February 24, 2025/United Capital Research
Global Market: Market Pullback as Economic Uncertainty and Geopolitical Concerns Weigh on Investor Sentiment.
Last week was relatively quiet in terms of major headlines, as most key economic data had already been released and significant deadlines, such as the debt ceiling and tariff decisions, were still a few weeks away. Initially, the S&P 500 edged to a new all-time high, but underlying caution became evident with defensive sectors outperforming and investors favoring larger-cap stocks. However, by Wednesday, momentum began to unwind, and over the next two days, the market experienced a sharp pullback, triggered in part by a slump in services PMI, which contracted for the first time in over two years, decreasing to 49.7 points in February from 52.9 points in Jan-2025. This compounded existing concerns about growing uncertainty potentially stifling economic activity.
Despite the recent resilience in the S&P 500, which had weathered a series of negative headlines from Washington, the market showed vulnerability this week. Retail sales missed expectations, and inflation expectations held steady at 4.30%. Adding fuel to the downside was a report on a new COVID strain, which dampened investor sentiment, particularly in travel stocks. The S&P 500 closed the week down 1.70%, just above its 50-day moving average, while mid and small-cap indices saw more significant declines, reversing all post-election gains.
Global equity markets closed mostly lower, though declines were relatively muted. In Europe, major indices finished the week down modestly, with Germany’s DAX underperforming, falling by 1.00% w/w. The drop came ahead of the country’s elections, while flash PMI readings for the region indicated mixed results. Manufacturing remained in contraction, though there was slight improvement, and services showed signs of moderation. Meanwhile, price components in both sectors rose, reflecting ongoing inflationary pressures.
In Asia, the Hong Kong Hang Seng index surged ~ 4.00% for the week, driven by a rally in technology stocks. The market sentiment was bolstered by President Xi’s recent meeting with industry leaders, which reassured investors that the long-running tech crackdown may be over. Alibaba’s strong earnings report further supported the rally, adding momentum to the post-DeepSeek rebound in the region’s tech sector.
Oil prices saw steady gains throughout the week but reversed sharply on Friday, driven by concerns over weaker demand following economic data and rumors of a potential COVID resurgence. Reports that a new mineral proposal could aid Ukraine negotiations also influenced sentiment. Brent crude futures were down by 0.40% w/w. Meanwhile, U.S. natural gas prices surged due to cold weather and its role in trade talks, while European prices declined amid ongoing Ukraine negotiations and weak demand.
As markets prepare for the week ahead, there are several key economic reports and central bank events that will likely shape investor sentiment. U.S. economic data includes updates on consumer confidence, housing market activity, and regional manufacturing surveys, while global markets will focus on inflation readings from Europe and Mexico, along with Brazil’s consumer confidence and Argentina’s economic performance. The Federal Reserve’s balance sheet update and several speeches from central bank officials, including Fed members Barkin, Bostic, and Barr, will add to market dynamics. Earnings season continues with major reports from companies across various sectors, including energy, tech, and consumer goods. Notably, Apple’s product launch on Wednesday could capture investor attention. Central bank rate decisions from South Korea and ongoing auctions, including T-bills and Treasury notes, will also influence market expectations. The week’s culmination will be influenced by January PCE data and global manufacturing indices, particularly in China and Europe, providing insights into inflation and economic growth prospects.
Macroeconomic Highlights
Following the rebasing of the Consumer Price Index (CPI), Nigeria’s headline inflation dropped to 24.48% y/y in Jan-2025 from 34.80% in Dec-2024 which was calculated using the previous methodology. The rebased food inflation stood at 26.08% y/y in Jan-2025 indicating a 13.76% decline from 39.84% recorded in Dec-2024.
The National Bureau of Statistics (NBS) has announced the introduction of special inflation indices to its monthly Consumer Price Index (CPI) report. The new indices include the Farm Produce Index, Energy Index, Services Index, Goods Index, and Imported Food Index. These additions are part of the improvements made to the rebasing of the CPI, aimed at providing more comprehensive data for policymakers.
