Global Economy
Earlier this week, the US Bureau of Labor Statistics (BLS) released its Employment Situation data. According to the US BLS, total nonfarm payroll employment rose by 275,000 in February 2024, and the unemployment rate increased by 20bps to 3.9%. Job increases took place in the sectors of health care, government, food and beverage services, social services, transportation, and warehousing. Elsewhere, in the EU, the European Central Bank (ECB) decided to hold its benchmark policy rates constant. The interest rate on the main refinancing operations and the interest rates on the marginal lending facility and the deposit facility remained unchanged at 4.50%, 4.75% and 4.00% respectively. Furthermore, EU GDP data released by Eurostat showed seasonally adjusted GDP was flat in both the euro area and the EU in Q4:2023, compared with Q3:2023. In Q3:2023, GDP decreased by 0.1% in the euro area and was stable in the EU. Finally, in China, business confidence declined for the second consecutive month in February 2024 in China, and companies reduced staffing levels for the first time since November 2023. As a result, services activity expanded more slowly during the period. For the 14th straight month, the Caixin/S&P Global services purchasing managers’ index (PMI) remained over the 50-point threshold that divides growth from contraction, despite a slight decline to 52.5 in February 2024 from 52.7 in January 2024.
Domestic Economy
During the week, President Bola Ahmed Tinubu signed an Executive Order to improve Nigeria’s oil and gas sector’s investment climate. Key measures include implementing fiscal incentives for non-associated gas, midstream, and deepwater projects, reducing contracting cycles to six months, and maintaining local content requirements without compromising competitiveness. In our view, the effectiveness of this initiative will depend on its execution and the resolution of security issues. Elsewhere, the Central Bank of Nigeria issued a circular expressing concern about Microfinance Banks (MFBs) consistently submitting late or incomplete monthly returns through the FinA application. According to the circular, all MFBs are obligated to comply with Section 24 of the Banks and Other Financial Institutions Act (BOFIA) 2020, ensuring the timely submission of regulatory returns by the 5th day after each month-end. However, if the 5th day falls on a weekend or on a holiday, submissions should be made on the preceding workday. We think the circular aligns with the CBN’s role in ensuring transparency within the Nigerian financial sector.
Equities and stock recommendation
After two consecutive weeks of bearish sentiment, the NGX All Share Index (AS) posted a WoW gain of 2.61%, bringing the Nigerian equities market’s year-to-date returns up to 35.52% (vs. last week’s 32.07% YtD). On a sectoral basis, the Insurance (-5.22% WoW), Banking (-1.40% WoW) and Consumer Goods (-1.21% WoW) sectors recorded losses while the Industrial Goods (+1.59% WoW) closed the week with gains. However, the Oil and Gas sector closed on a flat note. This week, PZ (+18.5% WoW to NGN40.00), FBNH (+15.3% WoW to NGN32.40) and DEAPCAP (+10.5% WoW to NGN0.63) topped the gainers’ chart. On the flipside, GUINNESS (-17.5% WoW to NGN42.05), ETI (-17.0% WoW to NGN20.00) and NEM (-16.7% WoW to NGN5.50) led the decliners’ chart. In the coming week, we expect mixed sentiment in the market stemming from investors looking toward higher yields in the fixed income space. However, this may be offset by bargain-hunting activities as investors seek to buy relatively underpriced stocks.
Fixed Income
At the primary NTB auction held this week, the average stop rate surged by 108bps to 18.91% compared to 17.83% at the previous auction. This upsurge was driven by an increase in the stop rates for all the instruments: 91-day bill (+24bps to 17.24%), 182-day bill (+50bps to 18.00%) and 364-day bill (+249bps to 21.49%). On the other hand, the average bid-to-cover ratio declined significantly by 351bps to 4.92x compared to 8.43x at the preceding auction, reflecting a fall in the demand for the instruments (91-day bill -85% to 4.62x, 182-day bill -478bps to 4.88x and 364-day bill -235bps to 4.93x). At the secondary market, yields continued their upward trend this week. The yields on the Nigerian Treasury Bills market climbed by 156bps week-over-week (WoW) to 18.80%, while the FGN Bond market yields rose by 76bps WoW to 18.01%. This was driven by sell-offs across the yield curve, particularly in the JUL-2034 (+194bps), MAR-2035 (+187bps) and MAR-2036 (+238bps). The overall Naira fixed income market yields edged higher by 116bps WoW to 18.40%. In the coming week, we expect this sentiment to persist due to elevated short term yields.
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