Nigeria in focus: LCCI, inflation and the naira
Aderemi Ojekunle is a Businessamlive Reporter.
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October 20, 2020518 views0 comments
Lukman Otunuga, Senior Research Analyst at FXTM
According to the Lagos Chamber of Commerce and Industry (LCCI), Nigeria has lost roughly N700 billion to the #EndSARS protests over two weeks.
This unfavourable development will most likely compound Nigeria’s woes as the country tussles with rising inflationary pressures, dollar restrictions and depressed oil prices. Inflation is projected to accelerate in the coming months due to removal of fuel subsidies, lower interest rates and recent VAT hike. Such a scenario may enforce downside pressures on the naira while hitting consumers due to a drop in purchasing power.
In a perfect world, the government could pursue deflationary fiscal policy in the form of higher taxes and lower spending to tame inflation. However, such a move could end up worsening matters for Africa’s largest economy which needs both fiscal and monetary support to battle the coronavirus menace.
Despite the gloomy outlook and likelihood of Nigeria entering a technical recession during the third quarter of 2020, Nigeria’s All Share Index is up almost 7% year-to-date. Given how rising inflationary pressures have hit fixed income securities with Nigeria boasting continual low-yields in the debt market, investors may closely eye local equity markets.
Outside of Nigeria, global markets remain influenced by the same old themes. Uncertainty remains the name of the game as the presidential elections approach a deafening crescendo while the stimulus saga in Washington has placed most on an emotional roller-coaster ride! In the latest twist and turns to this overextended series, Nancy Pelosi has set an end-Tuesday deadline to reach an agreement on the US coronavirus stimulus plan.
Looking at commodities, gold is waiting for a fresh directional fundamental catalyst. Talking technicals, major support can be found at $1845 and major resistance can be found around $1985. There is minor support around $1890 and minor resistance at $1935 and $1965. The price action displayed on the daily suggests that gold is waiting for a fresh catalyst to break out or down. Until then, the precious metal is likely to find comfort within the current $140 range.