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Global Economy

Earlier this week, data from the office of National statistics showed the UK Consumer Prices Index (CPI) rose by 3.4% YoY in February 2024, down from 4.0% YoY in January 2024. On a MoM basis, CPI rose by 0.6% in February 2024, compared with a rise of 1.1% MoM in February 2023. Core CPI (excluding energy, food, alcohol, and tobacco) rose by 4.5% YoY in February 2024, down from 5.1% YoY in January; the CPI goods annual rate slowed from 1.8% YoY to 1.1% YoY, while the CPI services annual rate eased from 6.5% YoY to 6.1% YoY. Also, in its second meeting of 2024, the Federal Open Market Committee announced it would continue its pause on interest-rate increases. The Committee noted that it is maintaining the federal funds rate within a range of 5.25% to 5.5%. Finally, the Bank of Japan (BoJ) ended its negative interest rate policy set in place to battle deflationary pressures. While the move was Japan’s first interest rate hike in 17 years, it keeps rates stuck around zero as a fragile economic recovery forces the central bank to go slow on further rises in borrowing costs. Following the policy shift, the BoJ set the overnight call rate as its new policy rate and decided to guide it in a range of 0-0.1% partly by paying 0.1% interest on deposits at the central bank. The BoJ also abandoned yield curve control (YCC), a policy in place since 2016 that capped long-term interest rates around zero, and discontinued purchases of risky assets.

Domestic Economy

During the week, the Central Bank of Nigeria (CBN) announced the successful clearance of a USD7bn backlog of valid foreign exchange transactions, fulfilling the CBN Governor’s commitment. This effort is part of CBN’s strategy to stabilize the exchange rate and bolster foreign investor confidence in the Nigerian economy. Consequently, Nigeria’s foreign reserves surged to USD34.11bn, the highest in eight (8) months and this was fueled majorly by increased remittances and foreign investment in local assets. In our view, the probable influx of FX supply due to increased foreign investors’ participation will provide some respite to the falling Naira in the near-time.

Equities and stock recommendation

This week, the Nigerian equities market slipped into negative territory, as the NGX All Share Index (ASI) lost 42bps to print at 104,647.37 points. This is following losses in three (3) out of the five (5) trading sessions in the week. Consequently, the market’s year-to-date (YtD) returns declined to 39.95% from last week’s 40.54%. All sectors under our coverage save for the Consumer Goods sector (-0.37% WoW) closed bullish with the Insurance sector (+8.92% WoW) taking the lead, followed by the Banking (+4.19% WoW), Industrial Goods (+0.57% WoW) and Oil and Gas (+0.30%) sectors. This week, NEM (+45.1% WoW to NGN9.65), JAIZBANK (+21.0% WoW to NGN2.42) and ETI (+18.2% WoW to NGN26.00) garnered the highest gains. However, SUNUASSUR (-17.7% WoW to NGN1.16), DEAPCAP (-16.0% WoW to NGN0.63) and DAARCOMM (-14.1% WoW to NGN0.67) led the decliners’ chart. In the coming week, we expect higher yields in the fixed income market to continue to limit the performance of the equities market.

Fixed Income

At the FGN Bond auction for March 2024, the Debt Management Office (DMO) offered a total of NGN450 billion across three issuances: one (1) new instrument (MAR-2027) and the reopening of two (2) existing bonds (FEB-2031 and FEB-2034), each offered for NGN150 billion. The average stop rate across all the instruments was 20.13%. The average bid-to-cover ratio was a significant 1.37x, reflecting strong overall demand for the instruments from investors. The total amount sold (NGN475.62bn) was higher than the amount offered (NGN450bn). However, the demand for the FEB-2031 instrument was low, with an average bid-to-cover ratio of 0.35x and an allotment of only NGN47.84bn.
At the secondary market, the Nigerian Treasury bills market closed on a bullish note as the average yield declined by 91bps WoW to 17.70%. Conversely, the FGN bond market witnessed a selloff, with the average yield climbing 86bps WoW to close at 19.26%. This rise was driven by selloffs across all segments of the yield curve, notably in the MAR-2025 (+203bps), NOV-2028 (+193bps) and APR-2032 (+209bps) instruments. Overall, the Naira fixed income market closed slightly bullish as the average yield decreased by 3bps WoW to 18.48%. Looking ahead, we maintain our view of a potentially bearish sentiment in the coming week due to expectations of an increase in the Monetary Policy Rate (MPR) by the Monetary Policy Committee (MPC) next week.


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