By Lukman Otunuga
The week kicked off on a positive note as optimism over the reopening of China’s economy and reports that the Biden administration may lift some Trump-era China tariffs boosted sentiment.
In Nigeria, the All-Share Index flashed green – lifted by gains in Conoil Plc, Pharma-Deko & Learn Africa among others. Despite the relatively quiet economic calendar in Nigeria, this could be another eventful week for the local markets due to external forces.
Recapping last week, OPEC+ agreed to hike output in July and August by a larger-than-expected amount as geopolitical tensions roiled global energy markets. The cartel decided to increase production by 648,000 barrels per day in both July and August.
Given how oil prices remain at multi-year highs and demand is expected to increase due to the US and European summer driving season, this development is good news for oil producers.
However, according to data from Bloomberg – Nigeria is pumping roughly 1.3 to 1.5 mbpd. This is below the new target of 1.772 Mbps for June set by OPEC+ and well under the maximum crude production capacity of 2.5 mbpd.
In the United Kingdom, UK Prime Minister Boris Johnson was flung into the spotlight after enough Conservative MPs triggered a vote of no-confidence in his leadership. The British pound immediately hijacked our attention following this development as investors were already concerned over the UK’s worsening economic outlook and post-Brexit tensions.
With political uncertainty adding to the toxic mix, one would have expected the pound to collapse like a house of cards – buckling under the strain of negative themes. So far, this news has not had a significant impact on risk appetite with sterling appreciating against the dollar and other G10 currencies! In a twist, the Prime Minister survived the confidence vote yesterday.
It may be worth keeping an eye on the US inflation report on Friday which is expected to show consumer prices unchanged at 8.3% in May, matching the figure seen in April. If the report meets or falls below expectations, this may suggest that US inflation may have peaked. Such a development could fuel speculation around the Fed taking a step back from its ultra-aggressive stance – weakening the dollar. A weaker greenback could provide emerging market currencies some breathing room.
Speaking of currencies, the Naira opened at N416 against the dollar on Monday after closing around N415.50 on Sunday. On the parallel exchange, the Naira traded at around N605 against the dollar. With inflationary pressures making a return and prices expected to rise ahead of the general elections in 2023, this could translate to Naira’s weakness.
Lukman Otunuga is a Senior Research Analyst at FXTM
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