February 17, 2025/United Capital Research
Global Markets Stabilize Amid Tariff Uncertainty, Inflation Data, and Energy Volatility
US markets saw modest gains on Monday, ending a two-week streak of sharp declines, despite fresh tariff announcements. The S&P 500 closed virtually flat, down just 0.01%, marking a subtle nod to Valentine’s Day. The primary sources of market volatility this week were headlines from Washington and tariff-related news, though pullbacks remained shallow and short-lived. On Monday, President Trump announced 25.0% tariffs on steel and aluminum imports and hinted at upcoming reciprocal taxes, which markets largely shrugged off, leading to a modest rebound from the post-jobs report selloff.
Tuesday’s session was quiet, with markets waiting for inflation data and closely watching Fed Chair Jerome Powell’s testimony. Powell reiterated that inflation expectations remained anchored and downplayed labor market risks after recent wage gains, offering some dovish sentiment. On Wednesday, the CPI report exceeded expectations, pushing the S&P 500 down about 1.00% at the open, briefly testing its 50-day moving average. Powell’s comments later in the day alleviated concerns, suggesting that one month’s data should not dictate policy and that further inflation indicators, like PPI, were needed. Despite rising Treasury yields, equities recovered, buoyed by news of a productive conversation between Presidents Trump and Putin, although this weighed on oil prices and defense stocks.
Thursday’s PPI report also came in hot, but deeper analysis revealed encouraging signs in core data, prompting markets to rally. President Trump’s announcement of reciprocal tariffs, with an implementation target of April 1, was received positively as it left room for negotiation. The S&P 500 ended the day up 1.0%, nearing an all-time high. However, Friday brought a much weaker-than-expected retail sales report, signaling a potential softness in consumer spending, which contributed to a pullback in Treasury yields. The S&P 500 ended the week up by 1.50%, but caution persisted beneath the surface, with large-cap stocks outperforming small- and mid-caps. Consumer staples, which had underperformed since August, showed signs of recovery, indicating a shift in investor sentiment towards more defensive sectors.
Global markets mostly ended higher last week, with Europe outperforming due to optimism surrounding a potential resolution in Ukraine, though skepticism and opposition from local leadership tempered expectations. Many European indices hit new all-time highs, widening the performance gap with the US since the start of the year. However, the FTSE 100 lagged behind, weighed down by some earnings disappointments.
In Asia, market performance was mixed. Hong Kong’s Hang Seng index rose by 7.00% for the week and 12.80% year-to-date, fueled by AI optimism. Meanwhile, China’s new tariffs on the US took effect, though a planned phone call between Presidents Trump and Xi had yet to occur, and reports suggested Putin had invited both leaders to a summit in May. In all, emerging markets showed mixed results, influenced by the interplay of tariffs and a weaker US dollar.
Last week, commodities experienced significant volatility, particularly in the energy sector. After three weeks of declines, oil prices initially rose but quickly reversed course following discussions between President Trump and President Putin, alongside concerns over a potential price cap in Europe. As a result, Brent Crude futures rose by 0.10% w/w. Also, ICE TTF prices, which had reached their highest levels since 2023, fell sharply by ~ 19.00% from peak to trough, ultimately ending the week down around 9.00%.
This week is expected to be quieter following a couple of busy weeks, with the US markets closed on Monday for President’s Day and a lighter economic calendar. US Investors will be watching for regional housing data and the first of February’s economic indicators, including flash PMIs on Friday, which could provide insight into global growth trends. Key US data releases include housing-related reports, such as building permits and housing starts, alongside weekly mortgage applications. The FOMC minutes on Wednesday will offer further clarity on the Fed’s policy outlook, while a series of Fed speakers throughout the week will keep attention focused on central bank direction. In terms of earnings, Walmart’s results on Thursday will be the highlight amidst a quieter stretch in the earnings season. Investors will also keep an eye on potential headlines out of Washington, including any updates on tariffs or economic policies. On the global front, Japan’s GDP and industrial production data will be in focus, as will trade data from India and China. Energy markets will continue to monitor inventory reports, including the EIA’s natural gas and oil updates. With the lighter calendar, attention will likely shift toward sentimental data, as well as any unexpected developments in the geopolitical landscape, particularly in Washington and Europe.
