January 20, 2025/United Capital Research
Global Markets: Mixed Global Market Performance Driven by Economic Data, Inflation Reports, and Policy Developments.
US equity markets sold off sharply in the previous week, with the S&P 500 falling ~2.00%, marking its fourth decline in five weeks, driven by a strong jobs report that sent Treasury yields higher. The weakness continued into last week, pressured by rising yields, oil prices, and new AI export restrictions announced by President Biden. However, the S&P 500 saw a technical rebound after testing key support levels, with buy-interest emerging. Inflation data was mixed, with PPI coming in slightly better than expected and a CPI report showing some moderation, which helped Treasury yields fall. Retail sales indicated a resilient consumer, while dovish comments from Fed Governor Waller further supported sentiment. By week’s end, the S&P 500 closed up 2.90% w/w, with volatility easing as the VIX dropped and the S&P 500 index broke above its 50-day moving average.
Europe had a strong week, with most major indices, including the EuroStoxx 50, DAX, and FTSE 100, hitting new all-time highs. A pullback in yields favored value oriented and cyclical sectors, which given the index makeup is particularly beneficial to the region. Strong earnings from Richemont lifted luxury stocks, key components of European indices. In the UK, Gilt yields fell sharply following weaker-than-expected inflation, GDP, and retail sales data, while a successful 10-year Gilt auction went off as expected. Overall, Europe’s positive performance was driven by improving economic sentiment and strong corporate earnings, particularly in luxury and cyclical sectors.
Asia’s markets were mixed, with Japan ending lower as a stronger Yen pressured exporters, particularly automakers. The Bank of Japan’s Governor Ueda hinted at a potential rate hike in its meeting on 23-Jan-2025, pushing the 10-year JGB yield to a 2011 high. In contrast, China and Hong Kong saw gains, halving their YTD losses, supported by policy promises and stronger-than-expected economic data, including a $1.00tn trade surplus. However, concerns about the impact of pre-emptive demand and ongoing trade tensions, particularly with the US, remain. The upcoming inauguration of President Trump and diplomatic talks between leaders may influence regional sentiment.
Commodities closed mostly higher. Brent oil futures extended its gains, rising to ~ $83.00 before pulling back to finish the week at ~ $81.00, up 1.30% w/w. Last week’s Russia sanctions forced refiners in China and India to seek alternative supply sources. Meanwhile, the Gaza ceasefire exerted some modest downward pressure on prices.
This week, US equitiy markets will be closed on Monday or MLK Day and Inauguration Day. US President Trump is expected to quickly implement a series of executive orders, which may introduce volatility into markets. Attention will then shift to earnings reports, as the FOMC enters a media blackout period, and the economic data calendar remains light. The key focus will be on global flash PMIs, due later in the week. Additionally, the Bank of Japan will announce its rate decision on Thursday.
Macroeconomic Highlights
The National Bureau of Statistics (NBS) released Nigeria’s CPI Inflation report for Dec-2024. According to the report, headline inflation rate in Nigeria experienced a slight increase, reaching 34.80%. This marks a marginal rise of 0.20% from Nov-2024’s rate of 34.60%, and 5.87% higher than the rate recorded in Dec-2023, which stood at 28.92%. The increase was primarily driven by increased demand for goods and services during the festive season. However, from a month-on-month viewpoint, Nigeria’s headline inflation rate decelerated in Dec-2024, recording a print of 2.44% m/m, 20bps slower than 2.64% recorded in Nov-2024. This deceleration comes on the back of improved dynamics in PMS pump prices and Naira appreciation in Dec-2024.
According to the Central Bank of Nigeria (CBN), Information, communication, and technology (ICT) firms, including telecommunications companies in Nigeria, owed Deposit Money Banks N1.69tn as of Sep-2024 amid telcos’ calls for a hike in the tariff payable by subscribers for data and voice calls. This represents a y/y decrease of N68.04bn, or 3.90%, compared to the N1.77tn owed in Sept-2023. On a m/m basis however, there was a slight increase of N31.61bn, or 1.90%, from the N1.66tn recorded in Aug-2024.
The CBN has sanctioned nine Deposit Money Banks (DMBs) for failing to make naira notes available through automated teller machines (ATMs), during the yuletide season. Each bank was fined N150 million for non-compliance, in line with the CBN’s cash distribution guidelines. The affected banks include Fidelity Bank Plc, First Bank Plc, Keystone Bank Plc, Union Bank Plc, Globus Bank Plc, Providus Bank Plc, Zenith Bank Plc, United Bank for Africa Plc, and Sterling Bank Plc.
The World Bank has forecasted that Nigeria’s economy will grow by 3.50% in 2025 and rise slightly to 3.70% in 2026. The World Bank noted that Nigeria’s projected growth for 2025 and 2026 would be supported by gradually declining inflation, following monetary tightening measures in 2024.
Dangote Petroleum Refinery is planning to import more crude oil as supply from the Nigerian National Petroleum Company Limited (NNPCL) becomes insufficient for fuel production. The facility has ramped up production to about 500,000 barrels per day, with the target of hitting the 650,000bpd mark by June this year and claims that the feedstock needed by the refinery daily cannot be solely supplied by the state-owned oil company.
This week, we expect the macroeconomic environment to be relatively quiet in the absence of any major economic data releases.
Domestic Equities: The Bears Regained Momentum…NGX-ASI Down by 2.94% w/w
Last week, the domestic equities market closed on a negative note with pockets of profit-taking activities across the market. Notably, share price depreciation in DANGCEM (-16.46% w/w) weighed the main index lower. Also worthy of mention are losses in TRANSCORP (-8.83% w/w) and MTNN (-3.72% w/w). As a result, the benchmark NGX-ASI declined by 294bps to close at 102,353.68 points, bringing the YTD return to a steady -0.56% and lowering market capitalization to N62.85tn. In terms of trading, market activity declined as the average value and volume of stocks traded declined by 30.60% and 51.89% w/w to settle at N11.77bn and 450.50mn units, respectively. As measured by the market breadth, investors’ sentiments dampened to 0.58x (previously, 1.31x) as 33 stocks appreciated while 57 depreciated.
