Global Economy
At its second meeting of the year, the Federal Open Market Committee (FOMC) voted to maintain the federal funds rate at 3.50% – 3.75%, in line with market expectations. The Committee noted that economic activity remains resilient, though the labour market has shown signs of softening, reflected in a modest uptick in the unemployment rate (February 2026: +10bps to 4.4% m/m). Inflation (February: 2.4% y/y), however, remains somewhat elevated. In addition, the Committee highlighted that the economic impact of the ongoing developments in the Middle East remains uncertain and emphasised that it will remain attentive to risks on both sides of its dual mandate.
Notably, the Committee retained its projection of a 25bps rate cut in 2026, while revising its PCE inflation forecast upward to 2.7% y/y (previous: 2.4% y/y). Furthermore, the GDP growth projection for 2026 was raised to 2.4% y/y (previous: 2.3% y/y). The Fed highlighted that it will continue to assess incoming information and its implications for the economic outlook in determining the appropriate stance of its monetary policy. Looking ahead, we expect the Federal Reserve to keep rates unchanged in the near term as it assesses the impact of the US-Iran conflict on the broader economic trajectory.
Specifically, the conflict-driven oil price shock has reduced the likelihood of rate cuts in the near term, suggesting that any policy easing will likely be delayed until clearer evidence of sustained disinflation emerges, consistent with the Fed’s medium term 2.0% target. This view aligns with market pricing, with the CME FedWatch tool indicating a 96.9% probability of a hold at the 29 April meeting.
According to China’s National Bureau of Statistics, retail sales grew by 2.8% y/y in the first two months of 2026 (January and February data are combined to adjust for the Lunar New Year base effects), rebounding from a three-year low of 0.9% y/y in December and coming in above market expectations of 2.5% y/y. The outturn marked the fastest growth since October 2025, supported in part by holiday related spending, which drove broad based gains in consumer activity. Specifically, disaggregated data showed strong gains across key consumption categories, including grains, oil, and food products (+10.2% y/y vs December: +3.9% y/y), clothing, footwear, and textiles (+10.4% y/y vs December: +0.6% y/y), home appliances and audio visual equipment (+3.3% y/y vs December: -18.7% y/y) and tobacco and alcohol (+19.1% y/y vs December: -2.9% y/y).
In contrast, petroleum products (-9.7% y/y vs December: -11.0% y/y) and automobiles sales (-7.3% y/y vs December: -5.0% y/y) remained in contraction, albeit with a slightly improved momentum in petroleum products. On a month-on-month basis, retail sales increased by 0.8% m/m (December: +0.7% m/m). Looking ahead, despite the stronger start to the year, we highlight that underlying consumption remains fragile, with growth still below January and February 2025 levels (+4.0% y/y), pointing to subdued household confidence and cautious spending behaviour. While policy support and seasonal factors may provide intermittent boosts to consumption, we expect retail sales growth to remain modest, with downside risks stemming from persistent weakness in the property sector and ongoing external headwinds.
Global Markets
Bullish sentiment resurfaced in the global equity markets this week despite persistent tensions in the Middle East. Early week optimism was supported by softer oil prices after Iraq agreed to resume exports through Turkey’s Ceyhan port, easing fears of supply disruptions tied to the Iran conflict. However, renewed attacks on energy infrastructure across the region triggered a rebound in oil prices by midweek, reinforcing investor caution. For the remainder of the week, market direction is likely to remain sensitive to oil price movements, broader macroeconomic developments, and monetary policy decisions from major central banks.
At the time of writing, major US indices (DJIA: +0.2%; S&P 500: +0.6%; NASDAQ 100: +1.2%) were poised to close the week higher, as renewed optimism emerged that disruptions to energy exports from the Persian Gulf may not ultimately evolve into a stagflationary shock, driving a rotation back into credit sensitive sectors. That said, sentiment was tempered midweek by hotter-than-expected producer inflation data, which added to existing concerns around a potential inflationary impulse from elevated crude prices.
European equities (STOXX Europe 600: +0.6%; FTSE 100: +1.0%) were also on track to close higher, buoyed by the early week moderation in oil prices and indications that major economies could release additional oil stockpiles if needed. In Asia, Japan’s Nikkei 225 (+2.6%) was set to close higher as investors rotated toward segments viewed as less exposed to Middle East tensions, particularly artificial intelligence and technology names. In contrast, Chinese equities (SSE: -0.8%) trended lower, as heightened geopolitical uncertainty and the rebound in oil prices pressured risk sentiment. Elsewhere, Emerging markets (MSCI EM: +0.2%) were set to advance, primarily supported by gains in India (+2.7%) and Brazil (+0.6%); while Frontier markets (MSCI FM: -0.2%) edged lower, reflecting losses in Vietnam (-0.1%) and Romania (-0.1%).
Domestic Economy
According to the National Bureau of Statistics (NBS), headline inflation moderated slightly to 15.06% y/y in February (January: 15.10% y/y), driven mainly by a slowdown in core inflation. Specifically, core inflation eased by 184bps to 15.88% y/y (January: 17.72% y/y), reflecting softer price pressures across clothing and footwear, transportation, and utilities. In contrast, food inflation rebounded into the double digit territory, rising sharply by 323bps to 12.12% y/y (January: 8.89% y/y), largely due to higher farm produce prices amid tighter supply conditions during the ongoing planting season. On a month-on-month basis, consumer prices reversed the prior month’s decline, rising by 2.01% (January: -2.88% m/m).
Looking ahead, we expect inflationary pressures to strengthen in the near term, driven primarily by higher energy costs, increased consumer demand associated with the Eid al-Fitr celebrations and persistently tight supply of farm produce. As such, we project a month-on-month increase in inflation to 3.50% in February. However, a high base effect in March 2025 (+3.90% m/m) may lead to a moderation in the year-on-year inflation rate to approximately 14.62%.
