March 24, 2025/United Capital Update

Global Markets: Central Bank Policies, Trade Risks, and Regional Stock Performance.
March proved challenging for U.S. stocks. The S&P 500 saw its longest losing streak in months, declining for four straight weeks and experiencing a rapid 10.00% drop amid increased market volatility. However, The S&P 500 rebounded by roughly 2.00% on Friday, recovering some of its prior losses. Also, Monday’s rally marked the first back-to-back gains since February 19th. Despite this, the week’s trading remained erratic, with bulls ultimately gaining a slight advantage, supported by strong closing flows and a midday boost attributed to President Trump. The Dow led gains, rising by 1.20% w/w, while tech stocks lagged, and value continued to outperform growth for the fifth straight week.

The Federal Reserve’s March policy meeting, held on Wednesday, marked the week’s key economic event. As anticipated, the Fed maintained its target rate agt 4.25%-4.5% and reaffirmed its projection of 50bps in rate cuts for the year. However, officials revised their inflation outlook upwards for 2025, while downgrading GDP growth expectations. Despite increased economic uncertainty, Fed Chair Powell remained optimistic, emphasizing the transitory nature of tariff impacts and aligning long-term inflation expectations with the 2.00% target. Market reaction was largely positive, with stock indexes rising.

In Europe, the STOXX Europe 600 Index rose by 0.56% w/w, breaking a two-week losing streak, driven by optimism over potential government spending. However, concerns over impending U.S. tariffs in early April tempered gains. Major stock indexes showed mixed performance: Germany’s DAX dropped by 0.41% w/w, France’s CAC 40 posted a modest gain, and Italy’s FTSE MIB advanced by 0.98% w/w. The UK’s FTSE 100 closed the week slightly higher.

Recent monetary policy announcements underscored growing trade-related uncertainty, with central banks grappling to balance economic growth risks against the threat of rising inflation. The Bank of England kept rates at 4.50%, with only one out of nine policymakers voting for a reduction, signaling a hawkish stance despite expectations for a 7–2 split. Meanwhile, Sweden’s Riksbank held its rate at 2.25%, noting persistent inflation above target and suggesting rates may remain steady through early 2028, unless circumstances change. In contrast, the Swiss National Bank reduced its policy rate by 25bps to 0.25%, citing subdued inflation and heightened economic risks, though further cuts seem unlikely.

Meanwhile, Japanese stock markets saw notable gains, with the Nikkei 225 up by 1.68% w/w and the broader TOPIX rising by 3.25%, bolstered by foreign investor interest in Japanese trading companies. The Bank of Japan (BoJ) held its short-term policy rate steady at 0.5%, maintaining a cautious stance as it evaluates the potential impact of higher U.S. tariffs on Japan’s economy. The BoJ’s economic outlook remained largely unchanged, with Governor Kazuo Ueda acknowledging trade risks. Meanwhile, mainland Chinese stocks pulled back after two weeks of gains, with the CSI 300 Index dropping by 2.29% w/w and the Shanghai Composite falling by 1.60% w/w. Hong Kong’s Hang Seng Index also declined by 1.13% w/w.

As we head into the new week, global markets will closely monitor any updates regarding U.S. trade policy, particularly concerning potential tariffs, as this could add further volatility to already cautious investor sentiment. The focus will also be on upcoming economic data and central bank meetings in regions where inflationary pressures and growth risks are key considerations. Investors will be closely watching corporate earnings reports and any shifts in government spending plans in major economies. This mix of macroeconomic factors could shape market sentiment, with expectations for more measured rate moves likely to support risk assets in the short term.

Macroeconomic Highlights
Nigeria’s inflation rate dropped for the second consecutive month to 23.18% in Feb-2025 from 24.48% recorded in January. Despite this overall decline in inflation, three states – Edo, Enugu, and Sokoto – recorded inflation rates exceeding 30.00%.

According to the CBN’s latest data on external sector payments, Nigeria’s total debt service payments dropped significantly from $540.00mn in Jan-2025 to $276.00mn in Feb-2025. This decline comes amid ongoing efforts by the federal government to restructure its debt portfolio, improve dollar liquidity, and ease pressure on the foreign exchange market.

The Nigeria Extractive Industries Transparency Initiative (NEITI) has revealed that the Federation Accounts Allocation Committee (FAAC) disbursed an unprecedented N15.26tn to the federal, state, and local governments in 2024. This marks a historic high in revenue distribution and a 43.00% increase compared to previous years.

The Nigerian House of Representatives has passed four key tax reform bills aimed at propelling Nigeria’s economy, completing their third reading on Tuesday following detailed deliberations. These reforms are the Nigerian Tax Administration Bill, Nigeria Revenue Service (Establishment) Bill, Joint Revenue Board Bill, and Nigeria Tax Bill.

Dangote refinery has officially announced that it is halting the supply of petroleum products in naira, this comes following reports that the Nigerian National Petroleum Company Limited (NNPCL) might have stopped the sale of crude in naira to the Dangote refinery. The group has however stated that as soon as they receive an allocation of naira-denominated crude cargoes from NNPC they will promptly resume petroleum product sales in naira.

This week, we expect the macroeconomic environment to be relatively quiet in the absence of the release of any major economic data.

