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Breakfast Report - 06 June, 2020

Last week Wednesday, the Federal Government announced a rise in the price band of premium motor spirit (PMS) to between ₦140.80-₦143.80/litre in Jul’20. In Jun’20, the pump price of PMS was pegged at between ₦121.50 and ₦123.50 per liter, and filling stations we reselling at the maximum price allowed by the PPPRA. The coronavirus-led downturn in global economic activity and crude receipts made the government change its stance on PMS subsidies earlier in the year, allowing market forces to dictate the retail price of petrol in the country going forward. The 16% upward revision in the pump price of PMS implies that for the month of July, we could see a steeper surge in core prices than in previous months ergo leading to a steeper increase in headline inflation. This would exert more downward pressure on already weak consumer spending in the midst of a slowdown in economic activity and a currency adjustment.

Equity: The domestic bourse saw another week of sell pressure as investors' confidence continues to dampen in the face of global uncertainties and domestic macro-economic challenges. In the absence of positive catalysts capable of spurring BUY decisions, we expect the market to extend its downward trend this week despite the attractiveness of a number of fundamentally sound stocks.
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\Stock Watch: Contrary to the persistent declines witnessed last week, the Banking index posted a positive performance on Friday, up by 0.32% amidst bargain hunting in the two Tier 1 banking heavyweights; ZENITHBANK (+304bps) and GUARANTY (+48bps).

Fixed Income: System liquidity will continue to dictate the behavior of market participants in the space, as there has been a limited improvement to all other drivers of activity in the space. As such, we expect the market to start off the week on a mixed note.