Global Economy
At its January policy meeting, the Bank of England (BoE) voted by a narrow 5–4 majority to keep the Bank Rate at 3.75%, following a 25bps rate cut in December, with four members favouring an additional 25bps easing to 3.5%. Meanwhile, the Committee signalled scope for further policy loosening ahead amid moderating inflationary pressures and rising growth concerns. Specifically, the Committee noted that economic activity remains subdued, reflecting weak consumer demand alongside increasing softness in the labour market.
Additionally, the Committee acknowledged that inflation has eased materially from its double-digit peak three years ago and is projected to return to the 2.0% target by spring, supported by fiscal measures from last autumn’s budget — particularly the energy bill support due in April. In line with this softer outlook, the BoE revised its unemployment forecast higher to 5.3% from 5.0% and trimmed its 2026E GDP growth projection to +0.9% (November: +1.2%). Looking ahead, we expect the BoE to return to an easing path in coming meetings, supported by easing inflation dynamics, subdued growth, and rising unemployment. Although the Bank maintains a data -dependent stance, increasing downside risks to growth skew policy risks toward cautious easing, underpinning our expectation of a 25bps cut at the March 17 meeting.
Based on the recently released data from Eurostat, headline inflation in the Euro Area moderated by 30bps to 1.7% y/y in January (December: +2.0% y/y) – the lowest level in over a year and in line with market expectations. The moderation was largely driven by a sharper decline in energy prices (-4.1% y/y vs December: -1.9% y/y), and softer services inflation (+3.2% y/y vs December: +3.4% y/y). Food inflation (+2.7% y/y vs December: +2.5% y/y) edged higher, reflecting higher prices for unprocessed foods (+4.2% y/y vs December: +3.5% y/y), amid steady price increases for processed foods, alcohol & tobacco (+2.1% y/y vs December: +2.1% y/y). Meanwhile, core inflation (excluding energy, food, alcohol, and tobacco) softened further to 2.2% y/y (December: +2.3% y/y), marking its lowest level since October 2021 (2.1% y/y).
On a month-on-month basis, consumer prices declined by 0.5% (December: +0.2%). Headline inflation in the Eurozone is expected to remain under the ECB’s target of 2.0% in the near term, supported by continued declines in energy prices and the dampening effects of a stronger euro on import costs. Nonetheless, despite near term inflation undershooting the 2.0% target, resilient economic growth and a broadly neutral policy stance suggest the ECB is likely to keep rates unchanged in the near term.
Global Market
Global equities were mixed over the week, shaped by a fresh round of corporate earnings and guidance, swings in precious metals, key macro prints, and policy decisions from the ECB and BoE. At the time of writing, US equities (DJIA: +0.0%; S&P 500: -2.0%) were on track to close the week lower, as investors rotated out of tech and AI-linked names amid concerns over stretched valuations and elevated AI-related capex. Sentiment was further dampened by softer-than-expected jobs data, reinforcing concerns around a cooling labour market.
In contrast, European equities (STOXX Europe: +0.1%; FTSE 100: +0.8%) were set to finish higher, supported by a mixed but broadly resilient earnings tape, firmer macro data, and interest rate outcomes from the ECB and BoE that were largely in line with expectations. In Asia, Japanese equities (Nikkei 225: +1.7%) advanced, led by gains in technology and financial stocks, as a weaker yen improved the outlook for Japan’s export-oriented economy. Conversely, Chinese equities (SSE: -0.9%) closed lower, tracking Wall Street declines as investors remained cautious on technological stocks. Meanwhile, the Emerging and Frontier Market (MSCI EM: -1.3%; MSCI FM: -1.5%) indices declined, reflecting losses in China (-0.9%) and Vietnam (-3.6%), respectively.
Domestic Economy
According to the CBN, the Purchasing Manager’s Index (PMI) surpassed the 50-point threshold, indicating continued expansion of business activities in the Nigerian economy. Nonetheless, the composite PMI moderated to 55.7 points in January (December: 57.6 points), primarily reflecting a post-festive slowdown in business activity. Specifically, the Agriculture PMI (54.2 points vs. December: 58.5 points) remained in the expansionary territory but moderated due to easing in general farming activities, new orders, inventories, and employment levels.
The Services sector PMI (54.5 points vs December: 56.4 points) eased but remained in the expansionary level for the twelfth straight month, reflecting the moderation in business activities, new orders, and inventories. The moderation reflects a slowdown in activities across Accommodation & food services, Management of companies, Real estate, rental & leasing and Information & Communication sub-sectors. The Industry sector PMI (56.0 points vs December: 57.0 points) moderated, reflecting a slowdown in production, new orders and employment. Looking ahead, we expect improving macroeconomic conditions — particularly naira appreciation, moderating inflation, and strengthening business confidence — to support a sustained expansion in private sector activity.