Macroeconomic Highlights
The Nigerian Export Promotion Council (NEPC) has announced that Nigeria’s trade volume in 2024 reached 7.2 metric tons, with a 20.70% increase in value, totalling $5.45bn and an expansion to 126 countries, signalling Nigeria’s export progress.
The Nigerian Senate has passed the 2025 Appropriation Bill, approving a record-high budget of N54.99tn marking a significant increase of N5.29tn from the initial N49.70tn proposal presented by President Bola Tinubu. President Tinubu outlined the sources of the additional revenue as N1.4tn from the Federal Inland Revenue Service (FIRS), N1.20tn from the Nigeria Customs Service (NCS), and N1.80tn From Other Government Agencies.
The Central Bank of Nigeria (CBN) has rescheduled the 299th Monetary Policy Committee meeting earlier slated for 17-Feb and 18-Feb 2025 to now be held on 19-Feb and 20-Feb 2025.
The Federal Government has taken full ownership of Keystone Bank Limited, following a ruling by the Lagos State High Court, Ikeja. The court ordered the forfeiture of shares previously held by the bank’s former shareholders, effectively transferring ownership to the Federal Government. This takeover is to enhance the bank’s stability and facilitate a smooth recapitalisation process.
The House of Representatives has passed for second reading of the four Tax Reform Bills submitted to the National Assembly by President Bola Tinubu. These bills—the Nigeria Tax Bill 2024, the Tax Administration Bill, the Nigeria Revenue Service Establishment Bill, and the Joint Revenue Board Establishment Bill—seek to overhaul Nigeria’s tax system, ensuring efficiency, transparency, and improved revenue collection.
The Nigerian Upstream Petroleum Regulatory Commission (NUPRC) has indicated that Nigeria has met the quota set for it by the Organisation of Petroleum Exporting Countries (OPEC) with oil production surging from 1.4mbpd in December 2024 to 1.5mbpd in the first month of 2025. The lowest and peak production in January were 1.66mbpd and 1.79mbpd respectively.
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 2.00% 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 DANGCEM (+21.83% w/w) was sufficient to lift the main index higher. Also worthy of mention are gains in TRANSCOR (+11.11% w/w) and MTNN (+3.61% w/w). As a result, the benchmark NGX-ASI improved by 200bps to close at 108,053.95 points, bringing the YTD return to a steady 4.98% and raising market capitalization to N67.42tn. In terms of trading, market activity declined as the average value and volume of stocks traded declined by 43.57% and 17.97% to print at N11.10bn and 500.51mn, respectively. As measured by the market breadth, investors’ sentiments improved to 2.10x (previously, 1.71x) as 65 stocks appreciated while 31 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 (-3.63% w/w) led the laggards due to sell-offs in BUAFOODS (-10.00% w/w) and NB (-2.94 w/w). Trailing was the Oil and Gas sector (-2.30% w/w) on account of loss in CONOIL (-1.86% w/w). The Banking sector (-0.24% w/w) declined owing to share price depreciation in FIDELITY (-6.25% w/w) and UBA (-1.15% w/w). On the other side of the coin, the Industrial Goods sector (+10.36% w/w) led the gainers on the back of gains in DANGCEM (+21.83% w/w) and WAPCO (+3.94% w/w). Following was the Insurance sector climbing by (+2.52% w/w) owing to gains in SUNUASSU (+27.94% w/w) and CORNERST (+5.15% w/w).
On corporate actions, Haldane Mccall Plc has released its audited financial statement for the year ended 31-Dec-2024, announcing a profit before tax (PBT) of N1.01bn and a profit after tax (PAT) of N0.68bn.
FBN Holdings Plc has announced a change of its name to First HoldCo Plc (FirstHoldCo). This naming conversion will also be adopted across all its subsidiaries.
