Global Economy
Based on the recently released data from Eurostat, headline inflation in the Euro Area eased by 10bps to 2.0% y/y in December (November: +2.1% y/y) – in line with market expectations. The print reflects a four-month low and a return to the ECB’s target. The moderation was largely driven by a sharper decline in energy prices (-1.9% y/y vs November: -0.5% y/y), and a moderation in services inflation (+3.4% y/y vs November: +3.5% y/y). However, food inflation (+2.6% y/y vs November: +2.4% y/y) increased, reflecting higher prices for unprocessed foods (+4.2% y/y vs November: +3.2% y/y), amid a moderate increase in prices for processed foods, alcohol & tobacco (+2.1% vs November: +2.2%).
At the same time, core inflation (excluding energy, food, alcohol, and tobacco) softened to its lowest level in four months at 2.3% y/y (November: +2.4% y/y). On a month-on-month basis, consumer prices rose by 0.2%, after recording a deflation rate of 0.30% in November. While food and services inflation are expected to remain sticky, falling energy prices will likely keep headline inflation around current levels in the near term. Against this backdrop, we expect the ECB to maintain policy rates at its February 4 meeting, as the current policy stance remains consistent with supporting growth while preserving price stability.
Based on recently released data from S&P Global, the United States (US) Composite PMI closed the year at an eight-month low of 52.70 points in December (November: 54.20 points), reflecting a moderation in overall business activity across both the manufacturing and services sectors. More specifically, the Manufacturing PMI eased to 51.80 (November: 52.20) due to slower demand growth, partly reflecting weaker new manufacturing orders, which fell for the first time in a year amid elevated input price pressures linked to high trade tariffs and softer output growth.
Similarly, the Services PMI moderated sharply to 52.50 points (November: 54.10 points), driven by soft export demand and persistent input cost pressures. On employment, job growth was subdued, exacerbated by elevated labour costs, softer demand and general economic uncertainty. Meanwhile, inflationary pressures persisted, with both input and output prices rising to their highest levels since May. Looking ahead, private-sector activity in the US is expected to remain in expansion, supported by relatively low interest rates and resilient domestic demand. However, weak export demand and elevated input costs, linked to high import tariffs, will continue to weigh on near-term momentum.
Global Market
Global equities began the first full week of the year on a bullish footing, as investors digested fresh economic data, reassessed sectoral outlooks, and largely looked past geopolitical tensions between the US and Venezuela. At the time of writing, US equities (DJIA: +1.8%; S&P 500: +0.9%) were poised to end the week higher, supported by renewed interest in defence stocks amid expectations of increased military spending and long-term contract awards.
Market participants also assessed mixed macro signals, balancing softer job openings and private hiring data against a stronger-than-expected ISM Services PMI. European equities (STOXX 600: +1.3%; FTSE 100: +0.9%) also advanced, as easing inflation strengthened expectations of a rate cut by the European Central Bank later this year. Asian equities (Nikkei 225: +3.2%; SSE: +3.8%) tracked global momentum, reinforced by anticipated policy support from Tokyo and Beijing. Emerging markets followed suit, with the MSCI EM (+1.6%) and MSCI FM (+2.2%) lifted primarily by gains in China (+3.8%) and Romania (+3.3%), respectively.
Domestic Economy
Private sector activities in Nigeria printed above the 50-point threshold for the thirteenth consecutive month, recording the highest monthly expansion in the year, indicating sustained expansion of business activities in the economy. According to CBN, the composite PMI expanded to 57.6 points in December (November: 56.4 points), driven by increases across the industry and agriculture sectors amid a moderation in the service sector. Specifically, the Industry sector PMI (57.0 points vs November: 54.2 points) expanded, reaching its highest level in 24 months.
This expansion was driven by increased consumer demand during the festive season, with all component indicators showing growth. The agriculture sector PMI (58.5 points vs November: 58.2 points) expanded for the 17th consecutive month, reflecting sustained growth momentum, with improvements in general farming activities, inventories, new orders, and employment levels, supported by the ongoing late harvest season.
On the other hand, the Services sector PMI (56.4 points vs. November: 56.8 points) moderated but remained in expansion for the 11th consecutive month, reflecting resilient sector output and new orders. In the near term, we anticipate continued expansion in private sector activity, underpinned by improving macroeconomic conditions. Key supportive factors include stable naira, moderating inflation, and sustained consumer demand. Furthermore, the shift toward a more accommodative monetary policy stance is expected to ease the previously tight financial conditions, providing additional support for near-term economic growth.
According to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Nigeria’s crude oil production (including condensates) remained relatively flat at 1.60 mb/d in November (October: 1.60 mb/d). The increases recorded across the Qua Iboe (+47.6% m/m), Brass (+3.4% m/m), Bonny (+3.0% m/m), Bonga (+1.8% m/m) and Tulja-okwuibome (+0.6% m/m) production terminals were enough offset production declines recorded across the Agbami (-40.1% m/m), Odudu (-10.5% m/m), Escravos (-7.0% m/m), and Forcados (-3.0% m/m) terminals.
