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Breakfast Report - 15 January 2024

 

• As we expect Nigeria’s December inflation print this week, we believe inflation rose above 29% due to year-end festivities and the sustained passthrough of high transport prices. For much of H1’24, inflation could remain above the 30% handle, driven by low base effects in the context of PMS pricing. Amid these expected pressures, the Central Bank hinted at the adoption of an inflation targeting framework at the Annual Banker’s Committee Dinner. Literature tells us that inflation targeting involves several elements, including the public announcement of medium-term targets for inflation, an information-inclusive approach with many variables (and not just monetary aggregates), increased transparency of monetary policy strategy through communication with the public and the markets about the plans and objectives of monetary policymakers, and increased accountability of the central bank in attaining its inflation targets. A key side effect of an inflation targeting regime is output fluctuations as low economic growth could ensue from attempts to target inflation. This could adversely affect the ambitious goal of attaining a $1 trillion economy over the medium term.
• Equity market: At the close of last week, the market returned 4.24% w/w compared to prior week’s close of 6.54%, as we saw some profit taking action this week. Given the strong close in the consumer goods sector, we are likely to see price correction there at the start of trading today, while other sectors trade mix.
• Fixed Income: Following last week’s performance, we still expect some bullish trading sentiments in both markets at the start of this new week.