January 27, 2025/United Capital Research
Global Markets Surge as Relief from Tariff Fears, Tech Boosts, and Presidential Actions Drive Equities to Record Highs.
U.S. markets opened on Tuesday after the MLK holiday, with President Trump’s executive orders in focus. While tariffs had been anticipated, their absence from the initial actions provided relief, boosting equities. Additionally, Stargate AI’s announcement of a $500 billion investment in AI infrastructure drove further gains in tech stocks.
On Wednesday, the S&P 500 reached an intraday high, driven by strong tech performance, particularly from semiconductors and networking stocks. Despite the index surpassing 6,100 briefly, decliners outpaced advancers 2:1, with 9 of 11 sectors finishing lower. Only Information Technology and Communications Services posted gains. Thursday saw a broader market rally, with all sectors finishing higher. President Trump’s comments on interest rates and oil prices helped drive yields and oil lower, providing a tailwind to equities. In the week ending January 18, the advance figure for seasonally adjusted initial claims was 223,000, an increase of 6,000 from the previous week’s unrevised level of 217,000. The 4-week moving average was 213,500, an increase of 750 from the previous week’s unrevised average of 212,750. The S&P 500 closed at an all-time high of 6,118.71. On Friday, US equities ended lower but recovered in the final minutes. For the week, the S&P rose 1.70%, reaching record highs.
European markets experienced another positive week, with the EURO STOXX 600 rising by 1.20% w/w, marking its fifth consecutive week of gains. The absence of new tariffs from President Trump’s early actions helped push the indexes to new highs, although they were already on an upward trajectory. European stocks have a low performance bar, given the region’s historical underperformance relative to the US. As a result, even modestly positive outcomes could lead to capital inflows into the region. Notably, European PMIs showed month-over-month improvement, further boosting sentiment, while luxury stocks posted strong results. The European Central Bank’s policy meeting this week will be the key event, although a rate cut has already been strongly signaled by officials.
Asia saw strong performance across the region, supported by limited developments on tariffs. In Japan, the Nikkei rose by 3.90% w/w, with Softbank surging by 15.00% on Stargate AI news. Meanwhile, Mitsubishi Motors opted out of the Nissan-Honda merger for the time being. The Bank of Japan raised rates by 25 basis points as expected, with the Yen trading between ¥155.0/$ and ¥156.5/$. In China and Hong Kong, both Shenzhen and Hong Kong indices gained around 2.50% w/w. Despite ongoing discussions around President Trump’s tariff outlook in China, no immediate changes were made. The Chinese government introduced measures to support its equities market, including allowing increased investment by insurers, pension funds, and mutual funds, as well as encouraging buybacks.
Oil futures, specifically Brent, continued to pull back from its recent high of around $83.00/bbl., ending the week at ~ $78.00, down by 2.80% w/w. Early in US President Trump’s administration, a series of executive orders aimed to increase production, remove regulatory barriers, and withdraw from the Paris Climate Agreement. The consideration of 25.00% tariffs on Mexico and Canada also influenced the market. Meanwhile, the latest Department of Energy (DOE) data revealed a ninth consecutive week of crude stockpile draws, reaching the lowest levels in three years.
This week, approximately 16.00% of the S&P 500 companies are set to report earnings, shifting focus beyond banks and financials. Key mega-cap and tech companies, which have the potential to influence the broader index, will be among those reporting. Additionally, the Federal Open Market Committee’s (FOMC) policy announcement on Wednesday will be a significant macroeconomic event.
Macroeconomic Highlights
The Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA) has announced the approval of a licence for the construction of a 10,000 barrels per stream day refinery at Imode In Ughelli, Delta State. This latest development signifies that Nigeria now has about 11 modular and regular refineries, adding to the nation’s refining capacity.
The Nigerian National Petroleum Company Limited (NNPCL) has raised the pump price of Premium Motor Spirit (PMS), also known as petrol, from N965.00 to N990.00 per litre in the Federal Capital Territory. NNPCL also increased their price in Lagos from N925.00 to N960.00 per litre. The amount is N20, or 2.10% more than the N970.00 retail price announced by the Dangote refinery in partnership with MRS filling station, Ardova, and Heyden.
