Bears Sustain Hold as NGXASI Records -0.1% Weekly Loss

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Bearish sentiments persisted in the local bourse for another week as profit-taking activities intensified.

May 17, 2024/Cordros Report

Global Economy

According to the Bureau of Labor Statistics (BLS), headline inflation in the United States eased by 10bps to 3.4% y/y in April (March: 3.5% y/y). We highlight that the slowdown in consumer prices was underpinned by the deceleration in shelter costs (+5.5% y/y vs March: +5.7% y/y), amid the steady food prices (+2.2% y/y) influenced by the marginal decreases in food away from home (+4.1% y/y vs March: +4.2% y/y) and food at home (+1.1% y/y vs March: +1.2% y/y) prices. However, energy prices (+2.6% y/y vs March: +2.1% y/y) continue to trend higher, mainly due to the uptick in gasoline prices. On a month-on-month basis, the headline inflation slowed by 0.3% m/m in April (March: +0.4% m/m). While the data print signals relief on price pressures, we highlight that the outturn remains sticky above the Fed’s 2.0% target. In addition, we note that the uptick in energy prices and the tight labour market conditions may keep consumer prices high in the short term. As a result, we expect the FOMC to maintain a “HOLD” stance in the short term while awaiting greater confidence in the sustainable return of inflation to target. Indeed, the CME FedWatch tool now indicates probabilities of 91.1% and 70.4%  that the Fed will keep rates unchanged at its June and July policy meetings, respectively.

According to the flash estimates from Eurostat, the Euro Area’s real GDP grew by 0.3% q/q in Q1-24 (Q4-23: -0.1% q/q), reflecting the highest print since Q3-22 (+0.3% y/y). Notably, growth rebounded strongly in Germany (+0.2% q/q vs Q4-23: -0.5% q/q), Ireland (+1.1% q/q vs Q4-23: -3.4% q/q), and Lithuania (+0.8% q/q vs Q4-23: -0.2% q/q), while expansions were also recorded across Italy (+0.3% q/q vs Q1-23: +0.1% q/q), France (+0.2 q/q vs Q4-23: +0.1% q/q) and Italy (+0.3% q/q vs Q1-23: +0.1% q/q). On a year-on-year basis, the region grew by 0.4% y/y in Q1-24 (Q3-24: 0.1% y/y). We anticipate further improvement in the real GDP of the Euro area, driven by higher household consumption, as the effects of energy price shocks diminish and slowing inflation spur real income growth. Accordingly, the IMF projects the region to grow by +1.4% y/y in 2024E (2023FY: +0.1% y/y).

Global Equities

Sentiments in the global equities market were mixed in this week’s trading as investors’ sentiments wavered amidst ongoing adjustments of rate-cut expectations, spurred by a combination of inflation data and robust corporate earnings.  As of the time of writing, US equities (DJIA: +0.9%; S&P 500: +1.4%) posted gains supported by positive reactions to lower Treasury yields and softer-than-expected inflation and retail sales data. European equities (STOXX Europe: +0.3%; FTSE 100: -0.1%) performance was influenced by hotter-than-expected wage growth data, which dampened hopes of a June interest rate cut by the European Central Bank (ECB), despite positive reactions to stronger-than-expected Eurozone industrial production readings. Asian markets posted mixed performances (Nikkei 225: +1.5%; SSE: 0.0%), with the Japanese market closing higher on expectations of a less hawkish stance from the Bank of Japan (BOJ) following weak Q1-24 GDP data. Meanwhile, the Chinese market closed flat due to lingering concerns about the strength of the economy. The Emerging (MSCI EM: +2.5%) markets index remained positive driven by gains in India (+1.7%) and Taiwan (+2.7%). Similarly, the Frontier (MSCI FM: +1.0%) markets index edged higher following positive sentiments in Vietnam (+2.2%).


Domestic Economy

According to the recently released data by the National Bureau of Statistics (NBS), headline inflation rose by 49bps to 33.69% y/y in April (March: +33.20% y/y). The increased price pressures primarily reflect the high exchange rate pass-through amid the prior year’s unfavourable base effects. Analyzing the breakdown, we highlight broad-based pressures across the food and core baskets – food inflation (+52bps to 40.53% y/y) rose to an all-time high, whereas core inflation rose by 94bps to 26.84% y/y. Meanwhile, on a month-on-month basis, consumer prices eased by 73bps to 2.29% (March: 3.02% m/m) as the appreciation of the naira slowed price increases in April. We expect the headline inflation to settle at 2.6% m/m in May, translating to an 87bps increase in the y/y inflation rate to 34.56%. Our expectation is hinged on the synchronized impact of (1) renewed currency pressures, (2) food demand-supply imbalances, (3) elevated energy prices, and (4) unfavourable base effects from the prior year.

According to the recently released data by the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Nigeria’s crude oil production (including condensates) rose marginally by 0.6% m/m to 1.45mb/d in April (March: 1.44mb/d). We highlight that the improvement was primarily due to the higher output from the Qua Iboe (+5.0% m/m) oil terminal, which was enough to offset the declines recorded across the Forcados (-7.2% m/m), Escravos (-4.1% m/m, and Bonny (-3.8% m/m) production terminals. While issues like oil theft, pipeline vandalism, and infrastructure decay persist, we believe the delay in finalizing divestment deals between International Oil Companies (IOCs) and Indigenous firms will weigh on domestic oil production in the near term. As a result, we revise our average crude oil production estimate (including condensate) downwards to 1.54 mb/d in 2024E (Previous: 1.56 mb/d).

