Global Economy
According to the United States Department of Labor, initial jobless claims declined by 9,000 to 211,000 in the week ending 28 December (vs the week ending 21 December: 220,000), coming in below market expectation of 222,000. For us, the data reflects resilient labour market conditions, especially given the reduced level of layoffs as the US economy remains strong. Nonetheless, we highlight that employers remain cautious about workforce expansions following the hiring surge during the post-COVID-19 recovery.
Additionally, continuing claims for unemployment insurance increased by 81,926 claims to 1.97 million in the week ending 14 December. On a 4-week moving average, the initial jobless claims declined by 3,500 to 223,250 (vs week ending 21 June: 226,750). We expect the labour market to remain tight in the near term, just as economic activities remain resilient. Simultaneously, we believe the data print strengthens the possibility that the US Fed will elect to ‘HOLD’ on further downward adjustments to the Fed Funds rate at the next monetary policy meeting. Indeed, the CME FedWatch Tool currently indicates an 88.8% probability that the Fed will keep the key policy rate unchanged at the 29 January policy meeting.
According to China’s National Bureau of Statistics (NBS), the country’s private sector activity continued to show resilience as the Composite PMI rose to a nine-month high of 52.2 points in December (November: 50.8 points). Analysing the breakdown, the non-Manufacturing PMI (52.2 points vs November: 50.0 points) expanded due to improved service sector activity, driven by increased fiscal support which boosted infrastructure spending.
At the same time, factory activity as measured by the Manufacturing PMI (50.1 points vs November: 50.3 points) indicated sustained expansion, remaining above the 50-point benchmark for the third consecutive month driven by government stimulus efforts. However, the pace of expansion in factory activities eased marginally due to lower output. While we acknowledge the current positives in China’s private sector activities partly supported by the rising domestic demand and government stimulus measures, we highlight that uncertainties persist, particularly concerning geopolitical tensions and potential tariff increases by the incoming Donald Trump administration, which poses threats to external demand and may impact overall performance over the short to medium term.
Global Equities
Global equities experienced mixed sentiments this week as investors engaged in year-end profit-taking amid uncertainties regarding the economic outlook under a Trump presidency and weak manufacturing data from major economies, including the UK and China. US equities (DJIA: -1.4%; S&P 500: -1.7%) were on track to close in negative territory at the time of writing as investors took profits, repositioned their portfolios, and responded to the downward revision in fourth-quarter GDP estimates.
In contrast, European equities (STOXX Europe: +0.4%, FTSE 100: +1.3%) were poised to close higher, supported by optimism around interest rate cuts by the European Central Bank (ECB), following weak UK manufacturing data. Also, Equities markets in Asia pared (Nikkei 225: -1.0%, SSE: -5.6%), reflecting profit-taking in Japan on the final trading day of 2024 and investor concerns over a weaker-than-expected growth in China’s manufacturing activity. Meanwhile, the Emerging Market (MSCI EM: -1.1%) index settled lower, driven by losses in China (-5.6%), while the Frontier Market (MSCI FM: +0.3%) index advanced following gains in Morocco (+4.0%).
Nigeria: Domestic Economy
According to data from the Central Bank of Nigeria (CBN), Credit to the Private Sector (CPS) surged by 27.3% y/y to NGN75.96 trillion in November (November 2023: NGN59.69 trillion). We believe the continuous increase in CPS reflects the impact of CBN’s enforcement of the 50.0% loan-to-deposit ratio and the conversion effect of currency depreciation on banks’ foreign-denominated assets. Similarly, Credit to the Government surged to a record high of NGN39.62 trillion in November, representing a 54.4% y/y increase from NGN25.66 trillion in November 2023, indicating increased government borrowings from domestic banks for deficit financing.
Overall, broad money supply (M3) grew by 51.3% y/y to NGN108.97 trillion, following increases across quasi (+61.3% y/y) and narrow (+38.0% y/y) money supply. On a month-on-month basis, the CPS rose by 2.5% in November (October: -2.3% m/m to NGN74.07 trillion). We expect the CPS to continue expanding in the short term as we believe the re-enforcement of the CBN’s limit on the loans-to-deposits macro-prudential ratio for deposit money banks (DMBs) will continue to drive the willingness of commercial banks to create risk assets. Nonetheless, we acknowledge that the increased monetary policy tightening measures may tether CPS growth.
According to the Domestic and Foreign Portfolio Report of the Nigerian Exchange (NGX), total transactions in the local bourse declined by 12.0% m/m to NGN442.34 billion in November (October: NGN502.73 billion). We highlight that the lower participation in the local bourse may be primarily attributed to investors’ preference for debt securities due to attractive yields in the fixed-income market. Specifically, domestic inflows (90.7% of gross transactions) dipped by 11.8% m/m to NGN401.40 billion (October: NGN455.27 billion) due to a decline in collections from institutional investors (-27.8% m/m) amid increases from retail investors (+14.9% m/m).
