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Nigeria to Benefit as Biden’s $1.9tn Stimulus Lifts Risk Assets, Commodities

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News that U.S President-elect Joe Biden and his team are considering up to $2 trillion in fiscal stimulus, far in excess of earlier estimates of $750 billion, will be good news to the ears of Nigerian officials.

With massive fiscal and monetary stimulus expected to hit the U.S. this year and the need to cap bond yields, the biggest casualty is likely to be the dollar.

A lower dollar index usually means higher prices for commodities like oil, Gold and other precious metals priced in dollars.

The reflation trade in global risk assets is also expected to accelerate, especially if U.S growth returns to trend, helping to lift the global economy.

All of these are positive for oil prices, at least in the short to medium term. Rising oil prices have helped Nigeria’s Central Bank (CBN) to rebuild its dollar reserves which have risen by about $1.5 billion in a month, according to CBN data compiled by MoneyCentral.

The pass through to the wider Nigerian macro-economy is also expected to be positive as greater availability of dollars for industry, feeds into growth and lowers (imported) inflation expectations.

For domestic stocks the party should continue in 2021, barring any unforeseen shocks to the global economy or black swan events.

Expectation for normalization of bond yields may be wishful thinking on the part of investors, given the CBN’s fixation on stimulating the economy and as such equities should continue to outperform in H1, with most asset classes having negative yields on an inflation adjusted basis.

A lack of sustained reforms however means that GDP growth rates will remain below trend (sub 3 percent), with only a few key sectors (like telecoms) expected to outperform.

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