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Breakfast Report - 01 March 2021

Oil prices have been on a tear, supported by OPEC production cuts and a rise in global demand.  While the uptrend in oil prices could be essential for FX stability, the looming effect on PMS and commodity prices could swell inflationary pressures further. The Federal Government held a meeting with labour unions earlier in the week, to consider the report of a technical committee and devise a transparent template on PMS pricing. However, the final decision could be taken after a subsequent meeting with state governors. Thus, the authorities could be faced with the dilemma of raising PMS prices to ensure fiscal sustainability and maintaining the status quo for welfare reasons. Should adjustment in PMS prices occur, we do not expect huge movements in fuel prices as the welfare effect will be incorporated in decision making. Overall, higher PMS prices on a y/y basis could keep headline inflation elevated in the near term.Oil prices have been on a tear, supported by OPEC production cuts and a rise in global demand.  While the uptrend in oil prices could be essential for FX stability, the looming effect on PMS and commodity prices could swell inflationary pressures further. The Federal Government held a meeting with labour unions earlier in the week, to consider the report of a technical committee and devise a transparent template on PMS pricing. However, the final decision could be taken after a subsequent meeting with state governors. Thus, the authorities could be faced with the dilemma of raising PMS prices to ensure fiscal sustainability and maintaining the status quo for welfare reasons. Should adjustment in PMS prices occur, we do not expect huge movements in fuel prices as the welfare effect will be incorporated in decision making. Overall, higher PMS prices on a y/y basis could keep headline inflation elevated in the near term. Equity: Void of any significant positive event capable of lifting investors' sentiment, the ASI continued its downward slope amid persistent sell pressure. With the anticipation of some corporate earnings hitting the market in the coming week, we expect the market to trade mixed, with a bit of cherry-picking activities in some counters and continued sell pressure driven by the outflow of funds from the equities market to the Fixed Income market. Stock Watch: LASACO ended Friday’s session as the best performing stock, with a gain of 982bps to close at ₦1.23. The upward movement can be attributed to bargain hunting activities in the Insurance stock. Its YTD return remained strong at +251.43%. Fixed Income: We expect the market to trade in a mixed manner at the start of the week, as we come into the new trading month. Oil prices will continue to support buy-side activity in OMO space, while we expect to see some level of cherry-picking on attractive tenors across the space.