Breakfast Report - 06 April, 2020
With crude prices trading at 18-year lows, global ratings agency - Fitch Ratings – has cut Nigeria’s sovereign rating to B-, pushing the country deeper into junk region. The ratings downgrade is triggered by concerns over the nation’s ability to achieve fiscal and external balance amid the sharp drop in crude prices, as well as the potential economic impact of the COVID-19 outbreak. The downgrade implies that the government’s cost of borrowing should be higher in the second half of the year, as Nigeria’s Eurobond investors could be demanding significantly higher premiums for their funds. In view of this, the government has suspended its plans to borrow from the Eurobond market at commercially viable rates as the softening of oil prices will intensify the country’s debt burden in the face of revenue volatility. The nation’s ability to service its debt will come under increased scrutiny should we remain in a low oil price environment. However, an improvement in oil price - brought on by an agreement between Russia and Saudi Arabia on oil production levels - should improve
Nigeria’s debt capacity.
Equity: With declines in the price of a number of fundamentally sound stocks this week, we expect some cherry picking at the beginning of the week though the performance of the index still largely depends on events around the continued spread of the Coronavirus pandemic as well as happenings in the Crude oil market.
Stock Watch: Tier-one banking counters were positively patronized on Friday, as all stocks closed higher; ACCESS (+10.00%), ZENITHBANK (+818bps), FBNH (+676bps), UBA (+206bps) and GUARANTY (173bps).
Fixed Income: Given the rebound in crude prices witnessed today on the back of expectations of a new production cuts agreement between Saudi Arabia and Russia, we expect the fixed income space to trade in a positive manner at the start of the week, given liquidity levels. However, we do note that any further negative developments in the oil market will likely cause sentiment to turn negative once again.
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