March 10, 2025/United Capital Research
Global Market Volatility: Tariff Uncertainty, European Fiscal Shifts, and Technical Breakdowns Drive Market Moves
Early Monday, optimism surrounding potential tariff relief for Mexico and Canada helped lift sentiment, but President Trump dashed those hopes later in the session, sending the S&P 500 sharply lower and reversing all of the previous Friday’s gains, breaking below the 100-day moving average. The tariffs on Mexico and Canada officially took effect on Tuesday, though some goods under the USMCA were exempted for a month. While markets view the tariffs as a bargaining tool, the uncertainty remains as deadlines approach, with reciprocal tariffs due by 02-Apr. Trump hinted that some could be implemented as soon as next week, while steel tariffs are set for 12-Mar. Traders eyed the 200-day moving average as a key support level after the break below the 100-day, leading to a test of this level midweek. Although there were some mechanical rallies, the S&P 500 finally hit the 200-day level for the first time in 335 sessions. The index briefly fell to retest late September highs, marking a near 50.00% retracement, before rallying into the close.
International equities continued their outperformance versus US stocks last week, however, the biggest developments came from Germany. Germany entered the week amid coalition talks following its 23-Feb elections, with the DAX already up ~10.00% YTD. The market experienced volatility after the results, but a significant shift occurred on 04-March when Friedrich Merz, likely the next Chancellor, announced military spending would be exempt from strict fiscal rules. This decision, prompted by the escalating US-Ukraine tensions, was paired with the creation of a €500.00 bn infrastructure fund. German yields surged 30bps, the largest jump since reunification, pushing the 10-year yield to 2.90% from 2.40% in February. The DAX initially dropped by 3.00% but quickly regained ground as growth optimism emerged, finishing the week higher. The EU also unveiled an $800.00 bn defense spending plan, echoing Germany’s fiscal exemptions. European indices closed flat to modestly higher, with the DAX up by 2.00% w/w and the CAC 40 up 0.10% w/w. Aerospace, defense, and construction stocks led the rally, while the ECB’s cautious stance highlighted ongoing uncertainty in the region.
China held their National People’s Congress (NPC) session, which generated a lot of headlines on economic policy. Hong Kong’s market surged by 5.60% w/w, led by tech stocks, while Shanghai Composite also gained 1.60% w/w. The Nikkei 225 fell by 0.7% w/w, and it is one of the only major indexes down YTD versus the S&P 500. The increasing strength of the Yen plays a role in this performance. The Yen has strengthened by ~6.76% from ¥158/$ on 14th Jan to ¥148/$ last week. Meanwhile the Nikkei has fallen by 7.50% YTD and is trading below its major moving averages.
This week, investors will closely monitor inflation data and inflation expectations across key global markets. The focus will be on inflation prints from various regions, including the U.S. CPI report on Wednesday and key inflation readings from Brazil, Turkey, and the Eurozone. This data will be critical in shaping market sentiment, as investors look for signs that inflationary pressures are easing or remaining persistent. With the US Fed currently in its media blackout period, attention will shift to earnings and economic data as a barometer of broader economic health.
On the geopolitical front, the U.S. faces a crucial deadline on Friday for a potential budget deal, with the specter of a government shutdown looming, though signs suggest this may be averted. Key economic data will also feature prominently next week, including U.S. job openings, the JOLTS report, and the NFIB optimism index. On the global stage, attention will be on economic indicators from Japan, Germany, and Brazil, along with central bank policy decisions, including Canada’s rate decision on Wednesday. Overall, it promises to be a week of critical data and potentially significant market-moving events.
Macroeconomic Highlights
Nigeria’s foreign exchange reserves dropped by $1.31bn in Feb-2025, reflecting ongoing external pressures amid a stronger naira. The reserves declined from $39.72bn on 31-Jan-2025, to $38.42bn on 28-Feb-2025, marking a 3.30% drop within the month. The decline recorded in February is slightly higher than that of Jan-2025 when the reserves dipped by $1.16bn.
The Federal Government’s indebtedness to the Nigerian National Petroleum Company Limited (NNPCL) as exchange rate differential (subsidy) for the importation of Premium Motor Spirit (petrol) rose to N7.74tn as of Sep-2024. According to the FAAC document, the government is working out measures to settle the N7.74tn fuel subsidy debt within a period of 210 days.
