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Breakfast Report - 28 December 2022

The Naira has remained relatively stable in the parallel market (N745/$) despite sliding to N452/$ in the official market. Our prognosis going into 2023 suggests that currency performance hangs largely on higher oil production receipts and improved intervention in the foreign exchange market. Thus, should our baseline scenario of stronger oil production and a reduced subsidy bill play out, we expect increased foreign exchange inflows and a narrower FX gap. We note that the Naira is undervalued in the parallel market, though slightly overvalued in the official market. Thus, while we see the Naira slipping to ₦480/$ in the official window, our base estimate for the parallel market is hinged on an appreciation to ₦665/$ in 2023. Risks to our outlook includes subsidy retention, excessive demand volatility, unrest in the Niger Delta, political upheavals, and a sustained hardliner posture from the apex bank towards retail FX outlets.

Equity: It was another positive week in the market, as all sectoral indices closed in the green. While we still anticipate some profit taking this week, we expect the market to sustain its bullish momentum.

Fixed Income: We expect the market to open the week on a bullish note, as portfolio rebalancing continues ahead of the new year. That said, we do not rule out the possibility of some profit-taking activity, given the recent market gains.

Commodities: Prices of Commodities on the AFEX Commodities Exchange returned mixed results. Maize increased by 9.69%, Cocoa by 1.72%, and Paddy Rice by 4.60%, while Soybeans declined by -0.59%, and Cashew by -10.06%. The price of other commodities remained unchanged. Year-to-date, Paddy Rice, Sorghum, Cocoa, Ginger, and Sesame remained positive at 45.85%, 46.95%, 33.87%, 0.67%, and 14.99%, respectively, while Maize, Soybeans and Cashew returned negative at -5.44%, -22.15% and -8.35% respectively.