The Nigerian Stock Exchange All Share Index has entered the trading week on a positive note, gaining 0.15% this morning and over 4.70% since the start of 2020. While the index has the potential to push higher in the near term, risks in the form of depressed oil prices, coronavirus outbreak and slowing global growth could create some obstacles down the road.

Oil prices have depreciated over 18% year to date which possess negative consequences on Nigeria’s export earnings and foreign exchange reserves. According to the Central Bank of Nigeria (CBN) external reserves have a recorded a decline of $4.47bn from $42.54bn (as of the beginning of 2019) to $38.07bn (as of the end of December). This represents a decline of 10.5 per cent. If Oil prices continue to depreciate amid demand side fears, this will shave Nigeria’s foreign exchange reserves and will complicate the CBN’s efforts to defend the Naira.

Venturing beyond the borders of Nigeria, financial markets seem to be supported by monetary policy speculation. While the ‘risk-on’ mood could elevate equity markets and emerging market assets in the short term, medium to longer term gains are likely to be capped by virus fears.

In the currency markets, the Dollar is poised to remain supported by optimism over the US economy and safe-haven flows. However, there could be more pain for Sterling in the week ahead. Major economic reports that could shake markets will be the US inflation figures on Wednesday and US retail sales scheduled for Friday.