December 8, 2020/InvestmentOne Report

Please click to view the November 2020 Macro & Markets Update

·        Oil prices received support in the outgone month as successes recorded around COVID-19 vaccine supported investors’ sentiments in the month       despite the rising cases of COVID-19 in US and major countries in Europe. 

·        Going forward, we expect Brent crude to be supported by the recent OPEC+ decision to embark on a gradual (to reduce production cut to 7.2mbpd from 7.7mbpd as early as January 2021) rather than a rapid increase in oil supply as the cartel continues to monitor the supply and demand dynamics in the market. 

·        During the month, the National Bureau of Statistics released the Q3 2020 GDP numbers which showed that the nation’s economy has   entered a recession, the second time in 5 years.  

·        The National Bureau of Statistics (NBS) released the inflation report for the month of October-2020. Notably, the headline rate rose from 13.71% y/y in September-2020 to 14.23% y/y, the highest since February-2018.

·        The food sub-index rose by 17.38% y/y in Oct-2020 from 16.66% y/y in Sept-2020. Food prices increased 1.96% m/m (vs. 1.88% in September).  

·        Looking ahead, we reiterate that the outlook for the headline inflation rate remains biased to the upside for the rest of the year.  

·        In the outgone month, we witnessed FAAC disbursement shared to the three tiers of government print at N604biillion, 5.6% down from the previous month on the back of declines in various revenue categories.  

·        Lastly, the FG sent the finance bill to the House of Representatives in the outgone month.   

·        During the outgone month, liquidity in the money market remained at high levels with average Open buy back and Overnight rate declining by 70bps and 97bps to 1.19% and 1.62% respectively.  

·        Going forward, we see yields in the fixed income space remaining at depressed levels as we see continued interests from the local portfolio managers given limited investment opportunities and elevated risk in the variable income assets.  

·        In the local scene, FX reserves inched down slightly by 0.78% m/m to 35.41billion. We posit that the Apex bank’s dollar rationing strategy is to thank for the relative stability seen in the FX reserves over the past few months despite pressures from foreign investors and local players. 

·        While the FG enters the final stages of the ongoing discussion with the World Bank on new loan of about US$1.50billion, we opine that receiving these funds could provide the necessary ammunitions for CBN to defend the local currency and provide FX liquidity in the near term.  

·        The Nigerian equities market recorded a stellar performance in November 2020 , as the NSE-ASI advanced by 14.78% m/m to close at 35,042.14pts, a new 52 week high. 

·        With investors stumped by high liquidity, limited investment outlets and interest rates touching zero levels, the investment case for   equities seems increasingly compelling by the day notwithstanding the fast pace in which asset prices have improved.  

·        Further pressure on money and bond market yields is likely to spur domestic investors’ participation in the local bourse.