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Breakfast Report - 18 January 2021

Headline inflation rose to a 3-year high of 15.75% y/y in December printing 86bps higher than the previous month (Nov’20: 14.89% y/y), driven by the continuous passthrough effect of COVID-19 related disruptions, energy reforms and dual devaluation of the Naira. The festive season also contributed to the uptick in headline inflation, inching 1.61% higher m/m (Nov’20: 1.60% m/m). This translated into a full year average inflationary outcome of 13.25% y/y. The combined effect of floods and pockets of conflict in food-producing areas amid closed borders contributed to the sixteenth consecutive rise in food inflation (December 2020: 19.56% y/y) which is knocking on the door of 20%, a level last seen in 2017. Core inflation also edged up 32bps to 11.37% signaling pressures from higher fuel prices and the weaker Naira.

Equity: Investors' sentiment was largely positive last week, evidenced by the positive sectoral performances. Though most fundamental indicators point towards an extension of the bullish performance into this week, we expect short-term players to take profit, due to recent gains made in previous sessions.

Stock Watch: UACN emerged as the best performing stock on Friday, rising 10.00% to close at ₦8.25. The counter traded about 16.5mn units, with most of the trades going through at its upper band Its YTD return improved to +13.79%.

Fixed Income: We expect the market to open the week on a mixed note, with investors still bullish in the OMO space due to the positive sentiment around increased fiscal spending from the U.S. Meanwhile, we expect yields in the bonds space to tick higher as investors take positions ahead of next week’s bond auction.