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Breakfast Report - 11 May 2020

At the close of trade last week Thursday, the rate on the five-year naira futures soared past ₦500/$1 following the Central Bank of Nigeria’s (CBN) decision to weaken the naira at the derivatives window. In the last session the naira weakened to ₦569/$ from 413/$ in the previous session. The regulator weakened the currency on average by ₦73 across tenors, causing the one-year maturity to soften by ₦27. In March, the apex regulator adjusted its official rate through a 15% devaluation in the naira. in response, the naira been hitting new lows in both the parallel and OTC market. In addition, global crude oil prices have slumped due to the downturn in global productivity. This has impaired accretions to the foreign reserves, forcing the CBN to moderate the sale of FX at the IE window, amid a rise in demand for dollars in the FX market. As a result, currency traders are pricing in the possibility of a further devaluation in the naira in the next five years, as the medium term outlook for the oil market remains bleak.

Equity: With the gains recorded in most counters last week, we envisage profit taking at the beginning of next week before we see a stable market by mid-week. Prices of most fundamentally sound stocks remain good for investors to take position for a medium to long term tenure. However, liquidity level will continue to play a major role in the direction of the market in the short term.

Stock Watch: NB trailed CUSTODIAN (+769bps) and FIDSON (+783bps) as the third best performing stock for Friday, gaining 745bps to close at ₦37.50. The upward movement resulted from buying interest in the counter, as buyers were willing to buy at higher prices.

Fixed Income: We expect the OMO market to trade in a positive manner at the start of next week due to maturities, coupled with the level of system liquidity. Whereas, we expect to see limited interest in the NTB and Bond markets as the uncertainty in the global macro-sphere persists