• Economy: expected slowdown to continue, though to close in positive GDP < 2% in 2018
  • Inflation: further upward trend on rising food inflation, but remain within 11.50% – 12.00% range
  • Monetary Policies: CBN learnt its lessons, and moves more towards tightening to save the currency and forestall another run
  • FX flows: persisting negative flows on risk-off sentiments. Increasing negative impact on reserve, expected < $40billion by year end, ex-Eurobond borrowings
  • Crude oil output: light boost in production on lifting of force majeure on shut pipelines vs possible renewed unrest in Niger Delta region. To be maintained at ca 1.75 mbpd in Q4


  • Bonds: increased upward trend in rates, and increased volatility as risk-off perception bites harder (15% – 16%)
  • T-bills: further trend higher on monetary policy tightening
  • Equities: no breather here, further negative impact expected from FPI outflows

For Q4 2018, we are quite convinced on negative return expectations across all asset classes — driven by FX flows, unsure recovery from recession, contagion risks


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GDP Growth

  • Subdued economic growth expected for 2018 at ca 1.9% (IMF), unsure recovery from recession
  • Possible rebound in oil sector growth in Q4, on increased production

MPC & Monetary Policy

  • CBN would learn lesson – and move away from wait-and-see approach
  • High expectation to tighten stance on liquidity and OMO, but leave key policy rates unchanged
  • Increasing concerns over impact on FX reserves of rise in global risk-off pressures on emerging market assets as yields in developing economies spike
  • Impact of inflows of ca N6.3trillion from OMO maturities & FAAC

Consumer Price Index & Inflation

  • Expectation of rise in headline inflation for Q4 2018 on food inflationary pressures
  • Expected to average 11.5% – 12.5%

Capital importation

  • Risk-off pressures continue to limit FPI outlook in Q4
  • EM and FM contagion risk to negatively affect Nigerian markets
  • Rivaled by rising yield levels in developing economies

Political Stability

  • Expected rise in electioneering activities and spending to further escalate political volatility for the rest of Q4





Blood on the streets. Unprecedented bull run (in global equities markets), Tightening by US Fed, reasonable probability of global economic recession over the next couple of years, significantly increased volatility in capital markets – drive investors to expect a correction/end to the global equities bull run.

When risk is off the table, Nigeria would suffer. Isolated issues with emerging and frontier markets quickly snowball into contagion

This combines with Nigeria’s idiosyncratic issues – slowing economic growth and unsure recovery from recession

Pains to continue in Emerging and Frontier Markets as yields in Developed Markets rise

Rising yields levels and tightening monetary policies in developed economies have put off capital inflows from EMs & FMs.

A reversal from low-to-negative real returns into positive, and a more aggressive fiscal expansionary policy remains key to keep growth rate in positive territory.

What to do

Key question – buying opportunity, or more pain ahead?

Our view

Exit – mostly.

Wait for dirt cheap levels to re-enter.


A reversal in rate and yield levels of treasury bills, bonds and inflation have raised expectation of further tightening in monetary policy in Q4 by the Central Bank (CBN). This is further dampened by increasing vulnerabilities to risk-off pressures in Emerging Markets (EMs) and Frontier Markets (FMs), as seen in Q3 and lowering of economic growth expectation for sub-Saharan Africa and Nigeria by the World Bank and the International Monetary Fund (IMF). We maintain a cautious outlook on Nigerian risk assets.

Central Bank Monetary Policies: wait-and-see approach has proven detrimental, and is willing to be more pro-active

The CBN adopted a wait-and-see approach in Q2 and Q3, which has proven detrimental, leading to ca. US$1.2billion month-on-month decline in FX Reserves. It appears the CBN has learnt from this, and is now willing to be more hawkish and tighten to stem the tide of aggressive FX outflows.

Electioneering and budgetary spending vs inflationary pressures

Despite an easing in interest rate could spur real investment and diversify economic growth, expected rise in electioneering and budgetary spending and rising food inflationary pressures have prompted a reversal in Headline inflation

To watch

Risk factors and catalyst – including material pick up in inflation in the US, continued rise in US Federal Reserve Bank policy rate, risk of a drop in Brent crude oil prices, rise in risk-off pressures, volatile electioneering activities, steep rise in inflationary pressures.

What to do

Go short, and fall in love with liquidity!.