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Global Economy

Earlier this week, in the EU, Eurostat released preliminary GDP data for Q1:2024. In the first quarter of 2024, seasonally adjusted GDP increased by 0.3% QoQ in both the euro area and the EU, compared with the previous quarter. In Q4:2023, GDP had declined by 0.1% QoQ in the euro area and was flat in the EU. Compared with Q1:2023, seasonally adjusted GDP increased by 0.4% YoY both in the euro area and in the EU in Q1:2024 (vs. +0.1% YoY in the euro area and +0.2% YoY in the EU in Q4:2023). Conversely, in Japan, according to its Cabinet Office, preliminary gross domestic product (GDP) data indicated Japan’s economy shrank by an annualized 2.0% QoQ in Q1:2024. This translates into a quarterly contraction of 0.5% QoQ in the period. This comes amidst plans by the Bank of Japan to lift its policy rate away from zero following the recent Yen volatility. Elsewhere, in the US, the Bureau of Labor Statistics (BLS) released the April 2024 Consumer Price Index (CPI) data. According to the BLS, the headline CPI rose by 3.4% YoY in April 2024, vs. the 3.5% YoY increase in March 2024. Core inflation, headline CPI less food and energy, rose 3.6% YoY during the same period. The energy CPI increased 2.6% YoY while the food CPI increased 2.2% YoY.

Domestic Economy

During the week, the National Bureau of Statistics (NBS) released the Consumer Price Index (CPI) for April 2024. Year-over-year (YoY) headline inflation rose by 49bps to 33.69%, up from 33.20% YoY in March 2024. This increase was driven by increases in both food inflation (+52bps to 40.53% YoY) and core inflation (+94bps to 26.84% YoY). However, on a month-on-month (MoM) basis, headline inflation decreased for the second month in a row, dropping 73bps to 2.29% MoM, compared to 3.02% MoM in March 2024. This decline was due to reductions in both food inflation (-111bps to 2.50% MoM) and core inflation (-34bps to 2.20% MoM). Nigeria’s inflation stems from both supply and demand issues, which must be addressed. The Central Bank of Nigeria’s upcoming Monetary Policy Committee meeting is expected to maintain monetary tightening measures, which may help moderate inflationary pressures in May 2024.

Equities and stock recommendation

Extending its bearish run for the second consecutive week, the Nigerian Equities market lost 0.11% WoW as the NGX All Share Index (NGX ASI) printed at 98,125.73 points. Consequently, the market’s year-to-date (YtD) returns declined to 31.23% (vs. 33.18% YtD last week). Save for the Industrial sector which gained a meagre 0.01% WoW, all other sectors under our coverage closed negative. Specifically, the Oil and Gas (-6.49% WoW), Banking (-5.31% WoW), Insurance (-3.98% WoW) and Consumer Goods (-1.29% WoW) sectors recorded losses. We believe the bearish sentiment in the market stems from the release of poor Q1:2024 earnings results of some tickers across sectors. Additionally, general bearish sentiment continues to persist across sectors. The top gainers this week were INTENEGINS (+11.5% WoW to NGN1.65), CUSTODIAN (+9.7% WoW to NGN10.20) and JBERGER (+9.5% WoW to NGN79.30), while top losers were PZ (-22.2% WoW to NGN21.60), NEM (-18.4% WoW to NGN8.45) and ETERNA (-18.3% WoW to NGN11.15). In the coming week, we believe that the direction of fixed income yields would impact the performance of the equities market, particularly as investors anticipate the decision of the Monetary Policy Committee (MPC) on interest rate. Overall, we expect the Committee to hike rates by an additional 50-100 basis points at its next meeting holding on the 20th and 21st of May 2024.

Fixed Income

The Central The Debt Management Office (DMO) conducted a bond auction offering a total of NGN450bn worth of bonds across three instruments: reopening of existing APR-2029 and FEB-2031 and the new issuance of MAY-2033 bonds, NGN150bn each. The average stop rate at the auction stood at 19.64%. Stop rates for the reopened instruments saw a slight decline of 1bp each. Investor demand, however, dipped significantly to 1.23x compared to 2.04x at the previous auction, representing a decrease of 82bps. This was due to a lower subscription amount of NGN368.77bn compared to the prior auction. Notably, the total amount sold (NGN380.77bn) was also 0.85x less than the initial offer amount. The weak investor demand is likely due to expectations of future interest rate increases by the Monetary Policy Committee (MPC) meeting next week (May 20th-21st, 2024). The Nigerian Treasury bills secondary market concluded on a bullish note as the average yield declined by 29bps WoW to 22.17%. This reflects buying interest in short and mid-term treasury bills. However, the FGN bond market ended on a bearish note as the average yield rose by 7bps WoW to settle at 18.69%. This was driven by sell offs across the yield curve, notably in the MAR-2025 (+12bps), APR-2032 (+37bps) and JUN-2033 (+24bps) instruments. Overall, the Naira fixed income market closed positively as the average yield fell by 11bps WoW to 20.43%. Looking ahead, the upcoming MPC meeting and treasury bills auction are expected to influence investor sentiment, with a potential bearish bias due to anticipated rate hikes.

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