Global Economy
Earlier this week, the US Bureau of Labor Statistics (BLS) released the October 2023 Consumer Price Index for All Urban Consumers (CPI-U) data. According to the data, inflation was unchanged in October 2023 on a seasonally adjusted basis, after increasing 0.4% MoM in September 2023. YoY, the headline CPI index increased by 3.2%. The index for all items less food and energy or core inflation rose by 0.2% MoM in October 2023, relative to 0.3% MoM in September 2023. The food index rose 0.3% MoM in October 2023, after rising 0.2% MoM in each of the last 3 months. Similarly, the UK Office of National Statistics released October 2023 Consumer Prices Index (CPI) data during the week. The CPI rose by 4.6% YoY in October 2023, down from 6.7% YoY in September 2023. The annual rate observed in October 2023 was the lowest since October 2021. However, on a monthly basis, CPI did not change in October 2023, compared with the 2.0% MoM increase in October 2022. Core CPI (excluding energy, food, alcohol and tobacco) rose by 5.7% YoY in October 2023, down from 6.1% YoY in September 2023.
Domestic Economy
During the week, the National Bureau of Statistics (NBS) released the inflation figures for October 2023. The Headline inflation rate increased by 61bps, reaching 27.33% YoY (vs. 26.72% YoY in September 2023). This uptick can be attributed to increases in its main components: Food inflation (+88bps to 31.52% YoY) and Core inflation (+73bps to 22.58% YoY). However, on a month-on-month (MoM) basis, the headline inflation continued to decrease, dropping by 36bps to settle at 1.73% MoM (vs. 2.10% MoM in September 2023). This is following declines in food inflation and core inflation to 1.91% MoM and 1.39% MoM respectively. Furthermore, the Central Bank of Nigeria (CBN) has decided to indefinitely extend the legal tender status of the old design Naira banknotes (N200, N500, and N1,000 denominations), originally set to cease on December 31, 2023. This decision aligns with international best practices, aims to avoid previous cash constraints, and is in accordance with the CBN Act 2007. All CBN branches will continue to accept and issue both old and redesigned banknotes, and the public is encouraged to use alternative payment methods for daily transactions.
Equities and stock recommendation
The NGX All Share Index (ASI) added 37bps WoW to close the week at 71,112.99 points, following four (4) consecutive days of positive returns. Consequently, the Nigerian equities market recorded 38.75% YtD returns (vs. 38.25% YtD last week). On a sectoral basis, only the Banking (-4bps WoW) and Industrial Goods (-1.18% WoW) sectors closed in the red, while the Oil and Gas (+2.61% WoW), Insurance (+0.91% WoW) and Consumer Goods (+0.20% WoW) sectors recorded gains this week. The top gainers for this week were DEAPCAP (+54.8% WoW to NGN0.48), CILEASING (+49.5% WoW to NGN4.98) and OMATEK (+35.9% WoW to NGN0.87). However, JAPAULGOLD (-14.1% WoW to NGN1.70), BETAGLAS (-9.9% WoW to NGN54.00) and REDSTAREX (-8.5% WoW to NGN3.00) topped the decliners’ chart. In the coming week, we expect bargain-hunting to be the major objective in the market as investors search for tickers with strong fundamentals.
Fixed Income
The Nigerian Treasury Bills market closed the week bullish as average yield declined by 61bps WoW to settle at 12.75%. At the November primary bond auction, the DMO sold NGN434.5bn worth of bonds across the re-opening of four (4) instruments (APR-2029: NGN31.47bn, JUN-2033: NGN33.19bn, JUN-2038: NGN47.07bn, and JUN-2053: NGN322.77bn). The average bid-to-cover ratio rose by 17bps to 1.24x (vs. 1.06x at the last auction). Similarly, the average stop rate surged by 136bps to 17.13% compared to 15.76% at the last auction. The four (4) instruments (APR-2029, JUN-2033, JUN-2038 and JUN-2053) stop rates increased tremendously by 110bps, 125bps, 170bps and 140bps each to 16.00%, 17.00%, 17.50% and 18.00% respectively. The secondary bond market closed the week bearish as the average yield rose by 10bps WoW to close at 15.73%. This is following selloffs in the FEB-2028 (+79bps), MAR-2050 (+70bps) and JUN-2053 (+90bps) instruments. Overall, the Naira Fixed income market closed the week on a bullish note as the average yield fell by 25bps WoW to settle at 14.24%. We maintain our view of bearish sentiment in the coming week, given the current dearth in financial system liquidity as well as the CBN’s restrictive monetary policy position.
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