The Federal Government has announced plans to secure a total investment of $122.20bn to diversify the country’s energy sources, reduce dependence on the national grid, and enhance the overall stability and sustainability of the nation’s energy infrastructure. The Government also added that $192.00mn would be incurred over five years between 2024 to 2028 to boost transmission capacity nationwide.
The African Development Bank (AFDB) has announced plans to provide a $230.00mn trade finance package for Access Bank Plc to support trade finance activities and ease foreign exchange liquidity constraints for small and medium-sized enterprises in Nigeria. The package comprises a $170.00mn Trade Finance Line of Credit with a 3.5-year tenure and a $60.00mn Transaction Guarantee with a three-year tenure. The transaction guarantee will allow Access Bank to act as an Issuing Bank for trade finance transactions, while AfDB will provide up to 100.00% risk coverage to Confirming Banks against non-payment risks linked to letters of credit and other trade finance instruments issued by Access Bank.
Seplat Energy Plc has announced that it is planning to operate an additional 13 new onshore oil wells in 2025, this plan also includes the replacement of an inlet gas exchanger on the East Area Project NGL project offshore and other capital expenses projects. Seplat also disclosed the replacement of an inlet gas exchanger on the East Area Project NGL project offshore and other capital expenses projects.
Nigeria has officially joined the European Bank for Reconstruction and Development (EBRD) as its 77th shareholder, marking a significant step in the country’s engagement with international financial institutions. However, for Nigeria to become a recipient of EBRD investments, the amendment must receive formal acceptance from a majority of the Bank’s shareholders.
This week, we expect the macroeconomic environment to be relatively quiet in the absence of any major economic data releases.
Domestic Equities: The Bears Maintained Momentum…NGX-ASI Down by 1.19% w/w
Last week, the domestic equities market closed on a negative note as the bears dominated the market. Investors’ appetites in the market have been sustained by the mid-long-term opportunities present in the market. Notably, share price depreciation in TRANSCOR (-17.72% w/w) dragged the main index lower. Also worthy of mention are losses in MTNN (-3.18% w/w) and ACCESSCO (-6.84% w/w). As a result, the benchmark NGX-ASI declined by 119bps to close at 106,538.60 points, bringing the YTD return to a steady 3.51% and raising market capitalization to N67.72tn. In terms of trading, market activity declined as the average value and volume of stocks traded declined by 8.07% and 1.62% to print at N9.45bn and 363.61mn, respectively. As measured by the market breadth, investors’ sentiments improved to 0.52x (previously, 0.45x) as 30 stocks appreciated while 58 depreciated.
Meanwhile, on a sectorial level, performance was bearish as all Five (5) sectors under our coverage closed in the red territory. The Banking sector (-2.87% w/w) led the laggards due to sell offs in ACCESSCO (-6.84% w/w) and ZENITHBA (-1.14% w/w). Following was the Insurance sector (-2.33% w/w) on account of losses in AIICO (-5.88% w/w) and WAPIC (-3.85% w/w). The Consumer Goods sector (-1.72% w/w) declined owing to share price depreciation in DANGSUGA (-7.50% w/w) and NB (-8.05% w/w). Following was the Oil and Gas sector declining by (-0.19% w/w) owing to losses in ETERNA (-18.69% w/w) and MRSOIL (-5.51% w/w). Lastly, the Industrial sector (-0.01% w/w) was almost muted on the back of sell offs in CUTIX (-2.76% w/w).
On corporate actions, Transnational Corporation Plc has announced a final dividend of 60 kobo with a qualification date of 27-Mar-2025 and a payment date of 16-Apr-2025.
Africa Prudential Plc has announced a final dividend of 60 kobo with a qualification date of 21-Mar-2025 and a payment date of 21-Mar-2025. They also announced a proposed bonus of one ordinary share for every one ordinary share held by each shareholder as of the qualification date.
Seplat Energy Plc has announced a final dividend of US3.6 cents with a qualification date of 09-May-2025 and a payment date on or around 23-May-2025.
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 Taper Further
Last week, the financial system opened with a surplus balance of N582.95bn. During the week, there was an inflow of N1.25tn from maturing NT-bills. However, this was short-lived following primary market activities. Additionally, the Apex Bank conducted a mop-up activity via OMO auction to mop up the excess liquidity in the financial system. As a result, the economic system closed the week with a deficit balance of N1.32tn. Consequently, funding rates among banks inched higher.
