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Breakfast Report - 30 December 2020

According to data from the National Bureau of Statistics, the country officially experienced its second recession in five years, having contracted by -6.10% y/y and -3.62% y/y in the second and third quarters of 2020 respectively. The less severe contraction is attributed to a slower contraction in the non-oil sector (Q3’20: -2.51% y/y) despite a worse turnout from the oil sector (Q3’20: -13.89% y/y). As a result of the less severe contraction seen in Q3'20 compared to Q2'20, the Monetary Policy Committee held all policy parameters constant in its last meeting for the year. The decision was taken to allow earlier policy measures to permeate the economy in anticipation of a full return to growth in Q1'21 and inflationary pressures moderating in the medium term. The pause in policy action could give the ongoing economic recovery legs to run further from here. This accommodative stance could also provide a measure of support for Nigerian risk assets heading into the new year, amid near-zero interest rates in advanced economies, and a global liquidity glut that has triggered a quest for yield. According to data from the National Bureau of Statistics, the country officially experienced its second recession in five years, having contracted by -6.10% y/y and -3.62% y/y in the second and third quarters of 2020 respectively. The less severe contraction is attributed to a slower contraction in the non-oil sector (Q3’20: -2.51% y/y) despite a worse turnout from the oil sector (Q3’20: -13.89% y/y). As a result of the less severe contraction seen in Q3'20 compared to Q2'20, the Monetary Policy Committee held all policy parameters constant in its last meeting for the year. The decision was taken to allow earlier policy measures to permeate the economy in anticipation of a full return to growth in Q1'21 and inflationary pressures moderating in the medium term. The pause in policy action could give the ongoing economic recovery legs to run further from here. This accommodative stance could also provide a measure of support for Nigerian risk assets heading into the new year, amid near-zero interest rates in advanced economies, and a global liquidity glut that has triggered a quest for yield.

Equity: The Nigerian equity market saw a mixed trading pattern during the week, with buying interest recorded at mid-week, following an extension of profit taking action at the beginning of the week. We expect investors to continue to position in dividend paying stocks in the short term, given where yields are in the fixed income market, however, as seen at the start of the week, the possibility of profit taking cannot be overruled, hence a cautious trading strategy is recommended. Stock Watch: MTNN closed the last trading session of the week as one of the gainers, posting a positive return of 131bps to settle at ₦155.00. Following the headwind which pushed the telecommunication giant to its 52-week low price of ₦90.00 in March 2020, the counter has since witnessed a rebound, trading at a premium of 72.22% to its 52-week low price, while also posting a YTD return of +42.20%.

Fixed Income: We expect system liquidity to remain a key driver of activity in the market on Monday, notably in the bonds space. Meanwhile, we expect developments in the global macro space to remain at the forefront of investors’ focus in OMO space, while we foresee another tepid session in the NTB space.