Capital Markets


Bearish sentiments persisted in the local bourse for another week as profit-taking activities intensified. Despite a rebound on the penultimate trading day driven by renewed interest in AIRTELAFRI (+9.0%), the gains were not enough to offset the losses witnessed in SEPLAT (-10.0%), TRANSCOHOT (-9.7%) and UBA (-9.3%). Thus, the ASI recorded a 0.1% w/w decline to close at 98,125.73 points. Consequently, the Month-to-Date and Year-to-Date returns settled at -0.1% and +31.2%. Trading activity in the week was weak, as the total trading volume and value decreased by 24.5% w/w, and 15.8% w/w, respectively. Sectoral performance reflected the overall market sentiment, with declines in the Oil and Gas (-6.5%), Banking (-5.3%), Insurance (-4.0%) and Consumer Good (-1.3%) indices. The industrial Goods index remained unchanged.

In the week ahead, we believe investors will focus on the outcome of the MPC meeting scheduled for next week to gain further clarity on yield movements in the fixed income market. Consequently, we anticipate cautious trading from domestic investors in the short term.

Money market and fixed income

Money market

Just as envisaged, the overnight (OVN) rate inched higher by 205bps w/w to 30.7%, following debits for the May 2024 FGN bond auction (NGN682.07 billion), CRR maintenance and CBN’s FX sales during the week. Meanwhile, the average system liquidity this week closed at a net long position of NGN834.21 billion (vs. a net long position of NGN401.26 billion in the prior week).

Barring any significant liquidity mop-up action by the apex bank, we expect inflows from this month’s FAAC disbursements (NGN817.67 billion) to support financial system liquidity next week and thus, anticipate the OVN rate to temper from current levels.

Treasury bills

Trading in the Treasury bills secondary market closed on a bearish note this week driven by sell pressures on OMO bills amid demand for short and long-dated T-bills. As a result, the average yield across all instruments expanded by 6bps to 21.8%. Across the market segments, the average yield at the NTB segment contracted by 29bps to 22.2% but advanced by 93bps to 20.9% in the OMO segment.

Given that the system is expected to be awash with liquidity next week, we envisage sustained demand for Treasury bills in the space. Sequentially, we expect yields to trend lower in the NTB secondary market. In addition, the CBN is scheduled to hold an NTB PMA on Wednesday (22 May) where it will roll over NGN508.98 billion worth of maturities.


This week, sentiments in the FGN bonds secondary market turned bearish, as investors reacted to the release of the April 2024 CPI data (headline inflation: +49bps to 33.69% y/y) by the NBS. Consequently, the average yield advanced by 7bps to 18.7%. Across the benchmark curve, the average yield expanded at the short (+4bps), mid (+10bps) and long (+1bp) segments due to sell offs of the MAR-2025 (+11bps), APR-2032 (+37bps) and APR-2049 (+16bps) bonds, respectively. At this month’s bond PMA, the DMO offered instruments worth NGN450.00 billion to investors through reopenings of the 19.30% FGN APR 2029 (Bid-to-offer: 0.7x; Stop rate: 19.29%) and 18.50% FGN FEB 2031 (Bid-to-offer: 0.5x; Stop rate: 19.74%) bonds, and issuance of the new FGN MAY 2033 (Bid-to-offer: 2.5x; Stop rate: 19.89%) bond. The auction was oversubscribed as the total subscription level settled at NGN551.32 billion (bid-to-offer: 1.2x), with the DMO allotting bonds worth NGN682.07 billion (non-competitive allotments: NGN301.30 billion) across the three instruments, resulting in a bid-to-cover ratio of 0.8x.

We note the wane in demand in the FGN bonds secondary market triggered by the accelerating inflation print is expected to remain in the short term, more so, as the CBN governor hinted at the likelihood of a further rate hike at the next monetary policy meeting. Thus, we think participants in the space will continue to reprice yields higher amid the tight control of the MPC on money supply into the economy. Over the medium term, we expect yields to remain elevated, driven by the (1) anticipated monetary policy administration globally and domestically and (2) sustained imbalance in the demand and supply dynamics.

Foreign Exchange

Nigeria’s FX reserves grew further this week as the gross reserve improved by USD195.01 million to USD32.64 billion (16 May). Meanwhile, the naira depreciated to NGN1,497.33/USD (-2.1% w/w) at the Nigerian Autonomous Foreign Exchange Market (NAFEM) as the CBN intervened thrice in the week with total FX sales of c.USD211.00 million. At the NAFEM, the total turnover (as of 16 May) at the market increased by 33.6% WTD to USD1.14 billion, with trades consummated within the NGN1,301.00 – NGN1,593.00/USD band. In the Forwards market, the naira recorded decreases across the 1-month (-2.8% to NGN1,520.16/USD), 3-month (-2.4% to NGN1,567.97/USD), 6-month (-1.9% to NGN1,631.82/USD) and 1-year (-1.9% to NGN1,767.52/USD) contracts.

Market liquidity improved compared to the previous week, driven by increased FX supply from the CBN to banks and mildly rekindled interest from Foreign Portfolio Investors (FPIs), stemming the naira’s volatility. Looking forward, we expect FX liquidity to improve, supported by inflows from FPIs even as the CBN sustains their intermittent interventions. Nevertheless, we think that market liquidity may be insufficient to trigger a significant appreciation in the naira.

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