Breakfast Report - 24 August 2020
Last Monday, the National Bureau of Statistics (NBS) released Nigeria’s inflation report for July’20. Inflation rose to a 28-month high of 12.82%, 26bps above June’s figure (12.56%). This was a fallout from the devaluation of the Naira and an uptick in the price of PMS. This translated into higher inflationary pressure for all components of the Consumer Price Index on a year-on-year basis. Food inflation rose to a 28-month high of 15.48% while core inflation eased by 2bps to 10.10%. All segments of the core index experienced higher pricing pressures, led by health (11.61%), transport (10.80%) and clothing (10.61%) segments. Imported food inflation (16.35% y/y) has sustained an uptrend since August 2018 due to continuous border closure, recent exclusion of maize from the official forex window and depreciation of the Naira. The Housing, Water, Electricity, Gas and other Fuel inflation (7.97% y/y) rose to a 30-month high in July due to the upward review of the price of petrol towards pre-COVID levels. We expect inflation to rise by 23bps in August to 13.05%, anchored on higher transport costs as well as higher fuel prices, on the back of social distancing policies and energy reforms.
Equity: We expect the level of bargain hunting activities to continue in the Banking sector next week, as investors continue to take position ahead of H1 results and interim-dividends declaration. Also, with the gradual easing of lockdowns in the country, we expect shares in the Consumer goods sector to be positively patronized in the coming weeks.
Stock Watch: The Consumer goods sector closed last week as the best performer, rising 1.06% on Friday due to gains in CHAMPION (+986bps), INTBREW (+909bps) and NB (+286bps). The sector has been significantly pressured so far in the year due to the coronavirus pandemic which put economic activities on hold.
Fixed Income: We expect the improvement in system liquidity to spark some level of buying activity in the fixed income space following last week’s OMO maturities.
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