February 10, 2025/United Capital Research
Global Market: U.S. Markets Navigate Volatility Amid Tariff Announcements; European Indices Set Records, Oil Prices Retreat.
Last week, U.S. markets experienced significant volatility, largely driven by tariff announcements. On Friday, the White House revealed plans for 25.00% tariffs on imports from Canada and Mexico, and 10.00% tariffs on China, sparking retaliation from these countries. As a result, equities opened lower on Monday, but the S&P 500 rebounded to its 50-day moving average by the close of the trading session. On Tuesday, the tariffs on Canada and Mexico were postponed for a month to allow for negotiations, boosting market sentiment and leading to a rally through Wednesday and Thursday. The week ended with a mixed jobs report, showing a smaller-than-expected increase in non-farm payrolls (143k vs. 170k forecast), although revisions to previous months added 100k to the total. The unemployment rate fell to 4.00%, and average hourly earnings increased, signaling a resilient but cooling labor market. As a result, markets priced in a 90.00% chance that the Fed would hold rates steady at the next meeting. Late Friday, reports surfaced that President Trump was considering reciprocal tariffs on additional countries, which weighed on market sentiment. For the week, major indices finished lower, with the S&P and small caps slightly down. The S&P 500 was down by 0.20% w/w. The NYSE FANG+ Index outperformed, helped by a rebound in NVIDIA, while the ICE Semiconductor Index and Dow Transportation Average saw declines, especially earlier in the week due to tariff concerns.
Global equity markets showed continued positive momentum this week, with major European indices maintaining their outperformance relative to the S&P 500. The STOXX 600, along with Germany’s DAX, the UK’s FTSE 100, Italy’s FTSE MIB, and Spain’s IBEX 35, all reached record highs. As anticipated, the Bank of England lowered interest rates from 4.75% to 4.50%. Meanwhile, German industrial production remained subdued, although factory orders exceeded expectations, indicating potential for a moderate rebound in the sector.
In Asia, Japan’s Nikkei index ended the week on a lower note, while the Japanese yen continued its upward trajectory against the U.S. dollar, having appreciated by ~4.00% over the past month. In diplomatic news, U.S. President Donald Trump met with Japanese Prime Minister Ishiba in Washington, D.C. Meanwhile, in China and Hong Kong, technology stocks sustained momentum following last week’s surge driven by enthusiasm around DeepSeek. Additionally, mainland Chinese markets resumed trading this week after the Lunar New Year holiday.
The energy sector experienced a decline this week, with oil prices continuing to trade lower after an initial surge at the start of the year. After reaching multi-month highs, oil has now fallen below its 200-day moving average, signaling a shift in market sentiment. The pullback follows a period of optimism early in the year, driven by expectations of tightening supply and improving demand. However, concerns over global economic growth, particularly in key regions like China, have dampened investor sentiment, contributing to the recent downturn in prices.
This week, investors will focus on several key events and data releases that may impact global financial markets. In the U.S., the NY Fed’s Survey of Consumer Expectations on Monday and the release of CPI and PPI data later in the week will provide insights into inflation and economic activity. Chair Powell’s testimony before the Senate and House on Tuesday and Wednesday, respectively, will be closely watched for signals on the Fed’s policy outlook. Earnings reports from major companies like McDonald’s, Coca-Cola, and CVS will offer a snapshot of corporate performance, while global data, including China’s inflation and loan growth, as well as India’s industrial production, will help gauge international economic trends. Additionally, Central Bank speeches, including ECB President Lagarde on Monday and BoE Governor Bailey on Tuesday, may provide further insights into monetary policy direction. Energy investors will monitor key reports, such as the EIA’s oil and natural gas inventories, and the OPEC Monthly Report. Finally, geopolitical developments, such as the Munich Security Conference and any potential peace proposals regarding Ukraine, could also influence market sentiment.
Macroeconomic Highlights
The CBN has extended the temporary access granted to Bureau de Change operators for purchasing foreign exchange from the Nigerian Foreign Exchange Market till 30-May-2025, allowing BDCs to continue purchasing forex from authorised dealers under existing conditions. The previous circular had granted temporary access to existing BDCs to source foreign exchange from authorised dealers, with a weekly cap of $25,000 and was initially set to expire on 31-Jan-2025.
