FSDH Monthly Strategic Report: Inflation rate to drop marginally to 15.96% in Sept. 2017 from 16.01% in Aug. 2017

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Executive Summary
Domestic Scene:

  • The current positive macroeconomic developments in the country have reduced the risk inherent in the Nigerian economy. Consequently, the yields on fixed income securities are dropping.
  • The recent efforts of the DMO to restructure the country’s debts is also contributing to the declining yields.
  • The declining yields should prompt the realignment of investors’ portfolios in favour of equity market in search of higher returns.
  • Investors with foreign exchange may also take advantage of the opportunities in some Euro Bonds in the market.
  • A review of the latest Purchasing Managers’ Index (PMI) report that the Central Bank of Nigeria (CBN) published for the month of September 2017 shows that economic activities in the manufacturing and non-manufacturing sector continue to strengthen.
  • The Composite Non-Manufacturing Index (CNMI) expanded to 55.3 points in September 2017, from 53.6 points in August 2017
  • The total capital imported into the Nigerian economy increased to US$1.79bn in Q2, 2017 from US$908mn in Q1, 2017 and US$1.04bn in Q2, 2016
  • We expect the inflation rate in Nigeria to drop marginally to 15.96% in September 2017 from 16.01% in August 2017
  • The external reserves is at the highest level since February 2015
  • The stability in the value of the Naira should attract additional foreign capital, which will increase the external reserves
  • We expect the positive Gross Domestic Product (GDP) growth rate and lower inflation rate to attract more investments to the fixed income securities. Consequently, yields should drop further.
  • We expect the equity market to rally in Q4 2017 especially in December, in line with the historical trend.

International Scene:

  • The Organization of the Petroleum Exporting Countries (OPEC) released a global growth forecast of 3.5% for 2017 in its monthly report for September 2017
  • OPEC highlighted that the challenges remain for the global economic growth outlook, mainly related to global political developments and upcoming monetary policy decisions, particularly in the US and the Euro-zone.

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