The Central Bank of Nigeria (CBN) conducted an NT-bill auction with an offer size of N650.00bn across the 91-day, 182-day, and 364-day bills. At the auction, investors’ demand was strong, as total subscriptions printed at N1.92tn, indicating a bid-to-cover of 2.96x. The bids were majorly skewed towards the longer-tenured instrument, “364-day bill”, which received total bids of N1.80tn. Notably, the Apex Bank oversold the auction, allotting a total of N830.44bn. As a result, the stop rates on the 182-day and 364-day bills declined by 25bps and 61bps from 18.00% and 18.43% to settle at 17.75% and 17.82%, respectively. Meanwhile, the stop rate on the 91-day remained unchanged at 17.00%.
Also, the Central Bank conducted an OMO auction with an offer size of N600.00bn across the 355-day and 362-day bills. Investors’ demand was strong at the auction, as total subscriptions printed at N1.88tn, indicating an oversubscription rate of 3.13x. At the end of the auction, the Apex Bank over-allotted the auction, selling a total of 1.68tn worth of bills. As a result, the stop rates on the 355-day and 362-day bills declined by 213bps and 200bps to settle at 19.19% and 19.45%, respectively.
In the secondary NT-bills market, we observed bullish sentiments as the dovish outlook for yields in H1-2025 kept investors’ appetite for short-dated instruments above the surface level. Also, investors looked to fulfil their unmet bids from the primary market. Similarly, we saw buy interests in the secondary OMO segment.
This week, we expect the Central Bank of Nigeria to conduct an NT-bill auction, offering a total of N550.00bn worth of bills across the 91-day, 182-day, and 365-day bills. We expect investors’ demand to be strong at the auction, majorly skewed towards the “365-day bill, ” as seen in previous auctions. Additionally, we expect the stop rates to inch lower at the auction. Meanwhile, due to system illiquidity, we expect FTD rates and money market rates to hover at current levels with the possibility of ticking higher barring any substantial inflows to reflate the financial system. Notably, the system liquidity strain might persist as the CBN conduct the NT-bills auction which is expected to intensify the system illiquidity level. Although we anticipate the inflow of N162.17bn from maturing NT-bills, however, this is insufficient to bolster liquidity given the current deficit level in the financial system.
Bond Market: Bullish Sentiments Prevail in the Secondary Market
The secondary bonds market was relatively muted early last week as investors focused on the outcome of the NT-bills Primary Market Auction (PMA). Nevertheless, we witnessed some buy interests in the market as market participants looked to lock in their funds at current rates buoyed by the downward pressure on rates and yields in the fixed-income market.
Meanwhile, in the Eurobond market, we observed mixed sentiments across the curve in the Nigerian secondary Eurobonds market. On one hand, investors were cherry-picking instruments given the recent stability in the Foreign Exchange (FX) market. However, on the flip side, cautious trading activities persist due to the uncertainties surrounding interest rate decisions and inflation progress in the U.S.
Looking forward, we expect the bullish sentiments in the bond market to persist. However, there is a chance that bond yields will likely remain around current levels for the rest of Q1-2025. 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 Depreciated at the Official Market
Last week, the Naira depreciated by 114bps w/w at the official market to close at N1,517.24/$, from its previous close of N1,500.15/$. Similarly, the Naira depreciated by 467bps w/w at the parallel market to settle at N1,570.0/$ from its previous close of N1,500.0/$. Lastly, Nigeria’s external reserves fell by 39bps to settle at $38.348bn (previously, $38.498bn).
This week, we expect the recent stability of the Naira to be sustained in the short term, following improved FX supply and weaker FX demand. CBN’s intervention at the FX market has also helped the Naira’s performance in the market. Similarly, the clearance of all viable FX backlogs have fostered the appreciation of the Naira as investors’ confidence improves. Additionally, the recent improvement in FCY liquidity of financial institutions will look to preserve Naira’s strength around the current level. However, the country’s crude oil production output must improve significantly (to at least 2.06mbpd, which is FG’s 2025 budget assumption) to provide the required buffer for the Naira’s value to remain strong below FG’s 2025 budget projection range of N1,500/$ – N1,700/$. Overall, the stability and consistent growth of the country’s crude oil output will play a key role in Naira’s sustained appreciation below the N1,500/$ mark.
