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Breakfast Report - 10 February, 2020

According to data from the Central Bank of Nigeria (CBN), the level of activities in the economy softened in January. Activity levels in the economy receded in the absence of festivities that encourage consumerism. Both the manufacturing and services PMIs grew at a slower pace in the month, printing at 59.2 index points and 59.6 index points respectively (Dec’19: 60.8 and 62.1 index points respectively). The slowing in the composite indices was reflective of the scale down in production/business activity and employment levels, driven by the slowing of order levels and quantities purchased. Tepid aggregate demand from consumers continued to weigh on imports and quantities purchased. Also, the persistent contraction of new export orders dampened the momentum of manufacturing and services in the economy. In addition, the continued closure of the land borders put upward pressure on output prices (+3.4 m/m). If this persists, inflationary pressures can intensify in the short term. These signs of renewed inflationary pressures indicate that we are not likely to see the CBN ease its monetary policy stance anytime soon.

Equity: A negative close on the NSEBNK index and MTNN were responsible for the Friday’s negative close, as all other indices closed in the green. We reckon global oil price, as determined by happenings in China, will continue to play a major role in the direction of the market in the near-term. We expect a mixed trading session early this week, alongside further corporate actions from some of the highly capitalized companies, while a positive surprise in their FY results should excite the market.

Stock Watch: LAWUNION (+990bps) closed Friday as one of the best performing stocks, once again sustaining its bull-run. The Insurer has returned over 120% and has closed on full bid in the last 6 trading sessions. Though the stock was initially offered at the beginning of trading session, consistent bids sustained the price and we do not rule out another day of maximum intraday gain in the next trading session.

Fixed Income: We expect market sentiment in the Treasuries space to remain tepid at the start of this week, owing to the level of system liquidity. In the bond market, we expect investor demand for bonds at the long end of the space to be sustained.