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Breakfast Report - 10 April, 2017

The National Bureau of Statistics will later this week release inflation figure for the month of March. We recall that in February, Food Inflation rose from 17.8% to 18.5% despite a higher February base, outstripping Core Inflation (16.0%) for the first time since March 2016. Overall, headline m/m inflation rose from 1.0% in January to 1.5% in February as previously receding inflationary pressures returned with some fury. Though we expect m/m inflation to remain relatively high (Vetiva estimate: 1.2%), an even stronger March base (March 2016: 12.8%) should help moderate inflation. Furthermore, improved liquidity in the foreign exchange market and consistent Central Bank of Nigeria liquidity mop up should suppress the FX induced inflationary pressures. On the back of this, we forecast inflation to trend further south, registering 16.6% in March. We highlight that this would be the lowest inflation figure since the first half of 2016 and consider it a welcome development as Nigeria looks to return to economic growth in 2017.

Driven by mixed trading across key sectors, the Nigerian equity market closed flat last Friday, albeit notching 90bps w/w in the first trading week of Q2. On a sectoral basis, the Industrial Goods and Oil & Gas sectors closed up 515bps w/w and 427bps w/w respectively. The Consumer Goods sector also posted strong w/w gains (+80bps) after notching points on Friday. The Banking sector however slipped 20bps w/w due to heavy losses in earlier sessions.

Whilst we note the underlying positive sentiment in the market, we highlight the sizeable gains recorded across select large cap stocks last week as a pre-cursor for profit-taking today. Thus, we expect trading to be varied at week open as positive sentiment is capped by sustained profit-taking.

Stock Watch: Following positive market reaction to FY’16 earnings announcement (PAT up 15% y/y, DPS: ₦0.70), NASCON rallied 21% last week to a year high of ₦8.62, ytd return also swung into the green – 1.41%. We could see some profit taking in coming sessions.

For the Fixed Income market, we highlight the residual buying sentiment at last week’s close, we anticipate slightly cautious trading in the bond market today ahead of the April Bond Auction on Wednesday. Meanwhile, we expect T-bills market to continue to trade mixed today.