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Global Economy

Earlier this week, the US Bureau of Economic Analysis (BEA) released its third estimate of the US Q4:2023 and 2023FY GDP. According to the BEA, Real gross domestic product (GDP) increased by 3.4% YoY in Q4:2023 (vs 4.9% YoY in Q3:2023). Compared to Q3:2023, the deceleration in real GDP in Q4:2023 primarily reflected a downturn in private inventory investment, federal government spending and residential fixed investment. This was partially offset by lower imports. On a full year basis, Real GDP increased by 2.5% YoY in 2023FY, compared with an increase of 1.9% YoY in 2022FY. The increase in real GDP in 2023FY primarily reflected increases in consumer spending, nonresidential fixed investment, government spending, and exports, that were partly offset by decreases in residential fixed investment and private inventory investment. Imports decreased. Elsewhere, in the UK, according to the Office for National Statistics, UK GDP is estimated to have fallen by 0.3% YoY in Q4:2023, following a decline of 0.1% YoY in Q3:2023. The economy decreased for two consecutive quarters, a technical recession, while GDP for 2023FY is estimated to have increased by 0.1% YoY (vs. 4.3% YoY in 2022FY).


Domestic Economy

Earlier this week, at the 294th the Monetary Policy Committee (MPC) meeting, the Committee decided to raise the Monetary Policy Rate (MPR)by 200bps to 24.75%. This move reflects the Central Bank of Nigeria’s (CBN) efforts to curb inflation and encourage Foreign Portfolio Investment (FPI) inflows. Alongside the MPR adjustment, the Committee also deployed other monetary policy tools. These include adjusting the asymmetric corridor to +100/-300 basis points around the MPR, maintaining the Cash Reserve Ratio (CRR) of Commercial banks at 45% , raising the CRR of Merchant banks from 10% to 14% and keeping the Liquidity Ratio at 30%. In our view, we believe that the hike in interest rate would negatively impact the equities market performance as investors look towards the fixed income market for higher yields.


Equities and stock recommendation

The Nigerian Equities market extended its negative run for the second (2nd) week, as the NGX All Share Index (ASI) fell by 8bps to 104,562.06 points. This pushed the market’s year-to-date (YtD) returns further down to 39.84% (vs. Last week: 39.95% YtD). This week, the Insurance (+3.19% WoW), Banking (+1.93% WoW) and Industrial Goods (+0.21% WoW) sectors closed positive, while the Consumer Goods sector (-0.97% WoW) posted negative returns. On the other hand, the Oil and Gas sector ended the week flat. Top gainers for the week were CWG (+26.1% WoW to NGN7.50), MORISON (+24.8% WoW to NGN1.76) and SUNUASSUR (+17.2% WoW to NGN1.36). However, INTBREW (-14.3% WoW to NGN4.45), DANGSUGAR (-11.9% WoW to NGN52.00) and GUINEAINS (-10.3% WoW to NGN0.35) topped the decliners’ chart. We believe that the sustained interest rate hike by the Monetary Policy Committee (MPC) from 22.75% to 24.75%, played a significant role in the bearish returns of the equities market this week. Hence, we think that negative sentiment would persist in the coming week, slightly offset by some buying interest in dividend paying tickers, as investors look toward rising yields in the fixed income market.


Fixed Income

Yesterday, the Central Bank of Nigeria (CBN) held a Nigerian Treasury Bills (NT-Bills) auction, offering a total of NGN161.33bn across various maturities (91- day, 182-day, and 364-day bills). Interestingly, despite investor anticipation of higher interest rates, the CBN maintained the same stop rates as the previous auction. Conversely, the average bid-to-cover ratio jumped by 696bps to 16.23x compared to 9.27x at the previous auction. This surge was driven by an increase in the demand for the instruments, particularly in the 364-day bill (NGN2.48trn vs NGN1.36trn at the last auction). However, the demand for the 91-day bill dipped slightly (NGN76.81bn vs NGN85.51bn at the previous auction). Overall, due to high investor participation, the CBN was able to sell NGN1.19trn worth of NT-bills, significantly exceeding the amount initially offered. At the secondary market, the average yield on the Nigerian Treasury bills market went down slightly by 4bps WoW to 17.66%. Conversely, the FGN bond market closed bearish as the average yield increased by 15bps WoW to settle at 19.41%. This was on the back of selloffs across all ends of the yield curve, specifically in the JAN-2026 (+54bps), FEB-2031 (+59bps) and JUN-2033 (+190bps) instruments. Overall, the Naira fixed income market closed on a bearish note as the average yield rose by 6bps WoW to 18.54%. We maintain our view of a bearish sentiment, as investors seek higher returns on short-term instruments following the CBN’s benchmark interest rate hike.


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