According to data from the Federation Accounts Allocation Committee (FAAC), disbursements to the three tiers of government declined by 3.8% m/m to NGN1.89 trillion in February (January: NGN1.97 trillion), reflecting lower revenues generated in the prior month. The decline was primarily driven by weaker receipts from Petroleum Profit Tax (PPT), Hydrocarbon Tax (HT), Companies Income Tax (CIT)/CGT, Stamp Duties (SDT), and Value Added Tax (VAT), which more than offset increases in Oil and Gas Royalty, Excise Duty, Import Duty, and CET Levies. We estimate that the amount disbursed is 84.9% of the total gross revenue (NGN2.23 trillion) generated in the previous month, with the remaining balance allocated to transfers, interventions, and refunds (NGN259.08 billion), as well as the cost of collection (NGN77.30 billion).
Based on the stipulated sharing revenue formula, the FGN received NGN675.09 billion (January: NGN653.50 billion), State Governments received NGN651.53 billion (January: NGN706.47 billion), Local Governments received NGN456.46 billion (January: NGN513.27 billion), while oil producing states received an additional NGN110.95 billion (January: NGN96.08 billion) as derivation (13.0% of mineral revenue).
In the near term, we expect FAAC revenues to strengthen, supported by higher oil-related receipts amid firmer crude oil prices (2026E: USD78.00/bbl vs 2025FY: USD68.19/bbl) and higher production (2026E: 1.75 mbpd vs 2025FY: 1.64 mbpd). This outlook is further supported by the full remittance of profits from Production Sharing Contracts (PSCs) by NNPCL, in line with the new policy mandate (compared to the previous 40.0% remittance threshold) alongside reduced collection costs. Additionally, CIT collections are expected to remain resilient, supported by gradual improvements in macroeconomic conditions.
Capital Markets: Equities
The domestic stock market closed the holiday-shortened week on a positive note, advancing in two of the three trading sessions. Investor sentiment was supported by a softer headline inflation print for February, alongside selective bargain hunting in bellwether names such as BUACEMENT (+21.0%), ZENITHBANK (+14.6%), DANGCEM (+1.9%) and WAPCO (+5.9%). As a result, the All-Share Index advanced by 1.4% w/w, crossing the 200,000-point mark to settle at 200,874.89 points. Accordingly, the month-to-date and year-to-date returns strengthened to +4.3% and +29.3%, respectively. On market activity, total trading volume and value advanced by 166.2% w/w and 62.3% w/w, respectively. Sectoral performance was mixed, as the Industrial Goods (+5.7%), Oil & Gas (+1.5%) and Consumer Goods (+0.6%) indices posted gains, while the Insurance (-4.6%) and Banking (-1.0%) indices closed lower.
Looking ahead, investor attention is expected to shift toward corporate actions, with major Banks set to release audited full year results and dividend declarations next week. We expect positioning ahead of qualification dates to support selective buying interest, particularly across fundamentally sound, high-yield counters.
Money Market and Fixed Income
The OVN rate declined by 13bps to 22.2%, supported by NGN785.75 billion in inflows from OMO maturities and NGN140.55 billion in FGN bond coupon payments. Accordingly, system liquidity remained robust, settling at an average net long position of NGN7.56 trillion, compared with NGN6.52 trillion in the prior week.
Barring any mop up activities, we expect liquidity to remain strong, supported by inflows from OMO maturities (NGN1.55 trillion), NTB maturities (NGN745.80 billion) and FGN bond coupon payments (NGN164.29 billion). The preceding should lead to a further moderation in the OVN rate next week.
Treasury Bills
The Treasury Bills secondary market was bullish, with the average yield declining by 22bps to 19.0%. By segments, NTB yields increased by 4bps to 17.7% as investors unwound positions ahead of the NTB PMA, while OMO yields declined by 22bps to 20.6% as the absence of an OMO PMA redirected demand to the secondary market.
Given our expectation of robust system liquidity, we anticipate Treasury bills secondary market yields to ease in the near term.
Bonds
The FGN bond market was quiet, albeit with a bearish tone, as the average yield rose 1bp to 15.8%. Across the curve, the average yield increased at the short end (+3bps), following sell pressure on the MAR-2037 (+26bps) bond, while it closed flat at the mid and long ends.
Next week, we expect trading activity to be influenced by the release of the March auction circular, as investors gauge supply levels. Over the medium- to long term, FGN bond yields are expected to trend lower, supported by a sustained monetary easing cycle and ample liquidity in the financial system.
Foreign Exchange
The naira appreciated by 2.0% w/w to NGN1,357.45/USD, driven by supply from IOCs and offshore investors. Elsewhere, after eleven consecutive weeks of increases, the gross FX reserves declined by USD108.22 million w/w to USD50.03 billion (March 16). In the forwards market, the naira rates appreciated across the 1-month (+1.6% to NGN1,378.57/USD), 3-month (+1.6% to NGN1,415.22/USD), 6-month (+1.6% to NGN1,468.56/USD) and 1-year (+1.4% to NGN1,575.24/USD) contracts.
We expect the naira to remain stable in the near term, though downside risk persists. Despite the ongoing US–Iran conflict, which has heightened investor caution, a relatively stronger external backdrop and elevated naira yields are likely to continue supporting foreign portfolio inflows, albeit at a more moderate pace compared to pre-conflict levels. In addition, improving export receipts should provide further support for currency stability. Nonetheless, should demand pressures re-emerge, we expect the CBN to undertake measured FX interventions to contain excessive volatility.
