
January 13, 2025/United Capital Research
Global Markets: Mixed Week Across Global Markets.
In the US, the week began positively, driven by optimism in the tech sector and developments in Washington. Positive updates in tech stocks, coupled with reports of Congressional support for a “one big, beautiful bill” boosted sentiment. Additionally, reports surfaced that the administration was considering a more targeted approach to tariffs, though President-elect Trump quickly refuted these claims. Treasury yields rose, limiting market gains by day’s end.
Nvidia’s keynote on Monday, unveiling a new chip and showcasing its AI developments, sent the stock to an all-time high, briefly overtaking Apple in market cap. However, a post-peak sell-off, combined with stronger-than-expected economic data (JOLTS and ISM Services PMI), pressured the S&P 500, which ended Friday down by 1.50%. Volatility and market reactions to Washington, geopolitical concerns, and economic data marked the week with broader market weakness bringing the S&P 500 down by1.90% w/w.
Europe outperformed last week, with most indices closing higher. Although economic data largely fell short of growth expectations and inflation figures slightly exceeded forecasts, central bank commentary indicated that easing policies would continue. Like the US, yields were on the rise across the region.
Meanwhile, UK Gilts were under significant pressure, with the 10-year yield surpassing 2023 highs after a weak 30-year auction, while US 10-year Treasuries remained about 25bps below that level. Bank of England Governor Breeden indicated that further easing was likely, but also suggested that quantitative tightening (QT) could be modified due to current volatility. Both the GBP and Euro were under pressure, hitting new lows during the week.
Markets in Asia were mostly lower last week. China and Hong Kong indices continued to underperform, despite ongoing statements from government officials pointing to further policy stimulus. However, these efforts appeared to have little impact, as market reaction remained muted. The Shanghai Composite fell 1.30% w/w while the Hang Seng index was down by 3.50% w/w.
Despite the strength of the USD, commodities broadly saw gains last week. Oil futures, in particular, rose around 10.00%, supported by a positive technical setup that has been highlighted over the past weeks. Friday’s rally was largely driven by new sanctions on Russian oil. The price of oil is now approaching the upper end of its two-year range, i.e. around $85.00.
Next week is pivotal for financial markets, with major indices approaching critical levels and increased volatility, as indicated by a rising VIX. There will be key economic data releases include US inflation and retail sales. Meanwhile, global data will focus on China’s trade and GDP, and inflation figures from the UK and Japan. Attention will also be on a 10-year Gilt auction, following this week’s market activity, and US Treasury bill auctions. The earnings season kicks off Wednesday with financials, while two major conferences, the JPM Healthcare and ICR, begin. In Washington, confirmation hearings are scheduled.
Macroeconomic Highlights
The Central Bank of Nigeria (CBN) has reported a 63.70% increase in international money transfer operator (IMTO) inflows during the first nine months of 2024. inflows rose from $2.33bn recorded during the same period in 2023 to $3.82bn in 2024.
Nigeria’s foreign exchange reserves surged by $591.78mn in the month following the government’s $2.20bn Eurobond auction on 02-Dec-2024. The reserves increased from $40.29bn on 02-Dec-2024 to $40.88bn on 03-Jan-2025. This represents a m/m growth of 1.47% and highlights the positive impact of the Eurobond proceeds on the nation’s external reserves.
The CBN has released a total sum of $1.25bn to oil sector operators for the importation of petroleum products and other related items into the country between January and September 2024. The $1.25bn is 40.00% higher than the $891.00mn released by the apex bank to dealers during the same period in 2023. The CBN also indicated that 19 sectors and services seeking to do importation and other forex-related activities received $18.78bn forex allocation within the same period.
Seplat Energy Plc has stated that it plans to double its crude oil production capacity from 50,000 barrels per day to roughly 120,000bpd over six months. This is in bid to fill the gap following ExxonMobil’s retreat from Nigeria’s onshore oil sector.
