A major development that caught our attention this first week of the New Year (due to its immediate impact on crude oil prices) is the U.S. government-backed airstrike that killed Iran military leader, Qassem Soleimani and Abu Mahdi al-Muhandis (Deputy Commander) late on Thursday.
Over the last 14-months, the U.S. and Iran had been at loggerhead following U.S. president’s decision to abandon a 2014 nuclear deal between Iran and top Western powers (including the U.S), over an allegation that Iran had secretly continued to produce a nuclear weapon, contrary to the terms of the nuclear deal.
Since abandoning the nuclear deal in April 2018, the U.S. had imposed a series of economic sanctions on Iran, including that of forcefully stopping other countries from buying crude oil from Iran (the world’s 5th largest producer of crude oil) – A development that drew retaliation from Iran including attacks on oil vessels belonging to some U.S. allies in 2019.
As a result of this latest development (the killing of Iran military head) and the expectation of possible retaliation from Iran, the global crude oil prices rose by nearly $3 dollars to a 2020 high of $68.77/bl from the last position of $66/bl.
Although the spike in crude oil price that accompanied this development, on the one hand, spells positive for Nigeria oil revenue target for the 2020 budget and her foreign reserve position (in persisted in the short-to-medium term), it, however, on the other hand, means that the amount expended by the Nigerian government on petroleum subsidy payment per litre will increase to ₦49 from ₦47.5, if the PMS price remains at ₦145.
Going forward, while the concern from the latest development and expected retaliation is expected to keep oil prices above Nigeria’s 2020 budget benchmark ($57/bl) in the near term, Nigeria will continue to lose out on the opportunity to enjoy the maximum earnings benefit from oil price shocks like this due to her continued dependence on imported refined petroleum products for domestic consumption.
GLOBAL EQUITY MARKET
Global equities market open the New Year with mixed performance
Performance of major equities market this week was mixed, from advanced economies of the U.S. to emerging markets of Asia and Africa. This was due largely to investors’ reaction to Thursday’s killing of an Iranian top military officer by the U.S. military airstrike.
In the U.S., the equity market recorded positive sentiment as DJIA, Nasdaq Composite Indexes and S&P 500 gained 0.16%, 0.42% and 0.07% respectively. In major markets across Europe, the bearish sentiment prevailed as the UK FTSE 100, Germany DAX, and France CAC 40 all shed -0.98%, -1.59%, and -0.62% w/w respectively.
In Asia, while China’s Shanghai Composite Index closed the week with a gain of 2.62% w/w, India’s S&P BSE shed 0.27% to close southward. In Africa, South Africa JSE-ASI closed positive with a gain of 0.18%, while Egypt’s EGX shed 0.44% w/w.
DOMESTIC EQUITY MARKET
Market resume New Year trading with a 2.09% w/w gain
The Nigeria equity market closed all the four trading sessions for this week green, as the market began the New Year on a high. This was driven by early positioning for mostly dividend-paying stocks by investors in anticipation of better earnings in Q4’19 as against Q3’19 performance.
As a result, the overall market performance indices, NSE-ASI and Market Capitalization values climbed by 2.09% w/w; the strongest since November 2019. Specifically, the NSE-ASI and Market Capitalization value rose to close for the week at 26,968.79 absolute points and ₦1.02 trillion respectively as against 26,416.48 absolute points and ₦12.75 trillion last Friday. In nominal terms, this translates to a ₦266.93 billion in Market Capitalization value.
All the five sector indices closed positive on week-on-week metrics, led by NSE- Oil&Gas (+5.41%), NSE-Insurance (+4.58%), NSE-Banking (+2.95%), NSE- Consumer Goods (+0.78%), and NSE-Industrial Goods (+0.29%).
CORNERST top the gainers’ table this week; appreciating by 39.47% w/w, while FIDSON shed 12.90 % w/w to lead the loser’s table.
Overall, a total turnover of 2.31billion shares worth ₦21.67 billion in 14,906 deals was traded this week by investors on the floor of The Nigerian Stock Exchange in contrast to a total of 735.70 million shares valued at ₦7.13 billion that exchanged hands last week in 7,138 deals. A total of Forty-four (44) equities appreciated at price during the week, higher than Thirty-one (31) equities in the previous week. Twenty-five (25) equities depreciated in price, higher than Seventeen (17) equities in the previous week, while One Hundred (100) equities remained unchanged, lower than One Hundred and Twenty-one (121) equities recorded in the preceding week.
Market Outlook: Week ending January 10, 2020
In anticipation of the release of the full year 2019 earnings result by many of market players in the coming weeks, we expect to see increased positioning by portfolio investors, supported by the declining yields on both fixed income instrument and fixed deposit account. As such, we expect the market to close positive next trading week.
FX, EXTERNAL RESERVE, & COMMODITIES
The Naira official exchange rate against the USD remains unchanged ₦307.00/USD this week, while the pair lost 0.11% to close at ₦364.98 /USD as against ₦364.57/USD last week Friday.
On the other hand, the balance of the foreign reserve this week fell by $50 million from last week position of $38.59 billion to $38.54 billion (2-Jan-2020).
Gold moved toward a six-year high after a U.S. airstrike killed one of Iran’s most powerful generals, ratcheting up tensions in the Middle East and driving demand for safe haven.
Gold spot price gained 2.74% to $1,550.71 per Ounce. Similarly, Cocoa spot price grew by 1.27% to close on Thursday at $2,453.13 per Metric Ton.
GTI Securities Ltd
