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Monthly Economic Update (Oct 2020): "A Bullish Stocktober"
Monthly Economic Update (Oct 2020): "A Bullish Stocktober"


Global Markets

The preliminary Q3’2020 United States GDP figures revealed that the United States economy grew by an annualised 33%, attributed to continued efforts to reopen businesses and resume activities that were closed or restricted due to COVID-19. The growth in GDP was driven by consumer spending, private inventory investment, exports, non-residential fixed investment, and residential fixed investment.

The unemployment rate improved significantly in October 2020. According to data from the U.S. Bureau of Labor Statistics, the United States unemployment rate lowered to 6.90% from 8.20% in September 2020. The improvement in the unemployment rate is attributed to the resumption of economic activities that had been curtailed due to the coronavirus pandemic. Notable job gains in October 2020 were recorded in leisure and hospitality, professional and business services, retail trade, and construction.

In the financial markets, the equities market, measured by the S&P 500, declined by 2% in October 2020, after five consecutive months of positive returns. The decline in stock prices is attributed to heightened risk expectations amid the possibility of a second wave of coronavirus (COVID-19).

Domestic Economy

The domestic economy recorded a relatively improved performance, as indicated by the Central Bank of Nigeria (CBN) Purchasing Managers Index (PMI) report. According to the data, Manufacturing PMI stood at 49.40 index points, the highest level since March 2020 when the coronavirus pandemic peaked in the Nigerian economy. Although the 49.40 index points implied that the economy contracted in October 2020, it also suggested that the economy is gradually improving towards expansion as the index points advance closer to 50.00 thresholds.

Non-Manufacturing activities also contracted during the period, reflected in the 46.80 index points (the highest since March 2020). The economic improvement in non-manufacturing activities further emphasized the improving level of business activities, new orders, employment level, and inventories.


The inflation rate rose to 14.23% YoY in October 2020, from 13.70% in September 2020. Higher food prices drove the increase in the Consumer Price Index (CPI) during the period. Notably, food inflation rose to 17.38% in October 2020 from 16.66% in September 2020. In our view, the significant rise in food prices was driven by sustained land border closure which resulted in a limited supply of food in the markets. Also, the adverse climatic conditions and poor harvest yields were factors that factored in higher food prices recorded in October 2020.


The PMI data for October 2020 showed significant improvements recorded in economic activities. Notably, production activities and new orders were positive during the period. We expect to see a sustained improvement in subsequent months. We believe that year-end consumption activities could drive overall economic activities. We also expect to see a significantly higher levels of business activities in the following months, as the coronavirus pandemic seems to have abated.

The persistent upward inflation trend is a concern. Over the last few months, the Central Bank of Nigeria put more focus on economic growth, and thus implemented an easing monetary policy. Meanwhile, the price stability objective of the CBN puts the apex regulator in a dilemma. During the last Monetary Policy Committee (MPC) meeting outcome, the Committee agreed to lower the Monetary Policy Rate (MPR) by 100 basis points despite the rising inflation. The justification for lowering the MPR, according to the Committee, was that conventional monetary policies (i.e., higher rates) were not effective to tackle the rising price level. The Committee also argued that the need to boost output growth was necessary to mitigate the impact of COVID-19 pandemic, especially given the recent removal of fuel subsidy, and adjustment of the exchange rate.

In our view, while we understand the perspective of the monetary policy authorities, we believe that the sharp rate of price increases in the economy could threaten macroeconomic stability. Therefore, we believe that the scope for a yield reversal is plausible in the medium term.

We expect to see a sustained rise in stock prices in the near term, owing to the liquidity glut in the financial system. However, we note the weak overall macroeconomic fundamental, which pose a downside risk to the sustainability of the market rally

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