Global Economy
Based on the recently released data from Eurostat, headline inflation in the Euro Area rose by 10bps to +2.1% y/y in August (July: +2.0% y/y) – slightly above market expectations (+2.0% y/y). The increase was largely driven by a slower pace of decline in energy prices (-1.9% y/y vs -2.4% in July), alongside a modest uptick in unprocessed food inflation (+5.5% y/y vs +5.4%). However, food inflation (+3.2% y/y vs. +3.3%) moderated, reflecting softer price growth in processed food, alcohol, and tobacco (+2.6% y/y vs. +2.7%). Services inflation also eased slightly to 3.1% y/y (July: 3.2% y/y) amid signs of cooling wage momentum, limiting the overall pace of increase.
On a month-on-month basis, consumer prices rose by 0.2% (July: 0.0%), reinforcing that while the broader disinflation trend is intact, lingering pressures from food and services continue to pose upside risks to the ECB’s inflation trajectory. Looking ahead, we expect inflation to remain around the ECB’s 2.0% target for the remainder of the year, underpinned by softer wage growth and easing external cost pressures due to a stronger Euro. With headline inflation already near target and economic activity showing signs of improvement, the urgency for additional rate cuts has diminished. Accordingly, we anticipate the ECB will leave policy rates unchanged at its 10 September meeting.
According to flash estimates from the S&P Global, the Composite PMI index settled above the 50.0 threshold for the fourth consecutive month in August, reaching a one-year high of 53.5 points (July: 51.5 points), signaling sustained private sector strength. The expansion was driven by a marked acceleration in services activity, with the services PMI climbing to a 16-month high of 54.2 points (July: 51.8 points) on the back of stronger output growth, buoyed by improving consumer demand and easing borrowing costs.
In contrast, the manufacturing sector (August: 47.0 points vs July: 48.0 points) remained a drag on overall momentum, reflecting weaker export demand and subdued business confidence, partly weighed by US tariff measures. We expect UK business activity to remain above the expansion threshold in the near term, anchored by robust services momentum. However, lingering policy uncertainty ahead of the autumn Budget—especially the prospect of tax increases—could temper confidence and dampen forward orders. This dynamic suggests that while the current momentum supports growth resilience, risks are tilted to the downside, reinforcing the likelihood that the BoE will remain cautious in its policy signaling.
Global Markets
Global equities traded cautiously this week as rising bond yields, mixed economic data, and renewed trade frictions dampened risk appetite. At the time of writing, US equities (DJIA: -0.8%; S&P 500: -0.8%) were on track to close the week lower, reflecting heightened concerns over the legality of President Trump’s reciprocal tariff policy, following a US federal appeals court ruling that deemed the tariffs illegal. Investors also digested the latest JOLTS report while awaiting weekly jobless claims (due Thursday) and the August jobs report (due Friday) for fresh signals on monetary policy direction.
In Europe, equities (STOXX Europe 600: -1.1%; FTSE 100: -0.2%) also declined, weighed down by rising bond yields and uneven macro releases. Meanwhile, Asian markets (SSE: -2.4%; Nikkei 225: -0.3%) mirrored Wall Street’s weakness, further pressured by weak manufacturing data in Japan and geopolitical concerns following the high-profile Shanghai Cooperation Organization (SCO) Summit in Tianjin, where China showcased closer alignment with Russia and other regional powers, reinforcing tensions around global trade and security.
Sentiment was also unsettled by reports suggesting that Chinese regulators may introduce cooling measures for the domestic stock market, including easing restrictions on short selling. Conversely, the Emerging and Frontier Markets (MSCI EM: +0.5%; MSCI FM: +0.5%) indices posted modest gains, supported by advances in India (+1.0%) and Vietnam (+0.3%), respectively.
Nigeria: Domestic Economy
Nigeria’s Composite PMI strengthened to 52.7 points in July (June: 52.3 points), extending its expansionary run to eight consecutive months and signaling resilience in private-sector activity. The upturn was largely anchored by the services sector, where the PMI surged to a nineteen-month high of 52.8 points (June: 51.3 points), underpinned by improved business activity and stronger new orders—particularly in Finance & Insurance, Education, and ICT sub-sectors. Conversely, momentum in the industrial sector softened modestly (51.1 points vs. 51.4 points in June), as easing consumer demand weighed on new orders, even as output and employment indicators held firm.
Meanwhile, agriculture activity remained in expansionary territory for the 12th consecutive month, though the PMI eased to 53.9 points (June: 55.2 points), reflecting the seasonal slowdown in farming and inventory build-up at the peak of the lean season. Looking ahead, we expect Nigeria’s composite PMI to remain in expansionary territory, supported by improving macroeconomic conditions, particularly naira stability and moderating inflation, alongside resilience in services. That said, seasonal headwinds in agriculture, soft consumer demand, and persistently tight financial conditions could temper momentum in the near term, pending a shift toward a more accommodative monetary stance.
According to FMDQ data, total inflows into the Nigerian Foreign Exchange Market (NFEM) fell by 26.9% m/m to USD2.80 billion in August (July: USD3.83 billion), reflecting declines across both foreign (38.0% of total) and local (62.0% of total) sources. Foreign inflows dropped to a four-month low of USD1.06 billion (-61.0% m/m), driven largely by weaker participation from FPIs (-65.8% m/m) and FDIs (-25.2% m/m), partly cushioned by higher accretion from other corporates (+165.5% m/m).
