Market outlook: Oil, rates, naira to drive Q3

File: Nigerian Exchange trading floor

Nigeria’s financial markets are entering a pivotal transition period driven by a convergence of global geopolitical developments, shifting monetary policy signals, and the commencement of the third quarter corporate earnings reporting season.

 Analysts at Coronation Asset Management noted that macro conditions continue to offer both tailwinds and lingering inflationary pressures across key asset classes.

 Trading activity on the Nigerian Exchange is expected to become increasingly selective as investors pivot away from broad market rallies toward targeted corporate fundamentals. Following a brief period of profit-taking that pulled the All-Share Index down by 0.52 per cent to 250,808.27 points, market attention is turning directly to third-quarter balance sheets. Investment managers highlight that portfolio realignments will heavily favor firms demonstrating resilient earnings potential to weather high operating costs.

In the global energy space, crude oil prices remain heightened, with Brent spot prices advancing past $100 per barrel due to rising tensions in the Middle East and military risks along Red Sea shipping channels.

While potential emergency stock releases by G7 nations could provide short-term price relief, structural inventory declines continue to underpin the energy market. For Nigeria, elevated crude prices provide vital support for fiscal revenues and foreign exchange reserves, though sustained high global fuel prices threaten to maintain upward pressure on domestic transportation costs and broader inflation.

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Foreign exchange dynamics are exhibiting signs of stability, backed by gross external reserves holding near $54.93bn. The spread between the official Nigerian Foreign Exchange Market and the parallel market has narrowed significantly, signaling improved liquidity and reduced speculative pressures.

Addressing the near-term foreign exchange forecast, Coronation Asset Management stated, “We expect the Naira to remain broadly stable in the near term, supported by stronger external buffers, improved FX market conditions and relatively contained exchange-rate pressures. We expect the NFEM rate to trade broadly within the N1,300-N1,350/US$1 range, barring a material deterioration in global risk sentiment, a sharp decline in oil prices or other adverse external shocks.”

In fixed income, short-term yields across government paper are projected to ease gradually, reflecting strong market liquidity and heightened investor demand to lock in elevated yields following recent Monetary Policy Rate adjustments. However, aggressive liquidity sterilization by the Central Bank of Nigeria through large Open Market Operations auctions is anticipated to control the speed of yield declines as monetary authorities balance system liquidity against inflation risks.