According to the Debt Management Office (DMO), Nigeria’s total public debt rose to N142.3tn as of 30-Sep-2024, representing an increase of 5.97% (N8.02tn) compared to N134.3tn in Jun-2024. Nigeria’s external debt in dollar terms grew marginally by 0.29%, from $42.90bn in June to $43.03bn in September. However, the naira equivalent of external debt surged significantly by 9.22%, rising from N63.07tn to N68.89tn during the same period.
Nigeria’s total debt service costs, including external and domestic obligations, rose in Q3-2024, reflecting the combined impact of increased external debt service payments and currency depreciation. The total debt service cost for Q3-2024 reached an estimated N3.57tn, marking a q/q increase of N60bn or 1.71% from N3.51tn recorded in Q2-2024. External debt service payments in Q3-2024 amounted to $1.34bn, which translated to N2.14tn when converted at the September exchange rate of N1,601.03/$. In comparison, the Q2-2024 external debt service of $1.12bn was valued at N1.65tn, based on the June exchange rate of N1,470.19/$.
Nigeria’s foreign exchange reserves have seen a sharp decline in the first two weeks of January, falling by $832.62 million between 06-Jan and 21-Jan. Nigeria’s gross external reserves stood at $40.92bn as of 06-Jan-2025 but dipped to $40.09bn as at 21-Jan-2025 reflecting a 2.03% decline. The declines included a loss of $167.1mn between 10-Jan and 13-Jan, a $502.5mn drop between 06-Jan and 13-Jan, and a cumulative reduction of $832.62mn over the two weeks under review.
According to the DMO, Nigeria’s first domestic dollar-denominated bond has added N1.47tn to the country’s total domestic debt. The bond constitutes 2.12% of the total domestic debt stock, which stood at N69.22tn as of 30-Sep-2024.
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 1.22% w/w
Last week, the domestic equities market closed on a positive note as the bulls dominated the market despite the bears operating in the background. Investors’ appetites in the market have been sustained by the mid-long-term opportunities present in the market. Notably, share price appreciation in large-cap MTNN (+6.39% w/w) was sufficient to lift the main index higher. Also worthy of mention are gains in TRANSCORP (+10.76% w/w) and GTCO (+5.60% w/w). As a result, the benchmark NGX-ASI improved by 122bps to close at 103,598.46 points, bringing the YTD return to a steady 0.65% and raising market capitalization to N63.65tn. In terms of trading, market activity increased as the average value and volume of stocks traded rose by 30.12% w/w and 39.04% w/w to settle at N15.31bn and 626.39mn units, respectively. As measured by the market breadth, investors’ sentiments improved to 1.00x (previously, 0.58x) as 44 stocks appreciated while 44 depreciated.
Meanwhile, on a sectorial level, performance was mainly bearish as three (3) sectors under our coverage closed in the red territory. The Consumer goods sector (-1.20% w/w) led the laggards due to sell-offs in DANGSUGA (-9.09% w/w). Trailing behind was the Insurance sector (-1.20% w/w) on account of losses in CORNERST (-14.29% w/w) and SUNUASSU (-25.11%). The Oil & Gas sector (-0.93% w/w) declined owing to share price depreciation in CORNERST (-14.29% w/w) and SUNUASSU (-25.11%). On the flip side, the Banking sector (+4.09% w/w) led the gainers on the back of buy-interests in UBA (+7.67% w/w) and ZENITHBA (+5.98% w/w). Lastly, the Industrial Goods sector climbed by 0.12% w/w due to gains in WAPCO (+0.71% w/w) and CAP (+8.52% w/w).
On corporate actions, Transcorp Power declared a final dividend of N3.50k per ordinary share, which, when combined with the interim dividend of N1.50k paid at half-year, brings the total dividend for the 2024 financial year to N5.00k per ordinary share. The qualification date is 11-Feb-2025, and the payment date is 11-Mar-2025.