On the domestic front, inflows contracted by 17.9% m/m to USD1.74 billion, as declines from exporters/importers (-32.8% m/m) and non-bank corporates (-32.7% m/m) outweighed sharp increases from individuals (+413.8% m/m) and the CBN (+118.9% m/m). In the near term, we expect foreign exchange inflows from both local and foreign sources to remain strong, surpassing 2024 levels (2024FY average: USD2.51 billion), driven by improving market confidence and still-attractive naira yields for foreign portfolio investors (FPIs).
Capital markets: Equities
Profit-taking activities persisted in the domestic equities market for the fourth consecutive week, with the All-Share Index (ASI) closing lower in three of the four trading sessions of the week. Specifically, sell pressures in WAPCO (-13.1%), UBA (-3.9%), OANDO (-7.9%), DANGSUGAR (-5.2%), and ZENITHBANK (-1.7%) stocks dragged the benchmark index down by 0.9% w/w to 138,980.02 points, moderating the year-to-date return to +35.0%. Market activity also weakened, as trading volume and value fell by 34.7% w/w and 16.0% w/w, respectively. Sectoral performance mirrored the overall market downturn, with all key indices — Industrial Goods (-2.1%), Banking (-1.5%), Consumer Goods (-1.2%), Oil & Gas (-0.8%), and Insurance (-0.8%) — closing in the red.
Looking ahead, investor sentiment is likely to stay cautious, with continued profit-taking and selective portfolio reallocation into fundamentally strong stocks offering attractive entry points. Over the medium term, equity market direction will hinge on macroeconomic conditions and the trajectory of fixed income yields, which remain the key drivers of relative asset allocation.
Money Market and Fixed Income
The overnight (OVN) rate remained unchanged at 27.0% supported by the strong system liquidity at the start of the week, boosted by NGN460.00 billion in OMO maturities. However, the CBN countered with an OMO auction that absorbed NGN620.65 billion, moderating liquidity conditions. As a result, the system’s net long position eased slightly to NGN1.06 trillion (vs. NGN1.17 trillion in the prior week).
Looking ahead, we expect system liquidity to remain ample. However, given the CBN’s active liquidity management via OMO auctions, interbank rates are likely to stay sticky at elevated levels despite the abundance of sterilised liquidity.
Treasury Bills
Proceedings in the Treasury bills market were broadly bullish, driven by the strong system liquidity, driving the average yield across all instruments lower by 13bps w/w to 22.1%. Precisely, NTB yields contracted by 31bps to 18.6%, offsetting a 4bps increase in OMO yields to 25.5%. At the mid-week NTB auction, the CBN offered NGN480.00 billion across the 91D, 182D, and 364D maturities, attracting strong subscription of NGN1.01 trillion (bid-to-offer: 2.1x vs. 1.7x prior).
Eventually, the CBN over-allotted NGN585.25 billion at stop rates of 15.32% (-18bps), 15.50% (unchanged), and 17.69% (+25bps) for the 91D, 182D, and 364D bills, respectively. We believe this signals front-end easing and a measured adjustment at the long end, where the pace of increases has slowed relative to prior auction (+94bps). Meanwhile, at Tuesday’s OMO auction, the apex bank offered NGN600.00 billion for the 84D paper, which was oversubscribed at NGN1.18 trillion (2.0x bid-to-offer). Ultimately, NGN620.65 billion was allotted at a stop rate of 26.40%, underscoring the CBN’s continued liquidity sterilization drive at elevated yields.
Looking ahead, we expect NTB yields to remain anchored in the near term, supported by sustained system liquidity and strong investor demand. Overall, while robust subscription levels point to healthy appetite for sovereign paper, the interplay between liquidity sterilization and investor demand will keep yield movements relatively volatile across maturities.
Bonds
The FGN bond secondary market was also bullish this week, driven by robust interbank liquidity. Accordingly, the average yield for bonds dipped by 13bps to 17.0%. Across the benchmark curve, the average yield decreased at the short (-5bps), mid (-41bps), and long (-3bps) segments, driven by heightened demand for the JUL-2030 (-32bps), FEB-2030 (-47bps), and MAR-2036 (-21bps) bonds, respectively.
Looking ahead, we expect investor sentiment in the bond market to remain cautious, with demand concentrated in select on-the-run papers. Anticipation of a dovish tilt at the September MPC meeting, combined with elevated system liquidity, should provide support for sovereign bond demand. However, the front end of the curve is likely to reflect a mixed tone, as interest in short-dated NTBs remains sensitive to auction dynamics and liquidity management by the CBN.
Foreign Exchange
The naira appreciated this week by 1.0% w/w to NGN1,520.00/USD supported by supply from FPIs looking to participate in the OMO PMA and the USD15.00 million intervention from the CBN. Meanwhile, gross FX reserves increased for the ninth consecutive week, growing by USD216.34 million w/w to USD41.46 billion (Sep 2). In the forwards market, the naira rates depreciated across the 1-month (-0.4% to NGN1,572.31/USD), 3-month (-1.5% to NGN1,646.72/USD), 6-month (-2.5% to NGN1,751.58/USD) and 1-year (-3.8% to NGN1,952.87/USD) contracts.
In the near term, we expect naira stability to persist on the back of resilient FX market liquidity. Renewed capital inflows should be supported by the anticipated Fed rate cut and broader easing in global yields, which would enhance investor appetite for naira assets. Concurrently, improving non-oil export receipts and diminished incentives for speculative positioning in the naira are likely to sustain the momentum of domestic inflows.
Cordros
