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Global Economy

Earlier this week, the UK Office of National Statistics released April 2024 Consumer Price Index (CPI) data. The CPI rose by 2.3% YoY in April 2024, down from 3.2% YoY in March 2024. On a monthly basis, CPI rose by 0.3% MoM in April 2024, compared with a rise of 1.2% MoM in April 2023. Falling gas and electricity prices were the major contributors to the decline in the monthly change in both CPI annual rates, while the largest, partially offsetting, upward contribution came from motor fuels, with prices rising this year but falling a year ago. Core CPI (excluding energy, food, alcohol, and tobacco) rose by 3.9% YoY in April 2024, down from 4.2% YoY in March 2024. On a different note, S&P Global released flash Purchasing Manager Index (PMI) composites for both the US and UK. The headline S&P Global Flash US PMI Composite Output Index rose sharply from 51.3 points in April 2024 to 54.4 in May 2024, its highest since April 2022. Meanwhile, in the UK, the headline seasonally adjusted S&P Global Flash UK PMI composite fell to 52.8 points in May 2024, down from 54.1 points in April 2024.

Domestic Economy

Earlier this week, the Central Bank of Nigeria (CBN) held its 295th Monetary Policy Committee (MPC) meeting. The committee increased the Monetary Policy Rate (MPR) by 150bps to 26.25%, while keeping other tools like the asymmetric corridor, cash reserve ratio (CRR), and liquidity ratio unchanged. We expect a further increase in the MPR by 50-100bps during the next MPC meeting in July 2024. Additionally, the National Bureau of Statistics (NBS) recently published the Gross Domestic Product (GDP) report for Q1:2024. Nigeria’s economy grew by 2.98% Year on Year in Q1:2024, down from the 3.46% Year on Year growth recorded in Q4:2023. This growth was driven by a slower pace in both the oil sector +5.70% YoY in Q1:2024 (vs. +12.11% YoY in Q4:2023) and the non-oil sector +2.80% YoY in Q1:2024 (vs. +3.07% YoY in Q4:2023). We believe the slower growth is attributed to ongoing macroeconomic and structural challenges across all sectors of the economy.

Equities and stock recommendation

For the third (3rd) consecutive week, the Nigerian Equities market closed in the negative territory, as the NGX All Share Index (NGX ASI) shed 52bps WoW to settle at 97,612.51 points. Consequently, the market’s year-to-date (YtD) returns fell to 30.54% from last week’s 31.23%. The bearish performance in the equities space follows the decision of the Monetary Policy Committee (MPC) to further raise interest rates by 150bps to 26.25%. The sustained rise in interest rates serves as an incentive for investors to move from the equities market to the fixed income market, which offers relatively higher returns. On a sectoral basis, the Oil and Gas (+0.72% WoW), Consumer Goods (+0.31% WoW) and Industrial Goods (+0.19% WoW) closed positive while the Banking (-7.35% WoW) and Insurance (-3.50% WoW) sectors closed in the red. The top gainers this week were BERGER (+20.6% to NGN14.90), REGALINS (+19.4% WoW to NGN0.37) and CUTIX (+10.2% WoW to NG3.35).  However, DEAPCAP (-24.5% WoW to NGN0.40), FTNCOOA (-16.7% WoW to NGN1.20) and FBNH (-10.9% WoW to NGN20.45) led the laggards for the week.  In the coming week, we expect sustained bearish sentiment in the market, spurred by investors’ traction to the fixed income market in search of higher yields.

Fixed Income

Earlier this week, the Central Bank of Nigeria (CBN) conducted a Nigerian Treasury Bills (NT-bills) auction in the primary market. The CBN offered treasury bills worth NGN508.98bn across short- (NGN331.01bn), mid- (NGN9.30bn), and long-tenor (NGN168.67bn) bills. The average stop rate at the auction rose by 23bps to 18.21%, compared to 17.98% at the previous auction. This increase was driven by the rise in stop rates for the short-tenor (+26bps to 16.50%) and mid-tenor (+45bps to 17.45%) bills, reflecting the recent benchmark interest rate hike. However, the stop rate for the long-tenor bills fell by 1bp to 20.69%. Investors’ demand for these instruments increased significantly to NGN1.59trn, compared to NGN914.05bn at the previous auction. The CBN sold NT-bills worth NGN638.98bn, which is 1.26x more than the initial offer. Furthermore, the CBN held an Open Market Operation (OMO) auction, offering bills worth NGN500bn across short-term (NGN75bn), mid-term (NGN75bn), and long-term (NGN350bn) tenors. The average stop rate at the auction increased by 42bps to 20.41% up from 19.99% at the previous auction. This increase followed a rise in stop rates across all instruments: short-term (+1bp to 19.00%), mid-term (+26bps to 19.74%), and long-term (+99bps to 21.50%). Demand for the OMO bills reached NGN1.16trn, 4.05x more than the NGN286.65bn at the previous auction. At the secondary market, the NT-bills market finished on a positive note as the average yield declined by 20bps WoW to 21.97%. This was driven by buying interest across the tenors. Likewise, the FGN bond market closed bullish with the average yield down by 2bps WoW to settle at 18.67%. This is following buying interest across all tenors, specifically in the long-term instruments: JAN-2042: -59bps and JUL-2045: -31bps. Overall, the Naira fixed income market concluded positively as the average yield fell by 11bps WoW to settle at 20.32%. Given the current attractive returns in the fixed income market, we anticipate investors will remain active, seeking to capitalize on these opportunities.

 

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