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Analyst Insight

Naira weakens, oil slips, stocks flat

July 13, 2020479 views0 comments

By Lukman Otunuga,

Senior Research Analyst at FXTM

 

As the coronavirus menace dug its vicious talons deeper into Africa’s largest economy, the Central Bank of Nigeria wasted no time in depreciating the official naira rate by 5.5% to 381 per dollar.

In the face of dollar shortages, depressed oil prices and mounting pressures from external lenders the CBN remains pressured to unify the multiple exchange rates to improve transparency. A single exchange may eliminate an element of confusion and even attract foreign exchange investment, but such may come at the expense of rising inflation. The exchange rate at the black market has already tumbled to a three-year low, trading around N463 per dollar following the official devaluation.

With consumer prices hitting 12.4% in May, signs of rising inflationary pressure fuelled by a weaker naira, is the last thing Africa’s largest economy needs. Local stocks were trading flat last week with the Nigerian All-Share Index down -0.24% Monday through Thursday.

Oil prices were mostly depressed last week thanks to rising coronavirus cases across the globe. Fears around another round of lockdowns hitting demand for oil continues to haunt attraction towards the commodity and this may remain a key theme ahead of the OPEC decision this week. If the cartel decides to extend the historic production cuts of 9.7 million barrels per day beyond July, oil prices have the potential to edge higher. However, a disappointing outcome to the meeting with the cartel reverting to previous supply cut of 7.6 million barrels per day could send oil prices tumbling.

Overall, it was another week defined by COVID-19, volatile global equity markets and sharp changes in risk sentiment. Gold is likely to remain the talk of the town after appreciating to levels not seen in 9 years. With coronavirus related developments, trade uncertainty and global growth fears among many negative themes straining sentiment, the precious metal has the potential to shine this quarter.

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