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Breakfast Report - 19 October, 2020

The statistics bureau, NBS, confirmed that inflation rose by 49bps to 13.71% y/y in September. This we attribute to the reforms in the energy sector and the fall in the value of the naira. Both food and core inflation maintained the uptrend rising to 16.66% y/y and 10.58% y/y respectively. Notably, we associate the rise in the pump price of Premium Motor Spirit (PMS) from ₦148 (in August) to ₦151.56 (in September), as well as the hike in electricity tariffs as key price pressure points for the month. However, the price cap of PMS was removed shortly after a higher pump price was announced, leading to higher retail prices. Despite the suspension of tariffs, the price increases were already reflected in the prices of commodities as all segments of the Consumer Price Index experienced higher inflation readings for the second consecutive month. Food inflation rose despite the harvest season due to flooding in the north that affected rice supply, amid continuous closure of land borders. Health recorded the highest pricing pressures among the non-edible segments for the fifth consecutive month, followed closely by transport and clothing. This reflects increased demand for medical items since the lockdown began at the end of February as well as increased energy costs. Going forward, we anticipate further inflationary pressure as we see the intention to restrict food imports from FX supplies as future triggers for food inflation. The expansionary move of the CBN, of reducing the benchmark interest rate by another 100 basis points in September, could also trigger demand-pull inflation. The statistics bureau, NBS, confirmed that inflation rose by 49bps to 13.71% y/y in September. This we attribute to the reforms in the energy sector and the fall in the value of the naira. Both food and core inflation maintained the uptrend rising to 16.66% y/y and 10.58% y/y respectively. Notably, we associate the rise in the pump price of Premium Motor Spirit (PMS) from ₦148 (in August) to ₦151.56 (in September), as well as the hike in electricity tariffs as key price pressure points for the month. However, the price cap of PMS was removed shortly after a higher pump price was announced, leading to higher retail prices. Despite the suspension of tariffs, the price increases were already reflected in the prices of commodities as all segments of the Consumer Price Index experienced higher inflation readings for the second consecutive month. Food inflation rose despite the harvest season due to flooding in the north that affected rice supply, amid continuous closure of land borders. Health recorded the highest pricing pressures among the non-edible segments for the fifth consecutive month, followed closely by transport and clothing. This reflects increased demand for medical items since the lockdown began at the end of February as well as increased energy costs. Going forward, we anticipate further inflationary pressure as we see the intention to restrict food imports from FX supplies as future triggers for food inflation. The expansionary move of the CBN, of reducing the benchmark interest rate by another 100 basis points in September, could also trigger demand-pull inflation.

Equity: The domestic bourse was characterized by mixed trading activities last week, with profit taking action recorded at the beginning of the week, while barging hunting dominated the tail end of the week. With the fear of the second wave of the Coronavirus pandemic dampening investors' sentiment across the world, we advise a cautious trading strategy for short term players in the short term, while mid/long term investors can still take advantage of the current attractive price levels. Also, as Q3 earnings begin to come into the market from this week, we believe this should shape market direction this week.

Stock Watch: The Bulls dominated the trading session on Friday, taking position in a number of mid/large cap stocks such as TOTAL (+10.00%), INTBREW (+990bps), PRESCO (+893bps), UBA (+827bps), ZENITHBANK (+775bps), ETI (+581bps), GUINNESS (+531bps), WAPCO (+443bps), FBNH (+323bps), GUARANTY (+288bps), FLOURMILL (+261bps), ACCESS (+258bps) and STANBIC (+118bps) among others. Fixed Income: With investors anticipating a fresh supply of bonds in the market, we expect market participants to remain buy-side inclined in the bonds space. In addition, with liquidity at a decent level we foresee this supporting the buy-side sentiment, as fund managers deploy excess liquidity.