Federation Accounts Allocation Committee (FAAC) disbursements to the three tiers of government in January (from the total revenue generated in December) increased moderately by 2.1% m/m to NGN1.97 trillion (December: NGN1.93 trillion). The increase is attributable to higher receipts from Companies Income Tax (CIT), Import Duty, Value Added Tax (VAT), Oil & Gas Royalty, and CET levies, which offset declines in Excise Duty, Petroleum Profit Tax (PPT)/Hydrocarbon Tax (HT), and EMTL. We estimate that the amount disbursed is 76.2% of the total gross revenue (NGN2.59 trillion) generated in the previous month, with the remaining balance allocated to transfers, interventions, and refunds (NGN511.59 trillion), as well as collection costs (NGN104.70 billion).
Based on the stipulated sharing revenue formula, the FGN received NGN653.50 billion (December: NGN747.16 billion), State Governments received NGN706.47 billion (December: NGN601.73 billion), Local Governments received NGN513.27 billion (December: NGN445.26 billion), while oil-producing states received an additional NGN96.08 billion (December: NGN134.36 billion) as derivation (13% of mineral revenue). In the near term, we expect potential revenue upside from two key channels — an expected recovery in domestic oil production and stronger Company Income Tax (CIT) collections. However, naira appreciation alongside softer global oil prices could limit FX-related gains on dollar-denominated revenues and weigh on petroleum profit tax inflows, thereby moderating the overall pace of FAAC growth.
Capital Markets: Equities
Risk on sentiment dominated the domestic equities market this week, supported by positive reactions to corporate earnings releases and select company specific developments. Gains in MTNN (+8.4%), DANGCEM (+7.1%) SEPLAT (+10.0%), WAPCO (+6.4%) and STANBIC (+8.5%) drove the All-Share Index up by 3.8% w/w to 171,727.49 points, bringing the year-to-date returns to +10.4%. Market activity also strengthened, with total trading volume and value rising by 53.5% w/w and 98.3% w/w, respectively. Sector performance was broadly positive, as the Oil & Gas (+10.9%), Industrial Goods (+4.4%), Banking (+3.6%), and Consumer Goods (+1.0%) advanced, while the Insurance (-2.3%) index declined.
Looking ahead, we expect trading activity to remain somewhat choppy, driven by continued positioning in market bellwethers, alongside bouts of profit taking as recent gains are digested.
Money Market and Fixed Income
The OVN rate declined by 355bps to 22.8%, driven by inflows from OMO maturities (NGN1.03 trillion). Average system liquidity remained strong, closing at an average net long position of NGN4.05 trillion (prior week: NGN3.42 trillion).
Barring any liquidity management measures by the CBN, we expect inflows from OMO maturities (NGN993.00 billion) to boost system liquidity, potentially weighing on the OVN rate.
Treasury Bills
The Treasury bills secondary market closed on a bullish note, as investors mopped up unmet bids from the primary market auction (PMA), driving the average yield across all instruments lower by 24bps to 19.7%. Across segments, average NTB yields declined sharply by 60bps to 17.6%, while average OMO yields increased by 26bps to 21.8%. At Wednesday’s NTB PMA, the DMO offered NGN1.15 trillion in bills, with total subscriptions reaching NGN4.59 trillion (bid-to-offer: 4.0x). Ultimately, NGN952.60 billion was allotted (bid-to-cover: 4.8x), maintaining stop rates on the 91 Day tenor (15.84%) and 182 Day tenor (16.65%), while the stop rate on the 364 Day tenor declined by 137bps to 16.99%.
With the expectations of still strong system liquidity in the coming week, sustained investor demand is likely to support a modest moderation in secondary market yields.
Bonds
Similarly, the FGN bond secondary market was bullish, driven by strong offshore demand. Consequently, average FGN bond yields decreased by 31bps to 16.2%. Across the curve, the average yield decreased at the short (-25bps) and mid (-39bps) segments, driven by demand for the AUG-2030(-65bps) and JUN-2033 (-91bps) bonds, respectively; the long end was unchanged.
Over the medium to long term, FGN bond yields are likely to remain broadly stable, with ample system liquidity and robust auction demand cushioning the potential impact of increased supply from the 2026 fiscal deficit.
Foreign Exchange
The naira appreciated this week by 1.4% w/w to NGN1,375.00/USD. Notably, the level of appreciation was strong during the week, resulting in the CBN purchasing approximately USD72.00 million from the market. Also, the gross FX reserves increased this week by USD736.69 million w/w to USD46.91 billion (February 5). In the forwards market, the naira rates appreciated across the 1-month (+1.6% to NGN1,391.15/USD), 3-month (+1.4% to NGN1,433.84/USD), 6-month (+1.6% to NGN1,493.72/USD) and 1-year (+0.9% to NGN1,598.67/USD) contracts.
Looking ahead, we expect foreign investor appetite for Nigeria’s capital market to remain robust, underpinned by a supportive macroeconomic backdrop, enhanced market efficiency, and elevated naira yields. These factors should continue to underpin capital inflows and FX liquidity, while rising external reserves provide the CBN with adequate buffers to stabilise the naira during periods of volatility. Consequently, we expect the naira to remain firm in the near term.