On the other hand, foreign inflows (9.3% of gross transactions) dropped after a month of expansion, declining by 13.7% m/m to NGN40.94 billion in November (October: NGN47.46 billion). While we expect domestic investors to continue to contribute the most to total transaction value, we think buying activities, generally, will be constrained by elevated yields in the fixed income market. Additionally, we think the ongoing geopolitical tensions are likely to constrain FPI participation in the Nigerian stock exchange market.
Capital Markets: Equities
The domestic bourse closed the week on a positive note, driven by gains in BUAFOODS (+5.1%), MTNN (+3.1%), and WAPCO (+3.6%). As a result, the All-Share Index (ASI) advanced by 1.4% w/w to 103,586.33 points, with the Year-to-Date return settling at +0.6%. Trading activity was robust, as both trading volume and value increased by 93.9% w/w and 35.9% w/w, respectively. Sectoral performance was broadly positive, as the Insurance (+26.9%), Consumer Goods (+2.2%), Banking (+0.6%) and Industrial Goods (+0.5%) indices recorded gains, while the Oil & Gas (-0.4%) index closed the week lower.
As the new year unfolds, we anticipate heightened market volatility with a bullish tilt, driven by ongoing portfolio rebalancing activities as investors respond to evolving macroeconomic conditions, shifting market sentiment, and position for the earnings season ahead.
Money Market and Fixed Income
The overnight (OVN) rate expanded by 14bps w/w to 27.3% as debits for the OMO auction (NGN500.00 billion) and CRR outweighed inflows from government contractor payments (c. NGN600.00 billion). Nonetheless, the average liquidity closed at a net long position of NGN471.76 billion (vs net short position of NGN402.18 billion in the prior week).
Next week, barring any liquidity management measure by the CBN, we expect system liquidity to remain strong, thereby causing further moderation in the OVN rate.
Treasury Bills
The Treasury bills secondary market was quiet this week, with trading volumes remaining low as most market participants have yet to resume activities for the year fully. Accordingly, the average yield held steady at 26.2%. Across the market segments, the average yield pared by 7bps to 25.5% in the NTB segment but increased by 3bps to 27.2% in the OMO segment.
The CBN conducted an OMO auction on Monday, offering instruments worth NGN500.00 billion – NGN250.00 billion for the 358D and NGN250.00 billion for the 365D – to investors. Total subscription settled at NGN931.32 billion (bid-to-offer: 1.9x), with the CBN allotting exactly what was offered – NGN100.00 billion for the 358D and NGN400.00 billion for the 365D instruments.
Based on our projection of still strong system liquidity in the coming week, we expect yields in the Treasury bills secondary market to trend lower. Additionally, the DMO is scheduled to hold an NTB PMA next Wednesday (8 January), with NGN74.41 billion worth of maturing bills on offer.
Bonds
Similarly, activities in the FGN bond secondary market were subdued as we observed only retail-sized trades from cautious investors. Consequently, the average yield inched higher by 3bps to 19.8%. Across the benchmark curve, the average yield expanded at the short (+14bps) and mid (+1bp) segments following selloffs of the JAN-2026 (+63bps) and JUL-2034 (+1bp) bonds, respectively. The average yield closed flat at the long end.
Next week, we still expect quiet proceedings as we believe investors are likely to align their strategies with evolving macroeconomic conditions and the release of the FGN bond calendar. Meanwhile, we also maintain our short-term expectation of elevated yields consequent on (1) anticipated monetary policy administration globally and domestically and (2) sustained imbalance in the demand and supply dynamics.
Foreign Exchange
The naira closed flat this week at NGN1,534.05/USD at the Nigerian Foreign Exchange Market (NFEM) despite the CBN intervention at the official window, as the apex bank sold c. USD37.10 million to authorized dealers. Notably, the country’s FX reserves grew by USD9.60 million w/w to USD40.88 billion (30 December). In the forwards market, the naira rates increased across the 1-month (+0.3% to NGN1,573.93/USD), 3-month (+0.5% to NGN1,631.60/USD), 6-month (+0.9% to NGN1,711.77/USD) and 1-year (+1.9% to NGN1,880.59/USD) contracts.
We highlight that the CBN has been primarily supporting FX liquidity, as FPI inflows have remained tepid partly due to existing geopolitical risks including the Middle East regional conflicts, Russia-Ukraine war and the expectation of rising global trade protectionism. Going ahead, we believe FX liquidity will be suboptimal to keep the naira stable in the near term, just as FX demand increases.
