December 30, 2024/United Capital Research

Global Markets: Markets closed mostly higher with outperformance in Asia

Major US stock indexes produced moderate gains in the final full week of the year. The comparatively calm week began with a continuation of the rally that had begun on Friday, mostly powered by large-cap growth companies. The technology-heavy Nasdaq Composite led the fray with the Russell 1000 Growth Index outperforming its value counterpart through Tuesday. However, this trend reversed following Wednesday’s market closure for Christmas as most indexes declined in the second half of the week, giving back some of their earlier gains. Overall, the major US indices closed on a positive note, with the NASDAQ (+0.8% w/w), S&P 500 (+0.7% w/w), and DIJA (+0.4% w/w) closing the week higher.

In tandem, the European markets recorded w/w gains, despite the abbreviated holiday trading week. The week’s only notable data point came on Monday from the UK’s Office for National Statistics, which lowered its final estimate for Q3-2024 economic growth to 0.0% from 0.1%. It also revised its estimate of Q2-2024 growth to 0.4% from 0.5%. The downside surprises added to worries that the economy had stalled, even before the Labor government’s planned tax increases to address budgetary concerns. None the less, the STOXX 600 Index gained +0.99% w/w, France’s CAC 40 Index gained +1.11% w/w, while Germany’s DAX rose 0.50% w/w.

Investor sentiments in the Asian market was bullish. In China, equities rose amid hopes that the government will announce further stimulus measures to support growth. As a result, the Shanghai Composite Index added 0.95% w/w, while the blue-chip CSI 300 gained 1.36% w/w. Similarly, Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining +4.08% w/w and the broader TOPIX Index up +3.69% w/w. The weakness of the yen supported the profit outlooks for Japan’s export-heavy industries, which remained near five-month lows amid a cautious tone from the Bank of Japan (BoJ).

In the oil market, crude oil prices settled more than 1.00% higher on Friday and recorded a weekly gain in low trading volume ahead of year-end, buoyed by a larger-than-expected drawdown from U.S. crude inventories last week. For context, data from the U.S. Energy Information Administration showed on Friday that U.S. crude oil inventories fell by 4.2 million barrels in the week ended Dec. 20 as refiners ramped up activity and the holiday season boosted fuel demand. Analysts polled by Reuters had expected a 1.9-million-barrel drawdown, whereas figures from the American Petroleum Institute released earlier in the week estimated a 3.2-million-barrel draw, according to market sources. Furthermore, the renewed optimism over Chinese economic growth has also sparked hopes of higher demand next year from the top oil importing nation. That said, oil prices closed higher week-on-week, with Brent Crude climbing by 117bps w/w to print at $73.79/bbl (previously, $72.94/bbl). Similarly, WTI gained by 164bps w/w to close the week at $70.60/bbl. (previously, $69.46/bbl.)

This week, financial markets will maintain a holiday atmosphere, with 2024 trading concluding on Tuesday. In the US, equities will have a full trading day on Tuesday, while its credit markets will close early at 2:00pm. The economic calendar across global markets is light, with key global data including China’s PMI readings and final S&P manufacturing PMIs. In the US, housing data, initial claims, and the ISM manufacturing survey will be the primary highlights.

Macroeconomic Highlights

According to the CBN’s latest economic report for the third quarter of 2024, oil revenue fell by 24.72% to N1.30trn (previously, N1.62trn) compared to the second quarter of 2024. According to the apex bank, this drop was largely due to lower receipts from petroleum profit tax and royalties. Furthermore, the CBN stressed that the key issue remained the ageing pipeline infrastructure amid operational inefficiencies.

The Economist Intelligence revealed that lower borrowing costs at the International Capital Markets (ICM) would encourage more Eurobond issuance in the New Year in the West African region. This was disclosed in the EIU’s Financial Services Outlook 2025 titled ‘The Great Easing,’ which was released recently.

The Nigerian National Petroleum Company Limited (NNPCL) introduced the Production Monitoring Command Centre (PMCC) to track oil and gas production. The initiative represents a transformative step in the company’s hydrocarbon operations. Furthermore, the initiative, driven by NNPC Upstream Investment Management Services, aims to build on the success of the Command-and-Control Centre to enhance monitoring, operational efficiency, and production within the oil and gas sector.

