After showing compelling indication of improvements in H1-18, macro variables reversed in Q3-18. The equities market slumped -14.4%, compared to -7.8% in Q2-18; average yield took a U-turn, rising by 1.6%; FX rate at the I&E segment depreciated 0.8%q/q, depressing external reserves from $47.6bn at the end of Q2-18 to $44.4bn; Oil prices experienced a choppy theme but ended 6.8% higher from the last day of June 2018; and headline inflation rate settled at 11.2% as at Aug-18, after bottoming at 11.1% in July-18.
While the sustained uptick in oil prices continue to brighten Nigeria’s macroeconomic outlook, weaker macro indices as highlighted above reflect the feedback effect from increasing political tension on the rest of the economy. In Q4-18, inflation rates may sustain further upticks and external reserves may likely take the further beating as pressure on FX strengthens.
Accordingly, sentiment across market segments would remain bearish, presenting an opportunity for discerning investors to lock in funds at cheap valuation prices over the election cycle in Q1-2019. The MPC would likely keep the policy rate at 14% while increasing liquidity mop-up at the OMO market. Accordingly, we expect the average yield to continue northwards while sentiment in the equities space would tilt in favour of our most pessimistic scenario.
UNITED CAPITAL RESEARCH