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: Bullish Sentiments Despite Tightened System Liquidity
Last week, the financial system began with a deficit balance of (N508.76bn), particularly sponsored by elevated activities at the CBN Standing Lending Facility (SLF) window. As the days went by, the deficit widened, following the CBN’s deployment of Open Market Operations (OMO). Consequent of the illiquidity in the financial system, funding rates between banks climbed, with the weekly average of the Open Repo Rate (OPR) and Overnight Rate (OVN) climbing by 120bps w/w and 107bps w/w to record at 32.46% and 32.79% (previously, 31.26% and 31.72%), respectively. Ultimately, following heightened activities at the CBN SLF window and Open Market Operations, the financial system wrapped up the week with a huge deficit balance of (N3.10trn).
Shedding light to last week’s PMA, the CBN conducted Open Market Operations (OMO) to mop up liquidity to the tune of N600.00bn, across the 355-day and 362-day OMO bills, N300.00bn a piece. The auction was met with massive demand (as expected), which resulted in a sharp drop in stop rates. Total demand amounted to a whopping N1.92trn, indicating a bid-cover ratio of 3.19x. Ultimately, stop rates on the 355-day and 362-day OMO bills tapered by 133bps and 120bps to record at 21.32% and 21.45%, respectively.
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 45bps w/w to close the week at 22.08% (previously, 22.53%). Similarly, we saw buy interests at the secondary OMO segment with the average yield on OMO bills tapering by 67bps w/w to settle at 26.42% (previously, 27.09%).
This week, we expect coupon payments of N281.67bn and OMO maturities of N10.00bn to bolster the liquidity of the financial system. However, the biggest market drivers will be the anticipated rebased report for CPI inflation as well as the outcome of MPC’s 299th meeting slated for 19 and 20 Feb-2025. There will also be an NT-bills auction, as the CBN sets out to roll over maturing bills to the tune of N1.24trn. We expect stop rates to drop further at the auction. Overall, 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 be greatly influenced by the outcome of MPC’s 299th meeting.
Bond Market: Bullish Sentiments
Meanwhile, in 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 yield in the secondary market fell by 28bps to close at 20.25% (previously, 20.53%). Similarly, activities were bearish in the corporate bonds market, as the average yield on corporate bonds tapered by 48bps to settle at 22.98% (previously, 23.46%).
At the Nigerian secondary Eurobonds market, we observed bullish sentiments, owing to a blend of stronger Naira fundamentals and the high premium offered in SSA dollar-denominated assets (Nigeria Eurobonds inclusive). That said, average yields on Eurobonds in the secondary market tapered by 24bps w/w to settle at 9.31% (previously 9.32%).
Looking forward, we expect the current bullish trend in the bonds market to persist as investors await the rebased GDP and CPI inflation report as well as the outcome of MPC’s 299th meeting slated for 19 and 20 Feb-2025. We expect a neutral/dovish stance by the MPC, subject to the complexion of the rebased CPI Inflation index/rate. Meanwhile, we expect 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 55bps w/w at the official market to close at N1,508.66/$, from its previous close of N1,500.41/$. Meanwhile, the Naira appreciated by 32bps w/w at the parallel market to settle at N1,560.0/$ from its previous close of N1,565.0/$. Lastly, Nigeria’s external reserves fell by 90bps to settle at $39.097bn (previously, $39.453bn).
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 $2.20bn Eurobond issuance signals a positive improvement in investors’ confidence in the Nigerian economy, particularly helped by recent economic reforms. Also, the ongoing normalization of monetary policy in key advanced economies which signals that borrowing costs in the International Capital Markets (ICM) will continue to taper into 2025, provides additional support for FX supply via increased external borrowings in 2025. Additionally, the recent improvement in FCY liquidity of financial institutions will look to preserve Naira’s strength around current level. However, the country’s crude oil production output must improve significantly (to at least 2.06mbpd, which is FG’s 2025 budget assumption) to provide the required buffer for the Naira’s value to remain strong below FG’s 2025 budget projection range of N1,500/$ – N1,700/$. Overall, in the long-run, the stability and consistent growth of the country’s crude oil output will play a key role in Naira’s sustained appreciation below the N1,500/$ mark.