The China Development Bank has announced the approval of a $254.76mn (€245mn) loan to support the Kano-Kaduna railway project in Nigeria providing financial support for the smooth progress of the project. In addition to easing transportation, the project is expected to spur economic growth by fostering the development of industries along its corridor.
Meanwhile, the CBN has suspended approvals for the extension of export proceeds repatriation on behalf of exporters, effective immediately. This directive applies to both oil and non-oil export transactions. This move aims to enforce compliance with existing foreign exchange regulations.
The Dangote Petroleum Refinery is building eight more tanks in a bid to have enough storage for imported crude oil. It plans to ramp up its storage capacity by 6.29mn barrels, equivalent to 1.00bn litres.
Lastly, Debt servicing consumed 47.00% of the Federal Government’s total expenditure in the first nine months of 2024. In the first nine months of 2024, the Federal Government spent N8.94tn on debt servicing, a sharp increase of 56.80% from N5.69tn in the corresponding period of 2023. The debt costs accounted for nearly half of the N18.97tn total expenditure for the period, compared to 42.00% of the N13.57tn spent in 2023.
This week, we expect the NBS to release the country’s CPI inflation report for Dec-2024.
Domestic Equities: The Bulls Maintained Momentum…NGX-ASI Up by 1.80% w/w
Last week, the domestic equities market closed on a positive note despite pockets of profit-taking activities across the market. Notably, share price appreciation in large-cap MTNN (+21.00% w/w) was sufficient to lift the main index higher. Also worthy of mention are gains in TRANSCORP (+18.39% w/w) and TRANSCOHOTEL (+9.78% w/w). As a result, the benchmark NGX-ASI improved by 180bps to close at 105,451.06 points, bringing the YTD return to a steady 2.45% and raising market capitalization to N64.30tn. In terms of trading, market activity was mixed as the average value of stocks traded declined by 2.76% w/w to settle at N16.96bn while the average volume of stocks traded rose by 43.08% w/w to settle at 936.43mn units, respectively. As measured by the market breadth, investors’ sentiments dampened to 1.31x (previously, 4.55x) as 51 stocks appreciated while 39 depreciated.
Meanwhile, on a sectorial level, performance was mainly bearish as four (4) sectors under our coverage closed in the red territory. The Insurance sector (-6.91% w/w) led the laggards due to sell-offs in SUNUASSU (-36.52% w/w), CORNERST (-10.11% w/w), and MANSARD (-7.09% w/w). Trailing behind were the Oil & Gas (-0.34% w/w) and Consumer Goods (-0.34% w/w) sectors on account of losses in GUINNESS (-7.47% w/w) and INTBREW (-5.36% w/w). The Industrial Goods sector (-0.26% w/w) declined owing to share price depreciation in WAPCO (-2.10% w/w). On the flip side, the Banking sector (+1.94% w/w) was the sole gainer on the back of buy-interests in ETI (+8.57% w/w) and WEMABANK (+10.00% w/w).
On corporate actions, Guaranty Trust Holding Company Plc (GTCO) announced the successful completion of the first tranche of its equity capital raise programme. GTCO, through its Offer for Subscription, raised a total of N209.41bn on 4,705,800,290 ordinary shares.
Looking forward, the equities market is expected to maintain its positive momentum as investors continue to position themselves ahead of the FY-2024 earnings season and possible corporate action declarations. Nevertheless, given the elevated interest rate environment in the fixed-income market, we still expect bearish sentiments to linger in the background.
Money Market: System Liquidity Remained Inflated
Last week, the financial system opened with a surplus balance of N476.24bn, particularly sponsored by heightened activities at the CBN Standing Deposit Facility (SDF) window. During the week, OMO maturities to the tune of N952.4bn further bolstered the available liquidity in the financial system. Riding on the improved system liquidity, the CBN looked to mop-up the excess liquidity via OMO auctions. Despite the massive demand at the auction, CBN’s disposition not to oversell left considerable liquidity in the financial system, at the close of the week. Hence, the financial system wrapped up with a surplus balance of N346.96bn. Consequently, average funding rates between banks remained below the 30.0% mark. However, owing to a blend of last week’s primary market activities, as well as banks’ bias for CBN’s SDF window (@ MPR plus 500bps: “32.50%”), the weekly average of funding rates between banks trended slightly higher, with the weekly average of the Open Repo Rate (OPR) and Overnight Rate (OVN) climbing by 86bps w/w and 99bps w/w to record at 27.67% and 28.35% (previously, 26.81% and 27.36%), respectively.
