Tuesday, 19 May 2020

RISK APPETITE FLICKERS TO LIFE ON VACCINE HOPES, NIGERIA INFLATION IN FOCUS

Investors across the globe have been injected with a renewed dose of confidence towards risk as governments relax lockdown measures and first human trial results raise hopes for a coronavirus vaccine.

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The mood across financial markets is quite encouraging and this positive vibe should support global stocks and emerging markets in the week ahead. However, questions should be raised over the return in risk sentiment given how US-China trade tensions have made an unwelcome return. Concerns remain elevated over slowing global growth despite countries easing lockdown measures while fears mount around a second wave of coronavirus infections.

In Nigeria, the All-Share Index (ASI) also rose by 0.29% to close at 23,941.75 points on Monday and could mirror similar gains on Tuesday amid the positive vibe. While global equity bulls may be in the driving seat for now, bears are lurking in the corner waiting for another opportunity to pounce.

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Nigeria Inflation in focus but major risk event remains GDP report
Repeated signs of rising inflationary pressures in Nigeria have squashed hopes over the Central Bank of Nigeria (CBN) cutting interest rates to stimulate economic growth.

The annual inflation rate in Africa’s largest economy rose for the seventh straight month to 12.26% in March amid border closures and the new VAT tax rate. Given the Naira’s weakness over the past few weeks amid severely depressed oil prices, inflation is forecast to hit 12.9% in April. Such a figure may place the CBN in a tight spot, especially if first quarter GDP figures scheduled for release next week confirm that Nigeria experienced an economic contraction last quarter.

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King Dollar to maintain grip on iron throne
The mighty Dollar should reign supreme this week despite the semblance of stability enveloping financial markets.

Although investors are clearly hopeful over economies re-opening after an extended lockdown period, global macroeconomic conditions remain depressing while renewed trade tensions are bound to hit sentiment. As risk aversion makes a return and market players rush towards safety, one of the first destinations is likely to be the Dollar.

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Another day, same old story for Pound
The path ahead for the British Pound is filled with many obstacles and dead ends as fears over a no-deal Brexit return to the scene.

One can’t help but feel a familiar sense of déjà vu as the UK government prepares for its final round of talks scheduled in June to try and avert a no-deal Brexit outcome.  To rub salt into the wound, economic data from the United Kingdom remains discouraging with the number of people claiming unemployment benefits soaring to 2.097 million in April.

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With the fundamentals not in favour of the Pound, it may be only a matter of time till the technical paint a similar picture. The GBPUSD is under pressure on the daily charts and may trend lower if prices break below 1.2200. Sustained weakness below this level could open the doors towards 1.2000.

Euro eyes 1.10 but upside capped by fundamentals
Where the Euro concludes this week will be heavily influenced by the pending Purchasing Managers Index data scheduled for release over the coming days.

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A disappointing set of economic data may put an end to the current rally with 1.1000 acting as a ceiling. Looking at the technical picture, the EURUSD remains a wide range on the daily charts with support at 1.0770 and resistance 1.1000. Expect the currency pair to find comfort within these levels until a decisive breakout is achieved.

Commodity spotlight – Gold
Gold should remain in fashion despite stock markets rising and economies easing lockdown measures. The precious metal remains supported by global growth fears, lower interest rates across the globe and fears around a second wave of coronavirus outbreak. Gold is trading at levels not seen in more than 7 years above $1430 and has gained over 14% year-to-date. A solid daily close above $1430 may pave the way back towards $1765 and $1770. Alternatively, sustained weakness below $1720 could open the doors back towards $1700.

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