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Global Economy

Earlier this week, the Federal Reserve kept interest rates unchanged at the end of its policy meeting. The widely expected decision kept the target range for the federal-funds rate at 5.25-5.50%. The median forecast in Federal Open Market Committee members’ latest Summary of Economic Projections has the federal-funds rate ending 2024 at 4.6%. Minute changes to the tone of the Fed’s closely watched policy statement signaled a shift and the Fed Chair Jerome Powell stated officials “believe that our policy rate is likely at or near its peak for this tightening cycle.” Elsewhere, in the EU, the European Central Bank decided to keep the three key ECB interest rates unchanged. According to its statement, the bank opined that while inflation has dropped in recent months, it is likely to pick up again temporarily in the near term. According to the latest Eurosystem staff projections for the euro area, inflation is expected to decline gradually over the course of next year, before approaching the Governing Council’s 2% target in 2025. The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility will remain unchanged at 4.50%, 4.75% and 4.00% respectively.

Domestic Economy

The National Bureau of Statistics (NBS) published the Consumer Price Index (CPI) report for November 2023. Headline inflation saw a rise of 87bps, hitting 28.20% Year-on-Year (YoY), up from 27.33% YoY in October 2023. This surge was primarily due to an increase in food inflation (+132bps to 32.84% YoY), while core inflation experienced a slight dip (-19bps to 22.38% YoY). On a Month-on-Month (MoM) basis, headline inflation increased by 35bps, reaching 2.09% MoM (vs 1.73% MoM in October 2023). This expansion is attributed to a rise in both food inflation (+51bps to 2.42% MoM) and core inflation (+14bps to 1.53% MoM). Furthermore, the Central Bank of Nigeria has suspended the 2% and 3% processing fees on cash deposits exceeding NGN500,000 for individuals and NGN3mn for corporates, as outlined in the December 20, 2019 “Guide to Charges.” This suspension is effective immediately and will last until April 30, 2024. Financial institutions under CBN regulation are instructed to accept cash deposits from the public without imposing any charges during this period.

Equities and stock recommendation

For the sixth (6th) week running, the Nigerian Equities market closed on a positive note after gaining in four (4) out five (5) trading days of the week. The NGX All Share Index (ASI) increased by 118bps WoW to settle at 72,389.23 points, pushing the market’s year-to-date (YtD) to 41.24% (vs. last week: 39.59% YtD). This week, the Banking (+7.01% WoW), Industrial Goods (+0.24% WoW), Consumer Goods (+0.22% WoW) sectors closed bullish while the Oil and Gas (-0.27% WoW) and Insurance (-0.96% WoW) sectors posted negative returns. The top gainers for the week include INFINITY (+59.3% WoW to NGN2.82), SCOA (+28.9% WoW to NGN1.74) and DAARCOMM (+27.8% WoW to NGN0.46), while NSLTECH (-16.0% WoW to NGN0.63), ETERNA (-11.8% to NGN11.55) and NEM (-9.3% WoW to NGN5.35) topped the decliners’ chart. In the coming week, we expect the market to prove resilient and post sustained positive returns as investors continue to hunt for tickers with strong fundamentals.

Fixed Income

At the primary NTB auction held this week, the average stop declined by 233bps to 10.25% vs 12.58% at the previous auction. Notably, the stop rates of the 91-day bill (-275bps to 6.25%), 182-day bill (-200bps to 11.00%) and 364-day bill (-225bps to 13.50%) instruments all declined. This decrease was accompanied by a surge in the average bid-to-cover to 115.72x (vs 16.90x at the previous auction), which was driven by high demand for the instruments (91 day-bill: 39.58x, 182 day-bill: 39.23x and 364 day-bill: 131.98x). The Nigerian Treasury Bills market closed the week bullish as the average yield dipped by 272bps WoW to settle at 8.29%. Similarly, the FGN bond market fell by 48bps WoW to close at 14.38%. This is on the back of buying interest in the short and long ends of the curve. Overall, the Naira Fixed Income market ended the week on a bullish note as the average yield decreased by 160bps WoW to settle at 11.34%. In the coming week, we expect bearish sentiments as the CBN continues with its liquidity tightening agenda.

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