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Breakfast Report - 04 May 2021

The Week Ahead

• The fiscal authorities could be in a new dilemma as Federation Accounts Allocation Committee (FAAC) inflows become the opportunity cost of fuel subsidies in the coming months. The NNPC recently alluded to the shortfall in net income arising from maintaining fuel subsidies in its books. Should the government maintain its stance of maintaining current PMS prices for six months, the new development could drive states to seek alternative sources of revenue. Data from the National Bureau of Statistics reveals that only three states (Lagos, FCT, and Ogun) generated 50% of total available revenue internally in 2020. While this might be a short-term discomfort, we believe this new policy trade-off could drive states to develop innovative solutions to attract investment and organically expand their internally generated revenues in the medium term.
• Equity: We foresee a return to the mild levels of activity witnessed throughout the previous week, as most companies have now released Q1 results. Therefore, we expect activity levels to be muted once more, while sentiment remains tepid, and liquidity persists at current levels.
• Fixed Income: We expect the market to the week on a mixed note, as investor focus shifts to the up-coming auctions. Meanwhile, we foresee active trading across the NTB market, as investors start to trade post-auction. Also, we expect the bonds market to remain sell-side driven, given current liquidity levels.