weak government spending, insecurity, poorer state of infrastructures, weak consumer demand and contagion effect of a potential slowdown in global growth put the country on course for the second recession in 5 years. 

·        Overall, we expect to see the economy shrinking by 3.6% in 2020. We highlight that our latest projection is better than International Monetary Fund‘s (IMF) estimate of -5.4% but worse than the World Bank’s projection of -3.2% in 2020. 

·        The National Bureau of Statistics (NBS) released the inflation report for the month of July 2020 which revealed that headline inflation continued its upward trend for the eleventh consecutive month and the highest since April 2018 (12.48%). We observed that prices increased across all the components of the index. 

·        The food sub index remained the main driver of the uptick in headline inflation, rising by 15.48% y/y in July 2020 compared to 15.18% y/y in June 2020. We believe that the increase in the food sub-index might be unconnected to crisis in the Middle belt, continuous land border closures, planting season and inadequate FX to import agricultural products (CBN recently included corn in its ban items for FX eligibility).

·        Overall, we do not see any relief in sight as pressure on the headline inflation is expected to be sustained as overall fundamentals remain the same. 

·        The month of August was largely quiet on the fiscal side. We saw some positive news as FAAC numbers rose slightly to N676.41billion and Brent crude posted another monthly gain to US$45 per barrel    levels, the highest since early March 2020. Also, much of the month saw the FG and CBN make major adjustments in a bid to satisfying the World Bank’s requirements tied to accessing a US$1.5billion loan facility. 

·        As opposed to the trend observed in past few months, we witnessed a rise in yields in the secondary market. 

·        In the bonds secondary market, we witnessed sell-off across all maturities, except the 2021s.

·        Going forward, we may see yields in the fixed income space remaining at current levels as we expect more interest from the local Portfolio Managers given limited investment opportunities and elevated risk in the variable income assets.  

·        In terms of FPI inflow, we expect inflows to remain depressed on the back of heightened uncertainties on a global scale and increased risk in emerging economies such as Nigeria underpinned by FX restrictions and unfavourable policy implementation. 

·        In the outgone month, Brent crude price continued to trend higher as it gained 4.57% to close the month at US$45.28/barrel.

·        While the CBN is likely to continue rationing its dollar resources with the aim of satisfying and favouring expenses that will contribute to economic growth, we expect the CBN’s participation in the parallel market to yield positive reactions in the market with the naira registering some  appreciation as speculators take to the side line.

·        The Nigerian equities market sustained its bullish trend for the second successive month, in August 2020, as the NSE-ASI advanced by 2.57% m/m to close at 25,327.13pts.  

·        Following the release of the much anticipated results and some dividend announcements, we witnessed a heightened level of interest in the market as all weeks in the outgone month closed positive. 

·        In September, we expect the local bourse to continue the path to recovery after bottoming out in March 2020. Our expectation is that the quarter should close positively (Q3 performance currently at 3.46%).