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Breakfast Report - 23 November 2020

As revealed by the National Bureau of Statistics, inflation rose for the fourteenth consecutive time in the month of October. Driven by higher fuel prices, supply chain disruptions and a weaker Naira, headline inflation rose by 14.23% y/y (September: 13.71% y/y). All segments of the Consumer Price Index witnessed inflationary pressures as the deregulation in the downstream sector dovetailed into commodity prices despite the suspension of the planned electricity tariff hike. Specifically, food inflation rose by 17.38% y/y (Sept 20: 16.66% y/y), due to continued closure of land borders, disruption in planting seasons, adverse weather conditions and poor storage facilities. Speaking of non-food items, core inflation ascended by 11.14% y/y (Sept’20: 10.58% y/y) driven majorly by energy reforms, which reflected in the Housing, Water, Gas and other Fuels segment (Oct’20:  8.48% y/y). Meanwhile, health inflation (Oct 20: 13.09% y/y) remained the most pressured core segment for the sixth consecutive month, closely followed by transport inflation (Oct’20; 12.10% y/y) and clothing & footwear inflation (Oct’20: 11.24% y/y). Going forward, we expect the recent upward review of PMS prices alongside the disruptive effects of the protests to drive headline inflation to 14.86% y/y in November. Overall, headline inflation is expected to average 13.19% y/y in FY’20 (FY’19: 11.73%) given the myriad of inflationary pressures experienced during the year. We also expect higher PMS prices to reflect in food prices alongside other disruptions, culminating in our FY’20 food inflation expectation of 16.08% y/y (FY’19: 13.73%). As revealed by the National Bureau of Statistics, inflation rose for the fourteenth consecutive time in the month of October. Driven by higher fuel prices, supply chain disruptions and a weaker Naira, headline inflation rose by 14.23% y/y (September: 13.71% y/y). All segments of the Consumer Price Index witnessed inflationary pressures as the deregulation in the downstream sector dovetailed into commodity prices despite the suspension of the planned electricity tariff hike. Specifically, food inflation rose by 17.38% y/y (Sept 20: 16.66% y/y), due to continued closure of land borders, disruption in planting seasons, adverse weather conditions and poor storage facilities. Speaking of non-food items, core inflation ascended by 11.14% y/y (Sept’20: 10.58% y/y) driven majorly by energy reforms, which reflected in the Housing, Water, Gas and other Fuels segment (Oct’20:  8.48% y/y). Meanwhile, health inflation (Oct 20: 13.09% y/y) remained the most pressured core segment for the sixth consecutive month, closely followed by transport inflation (Oct’20; 12.10% y/y) and clothing & footwear inflation (Oct’20: 11.24% y/y). Going forward, we expect the recent upward review of PMS prices alongside the disruptive effects of the protests to drive headline inflation to 14.86% y/y in November. Overall, headline inflation is expected to average 13.19% y/y in FY’20 (FY’19: 11.73%) given the myriad of inflationary pressures experienced during the year. We also expect higher PMS prices to reflect in food prices alongside other disruptions, culminating in our FY’20 food inflation expectation of 16.08% y/y (FY’19: 13.73%). Equity: Contrary to the buying activities witnessed in the previous weeks, the local market was largely dominated by the Bears, as profit taking in major names led the market south in four of the five trading sessions last week. We expect a bit of stability in this week as investors continue to take position in attractive counters while taking profit in others. Stock Watch: As against the previous sessions where the small cap stocks were negatively patronized, there was a reversal of this in Friday’s session as a number of small cap stocks like IKEJAHOTEL (+10.00%), LINKASSURE (+10.00%), TRIPPLEG (+10.00%), NEM (+979bps), AIICO (+978bps), UPDCREIT (+921bps), CORNERST (+690bps), NAHCO (+550bps), NPFMCRFBK (+438bps), CHAMS (+400bps), LIVESTOCK (+370bps), ACADEMY (+333bps), ABCTRANS (+286bps) and FCMB (+33bps) all closed in the green. Fixed Income: We expect system liquidity to trigger a return to buy-side sentiment, notably in the Bonds space, given where rates closed at Wednesday’s auction. Meanwhile, we expect OMO participants to take a cue from ongoing macroeconomic developments to guide their investment strategy next week. Finally, we foresee another quiet market in the NTB space, as the low-yield environment continues to dampen investor sentiment.