The Senate and the House of Representatives have rescinded their decision on the passage of the 2025 budget bill, citing the need to correct errors in the allocations to capital and recurrent expenditures. Despite the reversal, the overall budget size remains unchanged at N54.9tn. The revised bill now allocates N13.588tn to recurrent expenditure, an increase of N524.00bn, while capital expenditure has been reduced by the same amount to N23.439tn.
Nigeria’s broad money supply (M3) rose to N110.98tn in Jan-2025, marking a 17.3% y/y increase from N94.61tn recorded in Jan-2024. This expansion highlights the growing liquidity in the economy, fueled by both net foreign assets and net domestic assets. The increase in M3 money supply provides a holistic picture of Nigeria’s monetary dynamics. Over the past year, the country’s money supply has expanded steadily, with notable jumps in H2- 2024.
The Central Bank of Nigeria (CBN) has ordered bank directors with non-performing insider-related loans to immediately resign from their positions as part of efforts to strengthen corporate governance and reduce credit risk exposure in the banking sector. The directive also requires banks to regularise all insider-related facilities that exceed the statutory limits within 180 days. The CBN also noted that any insider-related facility previously approved without a specific timeline must now be adjusted within the given period.
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) has retained the country’s benchmark interest rate at 27.50% following its 299th meeting. The committee also retained the asymmetric corridor around the MPR at +500/-100 basis points, the Cash Reserve Ratio of Deposit Money Banks at 50.00% and Merchant Banks at 16.00% and the Liquidity Ratio at 30.00%.
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 0.41% 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 BUAFOODS (+11.91% w/w) was sufficient to lift the main index higher. Also worthy of mention are gains in DANGSUGA (+15.00% w/w) and NB (+3.03% w/w). As a result, the benchmark NGX-ASI improved by 41bps to close at 108,497.40 points, bringing the YTD return to a steady 5.41% and raising market capitalization to N67.61tn. In terms of trading, market activity declined as the average value and volume of stocks traded declined by 10.81% and 20.06% to print at N9.90bn and 400.10mn, respectively. As measured by the market breadth, investors’ sentiments declined to 0.48x (previously, 2.10x) as 28 stocks appreciated while 58 depreciated.
Meanwhile, on a sectorial level, performance was mainly bullish as Three (3) sectors under our coverage closed in the green territory. The Consumer Goods sector (+6.55% w/w) led the gainers due to buy interests in BUAFOODS (+11.91% w/w) and DANGSUGA (+15,00 w/w). Following was the Insurance sector (+1.47% w/w) on account of gains in WAPIC (+9.39% w/w) and SOVRENIN (+11.86% w/w). The Industrial Goods sector (+0.05% w/w) climbed owing to share price appreciation in BETAGLAS (+4.88% w/w) and WAPCO (+0.13% w/w). On the other side of the coin, the Banking sector (-3.22% w/w) led the laggards on the back of selloffs in ZENITHBA (-4.26% w/w) and ACCESSCO (-5.86% w/w). Following was the Oil and Gas sector declined by (-2.87% w/w) owing to losses in ETERNA (-9.78% w/w) and CONOIL (-0.53% w/w).
On corporate actions, VFD Group Plc strengthens commitment to VFD Microfinance Bank (V BANK) with a N5.00 billion investment.
Dangote Cement Plc plans to invest $400.00 million to upscale a second production line at its Mugher cement plant in Ethiopia.
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: Monetary Policy Tilts Neutral in 299th Meeting
Last week, the financial system began with a deficit balance of N805.36bn, particularly sponsored by elevated activities at the CBN Standing Lending Facility (SLF) window. The liquidity situation of the financial system remained in the deficit terrain throughout the week, despite inflows from coupon payments of N281.67bn and OMO maturities of N10.00bn. Meanwhile, the MPC held its 299th meeting during the week. All liquidity fundamentals (pre-MPC meeting) remained unchanged. For context, the asymmetric corridor of +500/-100 around the MPR (which has a direct relationship with system liquidity) remained unchanged. Banks’ Cash Reserve Ratio (CRR) and Liquidity Ratio (LR) were equally left unchanged at 50.00% (CRR for Commercial banks), 16.00% (CRR for Merchant banks), and 30.00% (LR), respectively.
