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Breakfast Report - 20 April, 2020

Following a record output cut by OPEC+, the Paris-based International Energy Agency (IEA), expressed concern that the largest production cuts in 25-years, would fail to mitigate the risks the market faces to a short-term fall from a drop-in demand. Brent crude prices fell lower last week by more than 5%, to $28/bbl, with Nigeria’s Bonny Light Crude grade trading at $19.25/bbl, a historical low. The energy-watchdog stated that market participants should brace for the largest contraction in 25-years, sighting the global lockdown as countries around the world work to contain the COVID-19 outbreak; the slowdown in demand has led to an oversupply glut, as landlocked storage facilities reach their capacity. As global investors continue to assess the impact of the virus on the global economy, the downturn in oil demand poses a risk to nations that are exposed to volatility in commodity prices. Although a member of OPEC+, Nigeria will maintain its current level of production at 1.7mbpd, as it continues to serve as a primary source of FX revenue for the country. In addition, a shortfall in government receipts from crude sales will result in a contraction in Q2’20 GDP, mount pressure on the naira as well as capital flight as concerns about the ability of the government to generate fiscal revenues rise.

Equity: Coming into the week, we expect investors to continue to cherry-pick fundamentally sound stocks trading at lower bands. However, with the continued spread of the Coronavirus Pandemic as well as low crude oil prices, we cannot totally overrule the possibility of sell pressure, given that the macroeconomic space remains fragile.

Stock Watch: NB once again closed among the top gainers, rising 985bps to settle the week at ₦32.35. The counter enjoyed positive investors' patronage during the week, rallying c.41.00% above last week's closing price of ₦22.20. However, despite the bullish performance recorded during the week, the counter trades at a 51.06% discount to its 52-week high price of ₦66.10.

Fixed Income: We expect the OMO and Bond segments of the fixed income space to trade in a positive manner at the start of the week, as system liquidity should drive buy-side activity; whereas we expect further muted activity in the NTB segment.