Nigeria’s foreign exchange (FX) reserves declined significantly by $1.16bn in Jan-2025, wiping out the $592.58mn gain recorded in Dec-2024. The latest figures from the Central Bank of Nigeria (CBN) show that reserves fell from $40.88bn at the end of December to $39.72bn as of 31-Jan-2025. This marks the sharpest monthly decline since Apr-2024.
President Bola Tinubu has revised the proposed 2025 budget upwards, increasing it from N49.70tn to N54.20tn. This adjustment comes on the back of additional revenue inflows from key government agencies, strengthening the government’s fiscal position. The revenue boosts includes N1.40tn from the Federal Inland Revenue Service (FIRS), N1.20tn from the Nigeria Customs Service (NCS) and N1.80tn from other government-owned agencies.
The Federal Government is engaging the World Bank for two fresh loans totalling $580.00mn, which are expected to receive final approvals in Mar-2025. The funding is aimed at improving nutrition and education initiatives, with two projects currently listed in the World Bank’s pipeline. The projects, Accelerating Nutrition Results in Nigeria 2.0 and HOPE for Quality Basic Education for All, are expected to receive final approvals on 27-Mar and 20-Mar-2025, respectively.
The CBN has issued new guidelines restricting Bureau de Change operators to purchasing a maximum of $25,000 per week from a single authorised dealer bank as part of efforts to regulate the retail foreign exchange market and enhance transparency. The new rule means that BDCs must select one authorised dealer bank per week to source their allocated forex, preventing them from obtaining funds from multiple banks.
The International Monetary Fund (IMF) has revealed that Nigeria’s Gross Domestic Product (GDP) per capita declined to $835.49 in 2025 from $877.07 in 2024, indicating a 4.74% dip. there has been a sustained downtrend since 2014, when the GDP per capita had stood at a high of $3,220. The IMF, however, projects a rise in 2026 and 2027, with the GDP per capita expected to cross the $1,000 mark in 2028 at $1,040.
The House of Representatives Committee on the Review of the 1999 Constitution has put forward a proposal for the creation of 31 additional states across the country. If approved, this move would significantly alter Nigeria’s political and administrative landscape, increasing the total number of states from 36 to 67. The proposal seeks to address demands for greater representation, economic viability, and regional balance in governance.
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 1.38% 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 PRESCO (+19.69% w/w) was sufficient to lift the main index higher. Also worthy of mention are gains in FBNH (+10.18% w/w) and MTNN (+2.00% w/w). As a result, the benchmark NGX-ASI improved by 138bps to close at 105,933.03 points, bringing the YTD return to a steady 2.92% and raising market capitalization to N65.59tn. In terms of trading, market activity was mixed as the average value of stocks improved 53.07% to print at N19.67bn. Meanwhile, the volume of stocks traded fell by 5.98% w/w to settle at 610.14mn units, respectively. As measured by the market breadth, investors’ sentiments improved to 1.71x (previously, 1.18x) as 58 stocks appreciated while 34 depreciated.
Meanwhile, on a sectorial level, performance was mainly bullish as Four (4) sectors under our coverage closed in the green territory. The Banking sector (+4.66% w/w) led the gainer due to buy interests in ACCESSCO (+7.69% w/w) and UBA (+3.85 w/w). Following was the Insurance sector (+1.61% w/w) on account of gains in WAPIC (+5.60% w/w) and AIICO (+4.32%). The Industrial Goods sector (+0.85% w/w) climbed owing to share price appreciation in WAPCO (+5.56% w/w) and BETAGLAS (+20.98% w/w). The Oil and Gas sector (+0.56% w/w) followed on the back of gains in ETERNA (+32.79% w/w) and MRSOIL (+3.13% w/w). On the flip side, the Consumer Goods sector was the sole laggard declining by (-0.60% w/w) due to losses in NB (-5.03% w/w) and INTBREW (-1.82% w/w).
On corporate actions, Fidelity Bank Plc has successfully increased its issued Share Capital from N26,700,000,000.00 divided into 53,400,000,00 ordinary shares of N0.50 Kobo each up to N36,700,000,000.00 by the creation of up to 20,000,000,000 additional ordinary shares of N0.50 Kobo each.