Also contributing to the deficit situation was last week’s primary market auction (PMA), which was mildly oversold. Ultimately, the interaction of aforementioned factors looked to encourage the system illiquidity situation, coupled with the insignificant inflows from OMO maturities and coupon payments. As a result, funding rates between banks remained elevated, above the 30.00% mark. For context, the weekly average of the Open Repo Rate (OPR) and Overnight Rate (OVN) tapered by 13bps w/w and 2bps w/w to record at 32.33% and 32.77% (previously, 32.46% and 32.79%), respectively.
Shedding light to last week’s PMA, the CBN conducted NT-Bills auction to rollover maturing bills to the tune of N700.00bn, across the 91-day, 182-day and 364-bills, N80.00bn, N120.00bn, and N500.00bn, respectively. The auction was met with massive demand (as expected), which resulted in a sharp drop in stop rates. Total demand amounted to a whopping N2.41trn, indicating a bid-cover ratio of 3.44x. Interestingly, the CBN over-allotted the auction by allotting N774.13bn worth of bills, which indicates an allotment rate of 1.11x. Ultimately, stop rates on the 91-day, 182-day and 364-bills tapered by 100bps, 50bps and 189bps to record at 17.00%, 18.00%, and 18.43%, 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 above surface level. That said, the average yield on NT-bills tapered by 188bps w/w to close the week at 20.20% (previously, 22.08%). Similarly, we saw buy interests at the secondary OMO segment with the average yield on OMO bills tapering by 145bps w/w to settle at 24.97% (previously, 26.42%).
This week, we expect OMO maturities to the tune of a whopping of N1.03trn to hit the system, possibly rescuing the persistent deficit situation of the financial system. Additionally, we expect coupon payments to the tune of N113.62bn to help keep system liquidity above surface(deficit)-level. We expect the CBN’s HOLD stance to cast a dovish countenance over the money market, thereby allowing movements in system liquidity to determine the strength of the downward trend of short-term rates for the rest of Q1-2025. Ultimately, we expect short-term rates to hold around current levels for the rest of Q1-2025.
Bond Market: Bullish Sentiments
In the same vein, investors’ sentiment was bullish in the secondary bonds market, in tandem with the broad-based demand for government instruments, particularly keeping in view the neutral/dovish outlook of monetary policy in H1-2025. Consequently, the average bonds yield in the secondary market fell by 78bps to close at 19.47% (previously, 20.25%). Similarly, activities were bullish in the corporate bonds market, as the average yield on corporate bonds tapered by 118bps to settle at 21.80% (previously, 22.98%).
At the Nigerian secondary Eurobonds market, we observed persistent 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 38bps w/w to settle at 8.93% (previously 9.31%).
Looking forward, we expect the mixed sentiments in the bonds market, with bond yields likely to remain around current levels for the rest of Q1-2025. This will be particularly influenced by the prospects of the expected yield curve normalization in 2025. 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 Appreciated at the Official Market
Last week, the Naira appreciated by 57bps w/w at the official market to close at N1,501.08/$, from its previous close of N1,509.70/$. Similarly, the Naira appreciated by 353bps w/w at the parallel market to settle at N1,505.0/$ from its previous close of N1,560.0/$. Lastly, Nigeria’s external reserves fell by 92bps to settle at $38.738bn (previously, $39.097bn).
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 $2.20bn Eurobond issuance signals a positive improvement in investors’ confidence in the Nigerian economy, particularly helped by recent economic reforms. Also, the ongoing normalization of monetary policy in key advanced economies which signals that borrowing costs in the International Capital Markets (ICM) will continue to taper into 2025, provides additional support for FX supply via increased external borrowings in 2025. Additionally, the recent improvement in FCY liquidity of financial institutions will look to preserve Naira’s strength around the current level. However, the country’s crude oil production output must improve significantly (to at least 2.06mbpd, which is FG’s 2025 budget assumption) to provide the required buffer for the Naira’s value to remain strong below FG’s 2025 budget projection range of N1,500/$ – 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.