Meanwhile, on a sectorial level, performance was mainly bearish as four (4) sectors under our coverage closed in the red territory. The Industrial Goods sector (-8.20% w/w) led the laggards due to sell-offs in DANGCEM (-16.46% w/w), BETAGLAS (-5.16% w/w), and CUTIX (-1.85% w/w). Trailing behind was the Insurance sector (-6.23% w/w) on account of losses in WAPIC (-15.91% w/w) and AIICO (-10.53% w/w). The Oil and Gas sector (-0.78% w/w) declined owing to share price depreciation in MRSOIL (-7.71% w/w). The Banking sector (-0.46% w/w) followed on the back of sell offs in ACCESSCO (-1.43% w/w) and UBA (-0.88% w/w). The Banking sector (-0.46% w/w) followed on the back of sell offs in ACCESSCO (-1.43% w/w) and UBA (-0.88% w/w). On the flip side, the Consumer Goods sector (+1.33% w/w) was the sole gainer on the back of buy-interests in DANGSUGA (+16.67% w/w) and NASCON (+15.85% w/w).
On corporate actions, MTN Nigeria Communications PLC has announced the successful completion of its Series 15 and 16 Commercial Paper issuance under the Company’s N250.00bn Commercial Paper Issuance Programme where the Company raised N42.20bn.
This week, we expect mixed sentiments in the market for risk-asset classes, as the expected primary market auction will look to divert a considerable amount of investors interest. Investors are advised to trade cautiously this week, with a strict focus on equities with strong fundamentals and pending/potential corporate actions.
Money Market: System Liquidity Strayed into the Deficit Terrain
Last week, the financial system opened with a surplus balance of N346.96bn. However, as indicated by the heightened activities at the CBN’s Standing Lending Facility (SLF) window, the financial system operated mostly in the negative terrain. This proves that the inflows from OMO maturities (N270.00bn) and coupon payments (N65.36bn) were not sufficient to meet the existing financial obligations in the financial system during the week under review. Notably, the CBN did not conduct any primary market auction (PMA) during the week under review. Hence the financial system wrapped the week in the deficit terrain, closing with a negative balance of N394.84bn. Ultimately, owing to the awkward illiquidity of the financial system, the weekly average of funding rates between banks surged above the 30.00% mark. For context, the weekly average of funding rates between banks trended higher, with the weekly average of the Open Repo Rate (OPR) and Overnight Rate (OVN) climbing by 449bps w/w and 424bps w/w to record at 32.17% and 32.59% (previously, 27.67% and 28.35%), respectively.
Meanwhile, the secondary market for NT-bills closed relatively flat, as the momentum of the buy-interests matched the selloffs across the curve. That said, the average yield on NT-bills tapered marginally by 1bp w/w to close the week at 25.21% (previously, 25.22%). Conversely, we saw more selloffs at the secondary OMO segment with the average yield on OMO bills climbing by 51bps w/w to settle at 28.34% (previously, 27.83%).
This week, we expect the financial system to be reflated by inflows from FAAC payments (>N500.00bn) and coupon payments (N216.59bn). The expected improvement of system liquidity will look to spur further buy-interests for NT-bills at both primary and secondary market levels. The CBN will conduct an NT-bill auction at the primary market, in a bid to roll over NT-bills to the tune of N530.00bn. We do not expect the PMA to impact system liquidity projections, except the CBN inclines itself to oversell the auction. We maintain a dovish bias for rates at the NT-bill auction, with the CBN projected to sell the exact amount on offer. Ultimately, FTD and money market rates will remain greatly influenced by the liquidity level of the financial system, at every point in time.
Bond Market: Bearish Sentiments Prevailed
The secondary bonds market was bearish as investors maintained a cautious bias for duration exposure. Notably, the illiquid financial system also played some role in the bearish momentum of the bonds market in the week under review. Importantly, the CBN released Q1-2025 bond auction calendar, which revealed FG’s plan to borrow between N450.00bn – N600.00bn at each bond auction in Q1-2025. This brings the total potential bond offerings for Q1-2025 within the range of N1.35trn (10.05% of 2025 projected budget deficit of “13.39trn”) – N1.80trn (13.44% of 2025 projected budget deficit of “13.39trn”). Overall, average bond yields in the secondary market climbed by 21bps to close at 20.07% (previously, 19.86%). In similar vein, activities were bearish in the corporate bonds market, as the average yield on corporate bonds climbed by 43bps to settle at 23.58% (previously, 23.15%).
Meanwhile, in the Nigerian secondary Eurobonds market, we observed bullish sentiments, following positive economic data in the United States. The highlight of the week’s economic data came on Wednesday with the US Labor Department’s December inflation report, which revealed that core inflation in the US eased in December, recording below expectation at 0.2%, the smallest increase since Jul-2024. Year-over-year core inflation also slowed, to 3.2% from 3.3% in Nov-2024. Consequently, average yields on Eurobonds in the secondary market tapered by 8bps w/w to settle at 9.44% (previously 9.52%).
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 30bps w/w at the official market to close at N1,546.72/$, from its previous close of N1,542.03/$. Similarly, the Naira depreciated by 60bps w/w at the parallel market to settle at N1,670.0/$, from its previous close of N1,660.0/$. Lastly, Nigeria’s external reserves fell by 131bps to settle at $40.351bn (previously, $40.885bn).
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.
