Traders: Oil price drop & second COVID-19 case in Nigeria to scare investors

Plummeting oil prices and a continued surge in global coronavirus cases have caused markets around the world to nosedive, with Nigeria confirming its second case of COVID-19 in the country. The recent events have sent shockwaves through the financial markets, leaving investors anxious and uncertain about the future. Victor Aluyi, head of portfolio management at commercial partners, discusses the impact on Nigeria's fixed income and FX markets. Aluyi describes the current situation as a 'profoundly volatile week' and highlights it as a 'quintessentially black swan event' that has taken everyone by surprise. The unexpected fallout from the OPEC+ meeting last Friday, where an agreement on oil production cuts was not reached, led to a sharp decline in crude oil prices. This has left global markets reeling from the aftermath, with major implications for Nigeria's economy. One of the key concerns in Nigeria is the dwindling foreign exchange reserves, which have been depleting rapidly in recent months due to falling oil prices. Aluyi points out that the reserves have shrunk by almost $10 billion since May last year, with little hope of replenishment in the near future. This poses a serious challenge for the monetary authorities, who are running out of options to maintain price stability in the FX market. The potential decline in reserves to $30 billion, as indicated by the Central Bank of Nigeria, could trigger a devaluation of the currency. With crude oil prices showing no signs of recovery, the authorities may soon be forced to consider drastic measures to address the economic turmoil. Aluyi emphasizes the importance of ensuring both foreign and local price stability as a primary goal for the policymakers. In light of the current global risk environment, where safety is a top priority for investors, the bond market in Nigeria is also experiencing turbulence. Despite the expectation of a shift from risk assets to bonds, the recent liquidity squeeze and market uncertainties have dampened investor sentiment. Bond yields have risen significantly, adding to the challenges faced by the financial markets in Nigeria. As the country grapples with the dual impact of plummeting oil prices and the threat of COVID-19, the road ahead appears challenging for policymakers and investors alike. The need for strategic interventions to stabilize the economy and restore market confidence has never been more urgent. With uncertainties looming over the global economic landscape, Nigeria's resilience will be put to the test in the coming months.