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Breakfast Report - 11 January 2021

In line with fiscal reforms, the Federal Government has hit two landmark achievements for the second year running. The first being the adoption of a calendar year budget cycle and the next being the annual review of extant tax regulations. With respect to the latter, the President has approved amendments to several sections of our tax laws, encapsulated in the Finance Act 2020. The finance act takes into cognizance events that the country has encountered in the recent past. With a couple of expansionary fiscal initiatives, the Finance Act provides some relief for individuals, whose purchasing power had been stifled by the fall in the value of Naira and energy reforms. Given the sticky upward movement in oil prices and cap of production, weak revenue mobilization has resorted to innovative ways of funding the government’s obligations. In all, the execution of the 2021 budget side by side with the finance act will provide an impetus for fiscal sustainability.

Equity: Despite the dominance of the Bulls for most of the sessions during the week the index ended the week lower amidst significant declines in the Industrial goods sector. We expect a recovery this week, as the current price drop in the Industrial goods sector is expected to drive some buying interest in that region. Also, we anticipate some more positive patronage in the Oil & Gas sector as we continue to see improvement in the prices of Crude oil.

Stock Watch: With the significant improvement seen in the prices of Crude Oil, stocks in the Oil & Gas region have witnessed some renewed interest as SEPLAT (+10.00%), TOTAL (+10.00%) and ARDOVA (+973bps) all closing higher on Friday, pushing the YTD return of the sector to +13.16%.

Fixed Income: Given the level of system liquidity and where rates closed in today’s auction, we expect the market to open next week on a mixed note.