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Breakfast Report - 22 February 2021

Last week Tuesday, inflation figures were released by the National Bureau of Statistics. Headline inflation rose by 71bps to a new 45-month high of 16.47% y/y, representing continued pressures from the devaluation of the Naira and deregulation in the downstream sector. These factors were also contributory to the build-up in core inflation, which rose to a 3-year high of 11.85% y/y. Likewise, food inflation ascended to an all-time high of 20.57% y/y, driven by conflict in food producing areas and higher logistics costs. Going forward, we expect headline inflation to continually trend higher, particularly as a result of expected uptick in PMS prices. Media reports suggest that PMS prices are already being adjusted by marketers, in line with the ascent in oil prices. However, we look forward to the outcome of a technical committee meeting next week - between the Federal Government, labour unions and stakeholders - for guidance on future pricing.

Equity: Despite the positive Q4'20 GDP report posted by National Bureau of Statistics on Thursday, investors' sentiment at the domestic bourse remained weak, as a number of investors continued to adopt a cautious trading strategy. We expect a similar trading pattern in the coming week as the rising yields in the fixed income market is expected to continue to pose a threat in the short term.

Stock Watch: Following a bit of recoveries in FIDELITYBK (+553bps), UBA (+375bps), ACCESS (+370bps), ETI (+360bps), ZENITHBANK (+249bps), UBN (+194bps) and GUARANTY (+33bps), the Banking sector ended the last trading session of the week as the best performing sector, posting a gain of 1.95% d/d, while its MTD and YTD returns moderated to -10.36% and -3.28% respectively.

Fixed Income: We expect investors to continue to monitor the pace of Nigeria’s recovery from the COVID-19-induced recession, while they also keep an eye on developments in the global macro space. As such we expect the market to open the week on a mixed note, with some investors’ cherry picking on attractive tenors across the space.