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Breakfast Report - 21 December 2020

Inflation continues to rise beyond the Central Bank’s target of 6-9% for the fifth consecutive year. In the month of November, inflation touched a new 34-month high of 14.89% y/y, 65bps higher than the previous month. While core inflation moderated to 11.05%, food inflation sustained its 15-month ascent to 18.30%. Looking ahead, we expect inflationary pressures to persist especially as year-end festivities stoke commodity prices. Consumer wallets will continue to be pressured by supply-side shocks from the pandemic, closure of land borders, and the dual devaluation of the Naira. Inflation continues to rise beyond the Central Bank’s target of 6-9% for the fifth consecutive year. In the month of November, inflation touched a new 34-month high of 14.89% y/y, 65bps higher than the previous month. While core inflation moderated to 11.05%, food inflation sustained its 15-month ascent to 18.30%. Looking ahead, we expect inflationary pressures to persist especially as year-end festivities stoke commodity prices. Consumer wallets will continue to be pressured by supply-side shocks from the pandemic, closure of land borders, and the dual devaluation of the Naira.

Equity: With the positive investor sentiment that dominated last week shows no signs of abating, as such we expect a positive start to a truncated trading week. With the year winding down, we believe savvy investors will remain keen to lock into some attractive names in anticipation of further returns and solid dividend yields in the new year. Thus, we expect further gains to dominate the few trading sessions left in 2020.

Stock Watch: Oil and Gas names enjoyed favourable attention on Friday, with OANDO (+9.79%) finishing among the top gainers, whilst ARDOVA (+792bps) also saw some gains. The NSEOILGAS sector has been the worst performer this year with a YTD loss of -15.18% for obvious reasons. However optimism over the reopening of economies worldwide thanks to the progress made on vaccines has rekindled investors’ hopes of an increase in demand for upstream and downstream players. It remains to be seen if this positive sentiment will hold for the long haul, although investors appear more willing in recent sessions to refocus on that segment.

Fixed Income: We predict that the market will trade in a similar fashion this week as previous sessions, as we approach the end of the year. Also, we expect investors in the bonds space to continue profit-taking on gains made over the course of the year. Meanwhile, we foresee tepid interest in the T-bills space given the stop rates at the last auction.