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Global Economy

Earlier this week, we saw data from the US Census Bureau on retail sales for March 2024. Retail sales rose 0.7% MoM in March 2024, according to the department. Data for February 2024 was revised higher to show sales rebounding 0.9% MoM, which was the largest gain in just over a year, instead of the previously reported 0.6% MoM. This underpins the solid US economy and gives reason to substantiate a “higher for longer” policy rate forecast. Contrastingly, in the UK, Retail sales volumes were estimated to be flat (0.0% MoM) in March 2024, according to the Office of National Statistics (ONS), following an increase of 0.1% MoM in February 2024 (revised from 0.0% MoM). More on the UK, the ONS during the week released its March 2024 Consumer Price Index (CPI) data. The data revealed that the Consumer Prices Index (CPI) rose by 3.2% YoY in March 2024, down from 3.4% YoY in February 2024. Core CPI (excluding energy, food, alcohol, and tobacco) rose by 4.2% YoY in March 2024, down from 4.5% YoY in February 2024. On a MoM basis, CPI rose by 0.6% in March 2024, compared with a rise of 0.8% in March 2023. Finally, according to the Chinese National Bureau of Statistics, Gross domestic product (GDP) grew by 5.3% YoY in Q1:2024, vs. 5.2% YoY recorded in Q4:2023. While the Chinese property market slump continues to weigh heavily overall GDP, the investments in relatively newer industries like EVs, solar and batteries in its manufacturing sector paid off, by shoring growth during the quarter.

Domestic Economy

Earlier this week, the National Bureau of Statistics (NBS) released the Consumer Price Index (CPI) for March 2024, showing a 150bps rise in headline inflation to 33.20% YoY from 31.70% YoY in February 2024. This increase was primarily due to significant upticks in food (+209bps to 40.01% YoY) and core (+77bps to 25.90% YoY) inflation. On a month-to-month (MoM) basis, headline inflation decreased slightly by 10bps to 3.02% MoM, down from 3.12% MoM in February 2024, following a decline in food inflation (-18bps to 3.62% MoM). However, core inflation saw an increase of 37bps to 2.54% MoM. Elsewhere, in a recently released circular, the Central Bank of Nigeria (CBN) reduced the Loan-to-Deposit Ratio (LDR) requirement for banks by 15% to 50%. This adjustment reflects the CBN’s move towards a more restrictive monetary policy. While banks are still urged to uphold strong lending risk management practices, the CBN would oversee compliance and make necessary ratio adjustments. We view this adjustment as one of the measures by the CBN to continue to rein in the money supply glut and mitigate inflationary pressures.

Equities and stock recommendation

This week, negative sentiment permeated the Nigerian equities market, as the market gained in only one (1) out of the five (5) trading days of the week. Consequently, the NGX All Share Index lost 2.71% WoW to print at 99,539.75 points, pushing the market’s year-to-date (YtD) return furthermore down to 33.12% from last week’s 36.83% YtD. We also observed negative returns across four (4) out of five (5) sectors under our coverage with the Banking sector (- 11.46% WoW) taking the lead, on the back of losses incurred in ZENITHBANK (-11.25% WoW). In addition, the Insurance (-2.80% WoW), Industrial Goods (-2.71% WoW) and Consumer Goods (-0.96% WoW) sectors closed in the red. However, the Oil and Gas sector ended the week flat. The top gainers for the week were MORISON (+45.3% WoW to NGN3.12), GUINNESS (+10.0% WoW to NGN55.00) and ACADEMY (+9.8% WoW to NGN1.91). On the flipside, GTCO (-19.1% WoW to NGN33.50), LIVESTOCK (-19.0% WoW to NGN1.45) and JAPAULGOLD (-18.5% WoW to NGN1.67) led the laggards for the week. In the coming week, we expect that bearish sentiment will persist in the bourse given the current high fixed income yield environment. Furthermore, we believe that the recent Central Bank’s policies directed at banks – minimum capital requirement for banks and the reduction of the Loan-to-Deposit (LDR) ratio – could spur further sell-offs in the banking sector.

Fixed Income

Earlier this week, the Debt Management Office (DMO) issued NGN450bn worth of bonds. This included a new issuance maturing in APR-2029 with a 5-year tenor and the reopening of two existing bonds maturing in FEB-2031 and FEB-2034, each worth NGN150bn. The average stop rate for the instruments was 19.68%. There was strong investor demand, reflected in a high average bid-to-cover ratio of 2.04x. This demand was particularly evident for the APR-2029 (1.60x) and FEB-2034 (3.67x) instruments. At the secondary market, the Nigerian Treasury bills (NT-bills) market witnessed bearish sentiment with the average yield increasing significantly by 632bps WoW to close at 25.18%. In contrast, the FGN Bond market was bullish with the average yield dipping by 23bps WoW to 19.04%. This was driven by buying interest across all tenors of the yield curve, particularly in the MAR-2025 (-113bps), FEB-2028 (-67bps) and MAR-2028 (-64bps) instruments. Overall, the Naira fixed income market concluded negative as the average yield surged by 305bps WoW to 22.11%. We expect the bearish sentiment to persist in the coming week as liquidity remains tight.

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