Thursday, 23 May 2019


Lukman Otunuga,
FXTM Research Analyst

It has been an incredibly eventful trading week for the Nigerian economy. The week kicked off with a bang as GDP figures slightly disappointed by cooling 2.05% during the first quarter of 2019.

Although this development initially sparked concerns over the nation’s growth momentum cooling, it must be kept in mind that this was the fastest first quarter growth experienced since 2015. On Tuesday, the Central Bank of Nigeria left interest rates unchanged at 13.5% as widely expected.

The key take-away from the MPC meeting was the fact that the central bank identified that emerging markets remain exposed to external shocks in the form of trade tensions, Brexit and concerns over slowing global growth. Later on Tuesday afternoon, Manufacturing and Non-Manufacturing PMI figures surpassed market expectations which boosted confidence over the health of the largest economy in Africa.

With the latest economic metrics pointing to signs of stability, the outlook for the Nigerian economy remains encouraging. Further signs of improving economic fundamentals and easing inflationary pressures should prompt the Central Bank of Nigeria to make a move before the end of 2019 in an effort to stimulate economic growth.

Although improving domestic conditions will be a welcome development for the nation, investors should not overlook external factors impacting the nation’s recovery. Ongoing US-China trade developments, Oil prices and the Dollar’s valuation will play a role in how Nigeria concludes 2019.

Dollar buoyed by trade worries.. but for how long?
The story defining the Dollar’s appreciation continues to revolve around persistent US-China trade tensions accelerating the flight to safety.

Uncertainty ahead of the European Parliament elections and Brexit drama have also fuelled risk aversion – ultimately boosting appetite for the Dollar which has become a destination for safety. While the Dollar could continue rising on the perception that the United States remains in a better position than everyone else, the question is for how long?

Markets still expect the Federal Reserve to cut interest rates this year while ongoing trade tensions could end up negatively impacting the US economy. With market sentiment extremely fragile and investors on edge, it could take an unexpected catalyst to send the Dollar tumbling.

Commodity spotlight – Gold
Gold is struggling to benefit from the cautious market mood thanks to an appreciating Dollar. The precious metal has struggled to break back above the $1280 level this week despite ongoing US-China trade tensions and Brexit accelerating the flight to safety. While Gold bears are losing this battle, the war is far from over. With a patient Fed, speculation of a US rate cut and lingering concerns over slowing global growth still core themes, Gold remains supported in the longer term.

In regards to the technical picture, sustained weakness below $1280 is likely to open a path towards $1268.50 in the near term.

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