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: Stop Rates on 364-day bill Tapered at PMA
Last week, the financial system opened with a deficit balance of N76.47bn, following heightened activities at the CBN‘s Standing lending Facility (SLF) window. The trend remained the same during the week, fueled by massive interest at the CBN’s primary market auction (PMA). There were no inflows from maturity or coupon payments, however, the CBN helped investors’ appetite through CRR refunds and increased activities at the SLF window. Ultimately, last week’s PMA looked to dampen system liquidity even further, underpinned by the broad-based (strong) appetite for short-term instruments. As a result, the financial system wrapped the week in deficit, with a balance of N519.49bn. Consequently, funding rates between banks surged, with the weekly average of the Open Repo Rate (OPR) and Overnight Rate (OVN) climbing by 411bps w/w and 407bps w/w to record at 31.26% and 31.72% (previously, 27.15% and 27.65%), respectively.
Shedding light to last week’s PMA, the CBN rolled over maturing NT-bills to the tune of N670.00bn 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 N3.22trn, indicating an oversubscription rate of 4.80x. 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 148bps to record at 20.32% from 21.80% at the last auction in Jan-2025. However, the stop rate on the 91-day and 182-day bills remained unchanged at 18.00% and 18.50%.
In the same vein, the secondary market for NT-bills saw bullish sentiments, particularly underpinned by spill-over bids from the PMA which sought fulfillment. On a broader note, the dovish outlook for yields in H1-2025 has kept investors’ appetite for short-dated instruments way-above surface level. Ultimately, the average yield on NT-bills tapered by 90bps w/w to close the week at 22.53% (previously, 23.43%). Similarly, we saw buy interests at the secondary OMO segment with the average yield on OMO bills tapering by 46bps w/w to settle at 27.09% (previously, 27.55%).
This week, we expect OMO maturities to the tune of N459.60bn to bolster the liquidity of the financial system. Additionally, in the absence of any prescheduled primary market auction, activities at the CBN’s SLF window is expected to drop, with subsequent inflows from maturities (possibly) bolstering activities at CBN’s SDF window. Overall, we expect system liquidity to improve, consequently weighing in funding rates between banks. 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: Mixed Sentiments
Meanwhile, at the secondary bonds market, investors’ sentiment was bullish in tandem with the broad-based demand for government instruments, particularly keeping in view the neutral/dovish outlook of monetary policy in H1-2025. As a result, the average bonds yields in the secondary market marginally fell by 16bps to close at 20.53% (previously, 20.69%). Similarly, activities were bearish in the corporate bonds market, as the average yield on corporate bonds tapered by 26bps to settle at 23.46% (previously, 23.72%).
At the Nigerian secondary Eurobonds market, we observed a quieter atmosphere through the week, although characterised by mild bullish sentiments. That said, average yields on Eurobonds in the secondary market tapered marginally by 1bp w/w to settle at 9.31% (previously 9.32%).
Looking forward, we expect the cautious trend in the bonds market to resurface 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 Depreciated at the Official Market
Last week, the Naira depreciated by 150bps w/w at the official market to close at N1,500.41/$, from its previous close of N1,478.22/$. Meanwhile, the Naira appreciated by 340bps w/w at the parallel market to settle at N1,565.0/$ from its previous close of N1,620.0/$. Lastly, Nigeria’s external reserves fell by 68bps to settle at $39.453bn (previously, $39.772bn).
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 $2.20bn Eurobond issuance signals a positive improvement in investors’ confidence in the Nigerian economy, particularly helped by recent economic reforms. Also, the ongoing normalization of monetary policy in key advanced economies which signals that borrowing costs in the International Capital Markets (ICM) will continue to taper into 2025, provides additional support for FX supply via increased external borrowings in 2025. Additionally, the recent improvement in FCY liquidity of financial institutions will look to preserve the Naira’s strength around current level. However, the country’s crude oil production output must improve significantly (to at least 2.06mbpd, which is FG’s 2025 budget assumption) to provide the required buffer for the Naira’s value to remain strong below FG’s 2025 budget projection range of N1,500/$ – N1,700/$. Overall, in the long-run, the stability and consistent growth of the country’s crude oil output will play a key role in the Naira’s sustained appreciation below the N1,500/$ mark.