The Federal Minister of Industry, Trade, and Investment, Dr. Jumoke Oduwole, has assured manufacturers that the country’s free trade zones are designed to accelerate exports and not to harm local manufacturers. The minister reiterated that the Federal Ministry of Industry, Trade and Investment aims to drive exponential export growth, especially in dollar terms.

The Central Bank of Nigeria (CBN) and the Nigerian Communications Commission (NCC) issued a final directive to Deposit Money Banks (DMBs) and Mobile Network Operators to resolve the protracted N250bn Unstructured Supplementary Service Data debt dispute. The directive, contained in a joint circular dated December 20, 2024, was signed by the acting Director of Payments System Management at the CBN, Oladimeji Taiwo, and the Head of Legal and Regulatory Services at the NCC, Chizua Whyte.

The Securities and Exchange Commission announced plans to implement global-ready fintech regulations to ensure Nigeria’s fintech sector aligns with international standards.

The Nigerian Communications Commission (NCC) approved the renewal of the spectrum lease agreement between MTN Nigeria Communications Plc and Natcom Development and Investment Limited. In a notice filed by the company secretary, Uto Ukpanah, on the Nigeria Exchange Limited on Tuesday, it was stated that the agreement covers NTEL’s 5MHz frequency division duplex in the 900MHz spectrum band and 10MHz FDD in the 1800MHz spectrum band across 19 states. The renewal, which is for two years, will take effect from May 1, 2025.

The World Bank has approved a two-year extension for Nigeria’s Digital Identity for Development project, extending the deadline from December 31, 2024, to December 31, 2026. This follows a request by the Nigerian government in May for a three-year extension, which was subsequently approved by the World Bank. The extension provides additional time for Nigeria to meet its revised target of issuing 180 million National Identification Numbers.

This week, we expect the macroeconomic environment to be relatively quiet in the absence of any major economic data releases.

Domestic Equities: The Bulls Maintained Momentum…NGX-ASI Up by 0.99% w/w

Last week, the domestic equities market opened for a total of three trading days as the Federal Government declared 25-Dec-2024 and 26-Dec-2024 as public holiday to commemorate the Christmas celebration, that said, the market closed on a positive note, as bullish sentiments drove gains for two (2) out of three (3) trading days. A notable performer was large cap stock MTNN, which saw a significant gain of (+10.54% w/w), playing a key role in lifting the main index higher. Also worthy of mention is gains in FBNH (+4.85% w/w) and NB (+12.07% w/w). Bargain-hunting activities improved with the market’s breadth climbing to 3.2x implying that 64 stocks appreciated while 20 declined, up from 2.3x the week before. That said, the benchmark NGX-ASI improved by 99bps to close at 102,133.30 points, bringing the YTD return to 36.59% and raising market capitalization to N61.91trn. In terms of trading, market activity declined with the total value and volume of stocks traded declining by 5.14% and 8.83% to print at N17.34bn and 462.23mn units, respectively.

Similarly, on a sectorial level, performance was bullish as four (4) out of the five (5) sectors under our coverage closed in the green territory. The Insurance sector (+7.87% w/w) led the gainers owing to gains in MANSARD (+13.33% w/w) and SUNUASSU (+20.03% w/w). Following was the Consumer Goods sector (+3.13% w/w) on the back of share price appreciation in NB (+12.07%) and PZ (+26.09%). The Banking sector (+1.97% w/w) followed on the back of bullish activities in FIDELITY (+7.19% w/w) and UBA (+2.37% w/w). The Industrial Goods sector (+0.09% w/w) followed on the back of share price appreciation in WAPCO (+0.73% w/w) and BETAGLAS (+2.16% w/w). On the other side of the coin, the Oil and Gas sector (-0.12% w/w) was the sole laggard on the back of sell offs in ETERNA (-3.23%).

On corporate actions, Access Holding Plc has secured full regulatory approvals for its recently closed Rights Issue of 17,772,612,811 Ordinary Shares of 50 Kobo each at N19.75 Kobo per share (‘the Rights Issue’) and has raised the target amount of N351,009,103,017.25.