We note that the Ajapa production terminal returned to operation in the month after being offline since Oct- 24, contributing 0.03 mb/d to total output. Crude oil production is expected to rise in the near term, supported by increased investment, the integration of new oil fields, and improved security conditions. However, intermittent terminal shutdowns, partly attributable to lingering weaknesses in oil infrastructure, remain key downside risks. Overall, we project average oil production of 1.65 mb/d in 2025E and 1.80 mb/d in 2026E.
Capital Markets: Equities
The Nigerian equities market opened the year on a bullish note, with investors adopting a risk‑on stance ahead of full‑year earnings. Precisely, bargain hunting in MTNN (+7.6%), DANGCEM (+4.3%), SEPLAT (+10.0%), WAPCO (+11.5%), GTCO (+7.5%) and PRESCO (+12.8%) lifted the All‑Share Index by 3.7% w/w to 162,228.56 points, bringing the year‑to‑date returns to +4.3%. Market activity softened, as trading volume and value declined by 47.2% and 30.7% w/w, respectively. Sector performance was broadly positive, as the Insurance (+6.8%), Industrial Goods (+5.0%), Oil & Gas (+4.7%), Banking (+3.1%) and Consumer Goods (+2.8%) indices all closed higher.
We expect trading to remain choppy but with a positive bias, as investors focus on the December inflation print and recalibrate risk appetite amid evolving macroeconomic signals.
Money Market and Fixed Income
The OVN rate expanded by 4bps to 22.8% as OMO auction debits (NGN2.70 trillion) outweighed inflows of NGN1.37 trillion from OMO maturities. As a result, average system liquidity tapered, closing at a net long position of NGN2.44 trillion (prior week: NGN3.77 trillion).
Barring any liquidity management measures, we expect inflows from OMO maturities (NGN810.10 billion) to boost system liquidity, possibly weighing on OVN rates.
Treasury Bills
The Treasury bills market was bearish this week as investors unwound positions to participate at the NTB PMA. Consequently, the average yield across all instruments increased by 27bps to 19.9%. Across segments, average NTB yields increased by 30bps to 17.8%, while average OMO yields declined by 16bps to 21.7%. At Wednesday’s NTB PMA, the DMO offered NGN1.15 trillion in bills, with total bids reaching NGN1.54 trillion (bid-to-offer: 1.3x).
Eventually, the DMO allotted NGN1.14 trillion at the auction (bid to cover: 1.3x), with stop rates rising across all tenors. The 91-D bill cleared at 15.80% (previous: 15.50%), the 182-D at 16.50% (previous: 15.95%), and the 364-D at 18.47% (previous: 17.51%). Notably, the DMO released the Q1-26 issuance calendar with NGN7.55 trillion (Q1-25: NGN4.32 trillion | 2025FY: NGN14.46 trillion) expected to be raised in the first quarter. Also, the CBN conducted an OMO auction, offering NGN600.00 billion worth of bills across the 161-D and 210-D tenors. Ultimately, NGN2.70 trillion was allotted at respective stop rates of 19.34% and 19.40%.
Ordinarily, with system liquidity expected to improve next week, this should drive demand for T-bills and cause yields to taper. However, we cite that the recent surge in supply at primary market auctions could affect the level of demand in the secondary market, causing a measured uptick in treasury yields.
Bonds
Bearish sentiments persisted in the FGN bond secondary market as local investors continued to position ahead of the recent trend of increased supply. Consequently, the average yield increased by 21bps at 16.8%. Across the curve, the average yield increased at the short (+25bps), mid (+23bps), and long (+5bps) segments driven by sell pressures on the AUG-2030 (+97bps), JUN-2033 (+42bps), and JAN-2042 (+24bps) bonds, respectively.
Next week, we do not rule out continued selloffs of bond instruments as investors seek to participate in upcoming treasury auctions where the DMO will likely maintain the elevated stop rates.
Foreign Exchange
The naira appreciated this week by 1.1% w/w to NGN1,418.72/USD, supported by the robust inflows from offshore players seeking to participate at the OMO PMA. Also, the gross FX reserves increased this week by USD36.32 million w/w to USD45.64 billion (January 7). In the forwards market, the naira rates appreciated across the 1-month (+2.3% to NGN1,458.67/USD), 3-month (+2.6% to NGN1,501.53/USD), 6-month (+2.3% to NGN1,566.08/USD) and 1-year (+2.4% to NGN1,1686.63/USD) contracts.
We anticipate that the naira will remain stable in the near term. This outlook is underpinned by a favourable external position, marked by a sustained current account surplus and robust foreign exchange reserves. In addition, continued investor confidence and elevated naira yields are expected to support steady capital inflows, further reinforcing currency stability.
Cordros
