April 6, 2021/InvestmentOne Report

Please click to view the March 2021 Macro & Markets Update

·        In the outgone month, the rally in the crude oil market slowed down as Brent shed 3.92%m/m due to rising cases of COVID-19 and slowdown in vaccination rate due to fears of some side effects of shots, particularly Astrazeneca.

·        Elsewhere, the unemployment rate for Q4 2020 as reported by the National Bureau of Statistics stood at 33.3%, an increase of 620bps from 27.1% recorded in Q2 2020.  

·        Going forward, we expect oil output to improve as OPEC relaxes its output cap on the back of recovery in global economy. Nonetheless, Nigeria still has to comply with OPEC cap of 1.5million barrels per day (excluding condensates).  

·        We expect  the Nigerian economy to sustain positive growth in Q2 2021 as Non-oil sectors rebounds due the low base effect.  

·        Recently, the National Bureau of Statistics released the inflation figure for the month of February 2021 which further showed the pressure on consumer prices as the headline inflation hit a 4-year high of 17.33% from 16.47% in January 2021.  

·        The food sub index remained the main driver of the uptick in headline inflation. The sub index rose by 21.79%y/y, the highest in over 10years, as challenges associated with food supply chain persisted.  

·        Going forward, we believe food sub index may maintain its fast  uptrend on the back of the escalating insecurity in the country as farmers vs herdsmen crisis persists.  

·        Overall, we expect inflation to remain high for a while before slowing down due to high base effect. On the average, we have adjusted our base case inflation expectation to around 17% (from 15%) in 2021 higher than the average of 13.20% in 2020.  

·        In the outgone month, we saw the country continue its struggles to balance the scale of rising oil prices and the attendant effect on the landing cost of fuel.  

·        Also, Brent crude price was majorly volatile as factors such as vaccine optimism, OPEC supply cuts and lockdown measures were overshadowed by worries of rising Covid-19 cases and a shift towards loosening OPEC+ supply cuts. 

·        In its second meeting in 2021, the MPC voted to maintain Monetary Policy Rate (MPR) at 11.50%, in line with our expectation.

·        The fixed income market during the month of March 2021 was  characterized with sustained increase in yields on FI instruments, albeit at a slower pace compared to February.  

·        Going forward, it is likely that yields in the fixed income space continue trading at current levels.  

·        In the outgone month, Brent crude price shed 3.92% to close the month at US$63.54/barrel, after reaching as high as US$70/bbl during the course of the month. 

·        In the local scene, the CBN introduced the “Naira 4 Dollar scheme” in a bid to further improve dollar inflow into the parallel market.

·        We posit that the medium to long-term outlook for the naira     remains weak on the back of unfavourable fundamentals underpinned by overdependence on volatile oil receipts.

·        The Nigerian Equities Market had a bearish run in the month of March, as the NSE-ASI closed at 39,045.13pts, a 1.90% m/m fall from 39,799.89pts in February 2021.

·        With a slow-down in the rise in interest rates due to the DMO’s stance in managing the FG’s borrowing costs, we expect investors to pick up more quality names in the equities market in a bid to attain positive real returns, which is unattainable in the fixed income market given fast rise in inflation level.