At the primary market, the CBN conducted Open Market Operation (OMO) auction with total offer size of N500.00bn across the 350-day and 364-day bills. Owing to the massive OMO maturities last week, the auction was met with massive demand to the tune of N1.56trn, implying a bid-to-cover ratio of 3.12x. Notably, subscriptions were mostly skewed toward the 364-day bill, as it attracted 81.56% (N1.27trn) of total bids. Interestingly, despite the massive demand, the apex bank opted to allot the exact amount on offer, providing some buffer for supply and demand forces to weigh on stop rates. Consequently, stop rates on the bills offered (350-day and 364-day bills) tapered to record at 23.81% and 23.84%, respectively, compared to 23.93% print for the 358-day bill in the last OMO auction in Dec-2024.
Also, the CBN rolled maturing NT-bills to the tune of N515.00bn across the 91-day, 182-day and 364-day bills. Investors’ demand at the auction was massive (helped by the liquid financial system), recording at N1.52trn, indicating an oversubscription rate of 2.95x. The CBN’s inclination to sell the exact amount on offer allowed it to retain pricing power, thereby dictating the direction of stop rates. Supply and demand fundamentals crystallised, allowing the stop rate on the 364-day bill to taper by 28bps to record at 22.62% from 22.90% at the last auction in Dec-2024. However, the stop rate on the 91-day and 182-day bills remained unchanged at 18.00% and 18.50%.
Meanwhile, the secondary market for NT-bills closed bullishly as investors sought to fulfill unmet bids at PMA. As a result, the average yields on NT-bills fell by 24bps w/w to close the week at 25.22% (previously, 25.46%). Conversely, we saw selloffs at the secondary OMO segment with the average yield on OMO bills climbing by 65bps w/w to settle at 27.83% (previously, 27.18%).
This week, inflows from OMO maturities (N270.00bn) and coupon payments (N65.36bn) is expected to further improve system liquidity. Nonetheless, we expect the CBN to attempt to mop-up system liquidity using Open Market Operations (OMO). However, given the CBN’s restrictive arm on rates, we expect that the banks will most likely remain skewed toward placing their funds with the CBN through the SDF window @ 32.50%. Ultimately, we anticipate that the financial system will remain liquid, weighing on rates in the money market. This will likely translate into further buy-interests for NT-bills at secondary market level. Meanwhile, the ultimate direction of FTD and money market rates will remain largely influenced by the system’s liquidity trajectory.
Bond Market: Mixed Sentiments
The secondary bonds market was relatively bearish as investors maintained cautious bias for duration exposure. Thus, the average bond yield inched up by 8bps to close at 19.86% (previously 19.78%). Conversely, activities were bullish in the corporate bonds market, as the average yield on corporate bonds tapered by 12bps to settle at 23.15% (previously, 23.27%).
Meanwhile, in the Nigerian secondary Eurobonds market, we observed mixed sentiments, given the attractive premium on Nigerian Eurobonds and the associated risks within the SSA region. As a result, the average yields in the market inched up by 3bps w/w to settle at 9.52% (previously 9.49%).
Looking forward, we expect the cautious trend in the bonds market to persist as investors remain attracted to the elevated rates at the shorter end of the yield curve. This situation is expected to persist given the inverted yield curve. 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 49bps w/w at the official market to close at N1,542.03/$, from its previous close of N1,534.56/$. Meanwhile, the Naira appreciated by 30bps w/w at the parallel market to settle at N1,660.0/$, from its previous close of N1,665.0/$. Lastly, Nigeria’s external reserves rose by 1bps to settle at $40.885bn (previously, $40.883bn).
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.