Oando Plc announced that its upstream subsidiary, Oando Energy Resources (OER), has been awarded operatorship of Block KON 13 in Angola’s Onshore Kwanza Basin, following a competitive bidding process organized by the Angolan National Agency for Petroleum, Gas, and Biofuels.
Looking forward, the equities market is expected to maintain its positive momentum as investors continue to position themselves ahead of the FY-2025 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 Reflated
Last week, the financial system opened with a deficit balance of N307.56bn. However, during the week, we observed a resurgence in activities at the CBN’s Standing Deposit Facility (SDF) window, sponsored by unspecified inflows (most likely from FAAC receipts or CRR refunds). Notwithstanding, activities at the CBN’s Standing Lending Facility (SLF) window remained heightened, amid massive activities at the primary market. Overall, the funding rates between banks tapered owing to the improved liquidity fundamentals, with the financial system wrapping up the week with a surplus balance of N211.79bn. Ultimately, the surplus position of the financial system at the close of the week was underpinned by improved balances of banks/discount houses as well as elevated activities at CBN’s SDF window. For further background, the weekly average of funding rates between banks trended lower, with the weekly average of the Open Repo Rate (OPR) and Overnight Rate (OVN) falling by 217bps w/w and 189bps w/w to record at 30.00% and 30.70% (previously, 32.17% and 32.59%), respectively.
Shedding light on last week’s primary market activity, we note that the CBN rolled over maturing NT bills via an auction, NT bills to the tune of N530.00bn across the 91-day, 181-day, and 364-day bills. The auction was met with massive interest, with total subscriptions recording a whopping N2.54trn, indicating an oversubscription rate of 4.78x. We note that investors massive demand was fuelled by the prospects of “yield curve normalisation”, particularly following the country’s efforts in rebasing GDP and CPI Inflation (which is ongoing, with first report expected before the end of Jan-2025). Interestingly, the CBN looked to over-allot the auction by an overallotment rate of 1.43x, allotting bills to the tune of N756.05bn. Reflective of the overwhelming demand, the CBN had pricing power, and thus allowed the stop rate on the 364-day bill to fall by 82bps to 21.80%. Stop rates on the 91-day and 181-day bills remained stable at 18.00% and 18.50%, respectively.
Meanwhile, the secondary market for NT-bills closed bullishly, as the momentum of the buy-interests outmatched the selloffs across the curve, underpinned by unmet PMA bid spillovers. That said, the average yield on NT-bills tapered by 38bps w/w to close the week at 24.83% (previously, 25.21%). Similarly, we saw buy interests at the secondary OMO segment with the average yield on OMO bills tapering by 31bps w/w to settle at 28.03% (previously, 28.34%).
This week, we expect the financial system remain in surplus, further bolstered by expected inflows from OMO maturities to the tune of N335.00bn. The expected system liquidity will look to spur further buy-interests for NT-bills at both primary and secondary market levels. We maintain a dovish outlook for short-term rates in H1-2025, particularly sponsored by a normalisation of the yield curve. Ultimately, funding rates between banks, 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, with strict focus on short-term instruments. Hence, average bond yields in the secondary market climbed by 21bps to close at 20.72% (previously, 20.07%). In similar vein, activities were bearish in the corporate bonds market, as the average yield on corporate bonds climbed by 59bps to settle at 23.58% (previously, 23.58%).
Meanwhile, in the Nigerian secondary Eurobonds market, we observed mixed sentiments with bullish sentiments mildly outweighing, underpinned by the premium offered (relative to SSA Economies) That said, average yields on Eurobonds in the secondary market tapered by 2bps w/w to settle at 9.42% (previously 9.44%).
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 Appreciated at the Official Market
Last week, the Naira mildly appreciated by 57bps w/w at the official market to close at N1,533.26/$, from its previous close of N1,542.03/$. Meanwhile, the Naira remained unchanged w/w at the parallel market to settle at N1,660.0/$. Lastly, Nigeria’s external reserves fell by 219bps to settle at $39.991bn (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.
