Lukman Otunuga, Senior Research Analyst at FXTM
The outlook for Nigeria’s economy has been clouded by uncertainty following weeks of youth protests across the country. Although residents are now allowed to leave their homes after a 24-hour curfew was imposed on Lagos, the economic landscape remains incredibly fragile with businesses struggling to nurse deep wounds inflicted by COVID-19.
At this point, it may be difficult to quantify the ramifications the protests may have on Africa’s largest economy. It must be kept in mind that Nigeria was already tussling with rising inflationary pressures, shaky economic fundamentals, Dollar scarcity and depressed Oil prices.
Although the Central Bank of Nigeria surprised markets with an interest rate cut back in September, the impacts are unlikely to be reflected anytime soon, especially when considering how inflation has climbed for a 13th straight month to 13.71% in September.
All eyes will be on the latest manufacturing and non-manufacturing PMI which should offer insight into the health of Nigeria’s sectors. Back in September, the manufacturing PMI fell to 46.9 while non-manufacturing sector fell to 41.9. A positive surprise could inject some confidence back into the economy which may support local stocks.
In regards to the naira, it remains the same old story as banks limit foreign exchange transactions by both firms and individual buyers on the parallel market to tame speculation. The local currency is trading around N463 per Dollar on the parallel markets and N380 on the official.
Over the past few months, WTI Oil has been stuck around the sticky $40 level.
There is growing suspicion that the commodity may be waiting until after the November 3rd U.S election to make a move either up or down. Until then, the commodity is likely to be driven by price action and attracted to technical levels. Ahead of the November 3rd US election, the Dollar’s performance may influence Oil’s trajectory in the week ahead. Key levels of interest on WTI Oil remain around $40, $43.50 and $36.85.