Looking forward, the equities market is expected to retain its buy interest as investors cherry-pick undervalued stocks. However, given the high interest rates in the fixed income and money markets, we expect some bearish undertone to persist in the equities market as fixed income biased investors take advantage of the high yields in the fixed income space. Nevertheless, the Bulls will remain incentivized to persist in bargain hunting, given the tremendous mid-long-term opportunities in the equities market. Fund managers and businesses may entertain mid-long-term (≥3 months) investment objectives, cherry-picking only sound equities with strong fundamentals and ongoing/pending corporate actions. This strategy will maximise market opportunities, thereby optimising portfolio returns.

Money Market: System Liquidity Improved

Last week, the financial system opened with a surplus balance of N123.71bn. During the week, a blend of increased activities at the CBN’s Standing Deposit Facility (SDF) window as well as coupon inflows helped inflate the system’s liquidity position, with the financial system wrapping up the holiday shortened week with a surplus balance of N736.31bn. That said, the average funding rates between banks tapered, with the Open Repo Rate (OPR) and Overnight Rate (OVN) falling by 551bps w/w and 509bps to settle at 26.75% and 27.47% (previously, 32.26% and 32.56%), respectively.

At the primary market, the CBN rolled over maturing NT bills to the tune of N332.53bn, across the 91-day, 182-day and 364-day bills. At the auction, investors demand was strong, with total demand printing at N663.18bn, implying a bid-to-cover ratio of 2.0x. The CBN slightly over-allotted the auction, allotting bills to the tune of N335.54bn, implying an overallotment rate of 1.01x. Ultimately, the CBN allowed the stop rate on the 364-day bill to inch higher by 10bps to 22.90% (previously, 22.80%). Meanwhile, the stop rates on the 91-day and 182-day bills remained static at 18.00% and 18.50%, respectively.

Meanwhile, the secondary market closed bullish as unmet auction demands trickled in. As a result, the average yields on NT bills fell by 21bps w/w to close the week at 25.49% (previously, 25.70%). Similarly, the bulls had the upper hand at the OMO segment with the average yield on OMO bills tapering by 18bps w/w to settle at 27.11% (previously, 27.29%).

This week, we expect system liquidity to be at the mercy of CBN’s disposition with Open Market Operations (OMO). However, we expect FTD and money market rates will remain elevated, around current levels, with buy-interests projected to continue to improve.

Bond Market: Cautious Sentiments

The secondary bonds market was relatively quiet as investors maintained a cautious approach towards the market. Thus, the average bond yield inched up by 2bps to close at 19.75% (previously 19.73%). Conversely, activities were mildly bullish in the corporate bonds market, as the average yield on corporate bonds tapered by 3bps to settle at 23.29% (previously, 23.32%).

Meanwhile, in the Nigerian secondary Eurobonds market, we observed mildly bearish sentiments remain, as the US Fed’s more restrictive approach to the monetary policy easing cycle, continued to weigh. That said, the average yields in the market increased by 3bps w/w to settle at 9.67% (previously 9.64%).

Looking forward, we expect the bearish trend in the secondary bonds market to persist as investors remain cautious towards duration-exposed instruments. Meanwhile, we expect continued mixed sentiments in the Nigerian Eurobonds market as investors look to create a balance between high quality assets and high-premium yielding assets.

Currency Market: Naira Mildly Depreciated at the Official Market

Last week, the Naira mildly depreciated by 9bps w/w at the official market to close at N1,538.39/$, from its previous close of N1,536.93/$. Meanwhile, the Naira appreciated by 36bps w/w at the parallel market to settle at N1,650.0/$, from its previous close of N1,656.0/$. Lastly, Nigeria’s external reserves rose by 7bps to settle at $40.846bn (previously, $40.816bn).

This week, we expect the recent stability of the Naira to be sustained in the short term, following improved FX supply and weaker FX demand. The successful $2.20bn Eurobond issuance signals a positive improvement in investors’ confidence in the Nigerian economy, particularly helped by recent economic reforms. Also, the ongoing normalization of monetary policy in key advanced economies which signals that borrowing costs in the International Capital Markets (ICM) will continue to taper into 2025, provides additional support for FX supply via increased external borrowings in 2025. Additionally, the recent upward trend in the nation’s reserves increases the likelihood for interventions at intervals, aimed at sustaining the Naira’s value around a support level above the N1,500/$ mark (2025 budget projection). Overall, in the long-run, the stability and consistent growth of the country’s crude oil output will play a key role in the Naira’s sustained appreciation below the N1,500/$ mark.