Domestic Equities: The Bears Maintained Momentum…NGX-ASI Down by 0.97% w/w
Last week, the domestic equities market closed on a negative note as the bears dominated the market. However, investors’ appetite in the market have been sustained by the mid-long-term opportunities present in the market. Notably, share price depreciation in BUACEMEN (-10.00% w/w) dragged the main index lower. Also worthy of mention are losses in TRANSCOR (-7.84% w/w) and GTCO (-4.59% w/w). As a result, the benchmark NGX-ASI declined by 97bps to close at 104,962.96 points, bringing the YTD return to a steady 1.98% and lowering market capitalization to N65.82tn. In terms of trading, market activity declined as the average value and volume of stocks traded declined by 24.33% and 11.55% to print at N9.61bn and 580.36mn units respectively. As measured by the market breadth, investors’ sentiments declined to 0.67x (previously, 0.82x) as 32 stocks appreciated while 48 depreciated.

Meanwhile, on a sectorial level, performance was bearish as Four (4) out of Five (5) sectors under our coverage closed in the red territory. The Industrial Goods sector (-3.39% w/w) led the laggards due to sell offs in BUACEMEN (-10.00% w/w) and CUTIX (-2.42% w/w). Following was the Insurance sector (-2.87% w/w) on account of losses in WAPIC (-7.50% w/w) and AIICO (-3.75% w/w). The Banking sector (-2.55% w/w) declined on account of losses in ZENITHBA (-4.60% w/w) and ACCESSCO (-5.56% w/w). The Oil & Gas sector (-1.08%) followed owing to share price depreciation in MRSOIL (-8.99% w/w). On the flipside, the Consumer Goods sector (+0.06% w/w) was the only gainer on the back of buy interests in NB (+3.59% w/w) and DANGSUGA (+2.71% w/w).

On corporate actions, Nigerian Breweries Plc has acquired the remaining 20.00% minority shares in Distell Wines and Spirits Nigeria Limited.

Looking forward, the equities market is expected to improve marginally as investors position for 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 at the Auction Inched Higher
Last week, the financial system opened with a deficit balance of N700.29bn. During the week, system liquidity remained deflated despite the inflows of N398.65bn from coupon payments. The Central Bank’s primary market activities (NT-bills auction) also worsened the liquidity in the system. As a result, the financial system closed the week with a deficit balance of N1.96tn. Consequently, the average Open Repo Rate (OPR) and Overnight Rate (OVN) climbed by 18bps and 19bps w/w from 32.24% and 32.69% to settle at 32.42% and 32.88%, respectively.

The CBN conducted an NT-bill auction with an offer size of N800.00bn across the 91-day, 182-day, and 364-day bills. At the auction, investors’ demand was relatively strong, as total subscriptions printed at N901.04bn, indicating an oversubscription rate of 1.13x. The bids were majorly skewed towards the longer-tenured instrument, “364-day bill”, which received total bids of N831.42bn. Notably, the Apex Bank undersold the auction, allotting a total of N503.92bn. Surprisingly, the stop rates on the 91-day, 182-day, and 364-day bills climbed by 100bps, 71bps, and 155bps from 17.00%, 17.79%, and 18.39% to settle at 18.00%, 18.50%, and 19.94%, respectively.

In the secondary NT-bills market, bearish activities resumed across the curve following the recent uptick in stop rates at the primary market auction. As a result, the average yield on NT-bills climbed by 11bps w/w to close at 19.28% (previously, 19.17%). Similarly, the average yield on OMO bills increased by 12bps w/w to settle at 22.52% (previously, 22.40%).

This week, we expect the Central Bank to conduct an NT-bills auction with an offer size of N700.00bn across the 91-day, 182-day, and 364-day bills. At the auction, we expect investors’ demand for high rates to likely persist, but we do not think the Apex Bank will accommodate a further climb in rates. In terms of system liquidity, we expect a total of N764.79bn emanating from a bond maturity of N562.45bn and bonds’ coupon payments of N202.34bn to hit the financial system. These inflows are expected to be short-lived and not sufficient to bolster the financial system. This is due to the level of deficit currently present, and the expected auctions scheduled for the week.

Bond Market: Bearish Sentiments Dominate the Market
The secondary bonds market traded on a bearish note as investors reacted to the uptick in stop rates at the NT-bills Primary Market Auction (PMA). Thus, the average bond yield climbed by 29bps w/w to close at 18.75% (previously 18.46%). Similarly, activities were bearish in the corporate bonds market, as the average yield on corporate bonds rose by 9bps to settle at 21.22% (previously, 21.13%).

In the Nigerian secondary Eurobonds, we observed bearish sentiments across the curve. Investors have maintained a cautious trading approach due to the uncertainties surrounding interest rate decisions and inflation progress in the U.S. Thus, the average yields in the market increased by 9bps w/w to settle at 9.51% (previously 9.42%).

Looking forward, we expect the Debt Management Office (DMO) to conduct the Mar-2025 bond auction with an offer size of N300.00bn across the reopened 2029 “5-YR” and 2033 “9-YR” papers. At the auction, we expect investors’ appetite to be mildly strong, demanding high rates. In the secondary market, we project that mixed sentiments will linger. Investors will look to reinvest inflows from maturing bonds to the tune of N562.45bn in the market. However, we believe that the bearish undertone will continue as 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 125bps w/w at the official market to close at N1,536.89/$, from its previous close of N1,517.93$. Similarly, the Naira depreciated by 32bps w/w at the parallel market to settle at N1,590.00/$ from its previous close of N1,585.00/$. Lastly, Nigeria’s external reserves fell by 3bps to settle at $38.351bn (previously, $38.361bn).

This week, we expect the Naira to hover at current levels barring any substantial shock.  However, CBN’s intervention at the FX market might further strengthen the Naira in the FX market this week. Additionally, the recent improvement in FCY liquidity of financial institutions will look to preserve Naira’s strength around the current level. Nonetheless, the country needs to address legacy issues affecting the Naira, diversify its sources of USD earnings, encourage inflows of remittances and improve its crude oil production to improve the performance of the Naira at the FX market.