Global Economy

Earlier this week, data from the Chinese National Bureau of Statistics (NBS) showed China’s inflation was modest in June 2024. According to the NBS, China’s national consumer price index (CPI) increased by 0.2% YoY, compared to a 0.3% YoY increase in May 2024. Among them, urban prices rose by 0.2% YoY, while rural prices rose by 0.4% YoY. Food prices declined by 2.1% YoY, while non-food prices escalated by 0.8% YoY. Consumer goods prices decreased by 0.1% YoY, while service prices ascended by 0.7% YoY. On a MoM basis, consumer prices declined by 0.2% in June 2024 (vs. -0.1% MoM in May 2024). Among them, urban prices lowered by 0.2% MoM and rural prices dropped by 0.2% MoM. Food prices declined by 0.6% MoM and non-food prices fell by 0.2% MoM. Consumer goods prices slumped by 0.4% MoM, while service prices remained flat. Meanwhile, in the US, according to the Bureau of Labor Statistics (BLS), the headline CPI rose 3.0% YoY in June 2024, vs. 3.3% YoY in May 2024. Core CPI rose 3.3% YoY and was the smallest YoY increase in that index since April 2021. The energy index increased 1.0% YoY in June 2024 while the food index increased 2.2% YoY during the same period. On a MoM basis, headline CPI declined by 0.1% in June 2024, after being flat in May 2024.

Domestic Economy

During the week, the Central Bank of Nigeria (CBN) sold USD122mn to authorized dealers to stabilize the foreign exchange market. These funds are designated for trade-backed transactions, with dealers required to report their usage within 72 hours. By increasing market liquidity, the CBN aims to stabilize the exchange rate and control inflation. We believe this strategic move supports trade activities, ensuring businesses can access necessary foreign currency, and boosts overall market confidence, signaling the CBN’s commitment to economic stability. Elsewhere, The Federal government, through the Nigeria Upstream Petroleum Regulatory Commission (NUPRC), has permitted the sale of crude oil to domestic refiners at market prices, ending a supply dispute with international oil companies. This decision aims to ensure fair pricing and support efficiency in local refining operations. By promoting transparency through monthly price quotes from producers and refiners, NUPRC seeks to strengthen Nigeria’s energy sector, fostering economic stability and sustainable development in the oil industry.

Equities and stock recommendation

The Nigerian Equities market remained in the red zone this week, as the NGX All Share Index (NGX ASI) lost 35bps WoW to print at 99,671.28 points. This is following losses in the Banking (-2.08% WoW), Insurance (-0.36% WoW) and Consumer Goods (-0.09% WoW) sectors, after UBA (-4.01% Wow to NGN22.75), NEM (2.38% WoW to NGN8.20) and GUINNESS (7.14% WoW to NGN65.00) raked in losses. On the other hand, the Oil and Gas (+1.38% WoW) and Industrial Goods (+0.05% WoW) sectors closed positive, riding on the back of gains in CONOIL (8.26% WoW to NGN136.95) and LAFARGE (0.83% WoW to NGN36.30). Consequently, the market’s Year-to-Date (YtD) returns declined to 33.30% (vs. last week: 33.75% YtD). This week, LIVESTOCK (+27.0% WoW to NGN2.35), ABCTRANS (+20.30% WoW) and ETERNA (+18.4% WoW to NGN18.00) led the gainers’ chart, while AFRIPUD (-17.8% WoW to NGN7.40), PZ (-10.0% WoW to NGN19.80) and CWG (-9.8% WoW to NGN6.90) led the losers’ chart. We expect that the high yield environment in the fixed income market would continue to pull traction from the equities market. However, this bearish sentiment could be offset by bargain-hunting activities as investors position themselves ahead of the release of Q2:2024 earnings results.

Fixed Income

Earlier this week, the CBN conducted an NT-bills auction, offering NGN166.11bn worth of Treasury bills (T-bills) across the 91-day (NGN27.11bn), 182-day (NGN1.49bn), and 364-day (NGN137.50bn) tenors. The average stop rate increased by 19bps to 18.33%, up from 18.14% at the previous auction. This rise was primarily driven by a 56bps increase in the 364-day bill rate, which reached 21.24%. Consequently, the average bid-to-cover ratio declined by 153bps to 1.86x, down from 3.38x at the previous auction, indicating a decrease in investor demand. Notably, the CBN sold NGN207.27bn worth of T-bills.In the secondary market, the NT-bills ended in negative territory as the average yield climbed 57bps WoW to 23.33%. This yield increase was driven by selloffs in long-tenor bills. Similarly, the FGN bond market experienced bearish sentiment, with the average yield rising by 49bps WoW to 19.26%. This was due to selloffs across the yield curve, particularly in the MAR-2025 (+329bps), MAR-2028 (+116bps), and JUN-2033 (+139bps) instruments. Overall, the Naira fixed income market concluded the week on a bearish note, with the average yield surging by 53bps WoW to 21.29%. Looking ahead, we expect this bearish trend to persist, particularly at the short end of the yield curve.

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