Global Economy
According to recently released data from Eurostat, the Euro Area’s consumer prices rose to a six-month high of 2.5% y/y in January (December 2024: +2.4% y/y), coming in above market expectations of a 2.4% y/y print. We attribute the higher inflationary pressure to the substantial increase in energy prices despite the slowdown in the cost of food.
Analyzing the breakdown, energy prices (+1.8% y/y vs December: +0.1% y/y) rose for the second consecutive month, while food, alcohol & tobacco (+2.3% y/y vs December: +2.6% y/y) prices slowed. At the same time, core inflation remained steady at 2.7% y/y for the fifth consecutive month. Looking ahead, we anticipate that Eurozone inflation will remain elevated in the short term on account of upside risks stemming from rising energy prices, global trade uncertainties and a stronger US dollar.
However, despite recent inflation data, we believe the European Central Bank (ECB) will maintain an accommodative monetary policy stance in the near term, given that the bloc’s economy remains fragile, with potential downside risks from US tariffs potentially hurting exports and weighing on growth prospects.
At the February monetary policy meeting, the Monetary Policy Committee (MPC) of the Bank of England (BoE) unanimously voted to cut the bank rate by 25bps to 4.5% (Previous: 4.75%). Seven members supported a 25bps rate cut, while the remaining two favoured a 50bps reduction.
The decision to lower the policy rate was largely influenced by the waning effects of past external shocks and progress in curbing inflationary pressures. Meanwhile, economic growth remained subdued, weighed down by global trade frictions. Nonetheless, the Committee anticipates inflation will rise to 3.7% y/y in Q3-25, influenced by higher global energy costs, regulated price adjustments, and tariff threats from the US.
Nonetheless, the Committee expects inflation to ease toward the 2.0% target by the tail end of the year as underlying domestic inflationary pressures subside. While we anticipate the BoE will maintain an accommodative stance on the bank rate in response to the sluggish economic growth and prevailing downside risks, we believe they will adopt a cautious stance at the next monetary policy meeting, given the uncertainty surrounding potential US trade tariffs. The preceding synchronizes neatly with the latest Market Participants Survey (MaPS) projection, which indicates that the BoE will “HOLD” the key interest rate at the 20 March meeting.
Global Market
Global equities traded broadly positive this week as investors digested developments related to global trade tensions, corporate earnings, key economic data from major economies, and the Bank of England’s (BoE) policy rate decisions. At the time of writing, U.S. equities (DJIA: +0.5%, S&P 500: +0.7%) were on track to end the week on a positive note as investors reacted to (1) President Trump’s decision to suspend tariffs on Mexico and Canada, (2) a mix of corporate earnings reports and (3) key economic data (including, ISM manufacturing PMI, jobless claims, and nonfarm payrolls). Similarly, European equities (STOXX Europe: +1.0%, FTSE 100: +0.6%) were poised to close the week higher, supported by positive investor sentiment following the BoE’s interest rate cut and dovish guidance.
Market sentiments were also influenced by key economic data, including Eurozone and UK manufacturing PMI, Euro area inflation, and strong earnings reports from GSK, AstraZeneca, UBS, and BNP. Asian equities trading was mixed, with the Japanese Nikkei 225 (-2.0%) closing lower as a strong rebound in domestic personal spending and a second consecutive month of real wage growth reinforced expectations of a hawkish stance from the Bank of Japan.
In contrast, Chinese equities (SSE: +1.6%) advanced, fueled by optimism over Chinese AI startup, DeepSeek’s breakthrough and easing concerns over a global trade war. Meanwhile, the Emerging Market (MSCI EM: +0.8%) settled higher, reflecting gains in China (+1.6%), while the Frontier Market (MSCI FM: -0.1%) declined, driven by losses in Morocco (-0.4%).
Nigeria: Domestic Economy
Based on the data obtained from FMDQ, total inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) rose by 53.3% m/m to USD4.74 billion in January (December: USD3.09 billion). The improvement was primarily due to a substantial increase in inflows from foreign sources (48.8% of total inflows) and collections from local sources (51.2% of total inflows). Specifically, inflows from foreign sources increased by 192.1% m/m to USD2.31 billion (December: USD790.30 million) – the highest level in twenty-three months – supported by increased market confidence and improved carry trade opportunities in the capital market.
As a result, the FPI (+213.0% m/m) segment recorded higher accretion, while inflows from other corporates (-45.4% m/m) and FDI (-36.5% m/m) segments dropped. At the same time, inflows from local sources increased by 5.6% m/m to USD2.43 billion (December: USD2.30 billion) driven by increase in inflows from individuals (+33.2% m/m), exporters/importers (+20.9% m/m) and CBN (+20.1% m/m) segments, amid a decline in the non-bank corporates (-10.7% m/m) segment. Barring any shock, we anticipate FX inflows to remain robust in the short term due to improved market confidence, which has been bolstered by the adoption of the Electronic Foreign Exchange Market System (EFEMS).
According to the Central Bank of Nigeria (CBN), international payments facilitated by the apex bank marginally increased by 2.7% y/y to USD5.63 billion in 9M-24 (9M-23: USD5.48 billion). We attribute the increase to the significant rise in foreign debt service payments, which accounted for 63.6% of the total international payments and grew by 39.8% y/y to USD3.58 billion (9M-23: USD2.56 billion). This was primarily due to repayments of matured multilateral and bilateral loans. However, payments for letters of credit declined by 52.5% y/y to USD506.06 million (9M-23: USD1.07 billion), partly reflecting lower imports amid weaker consumer demand.
Similarly, direct remittances declined by 16.7% y/y to USD1.55 billion (9M-23: USD1.86 billion) due to decreased payments for international services by Nigerian residents. Looking ahead, we expect international payments to remain elevated, primarily due to FG’s debt repayment and servicing obligations. Subsequently, as foreign exchange liquidity improves and consumer demand strengthens over the medium term, we expect to see a gradual rise in imports of goods and services, which will in turn cause increases in payments of letters of credit and direct remittances.
Capital Markets: Equities
Positive sentiment prevailed in the domestic stock market this week, with all five trading sessions closing in the green as investors reacted positively to a fresh batch of corporate earnings reports. Notably, gains in PRESCO (+19.7%), FBNH (+10.2%), and MTNN (+2.0%) drove a 1.3% w/w increase in the All-Share Index to 105,933.03 points, bringing the Year-to-Date return to +2.9%.
However, trading activity remained mixed as the total trading volume declined by 5.9% w/w, while trading value increased by 42.3% w/w. Meanwhile, sectoral performance was broadly positive as the Banking (+4.7%), Insurance (+1.6%), Industrial Goods (+0.9%), and Oil & Gas (+0.6%) indices gained, while the Consumer Goods (-0.6%) index was the sole loser of the week.
Next week, the bullish momentum is expected to persist, driven by a fresh round of corporate results and dividend announcements, with investor optimism leaning toward stocks with strong financial performance.
Money Market and Fixed Income
The overnight (OVN) rate expanded by 318bps w/w to 32.8%, driven by the impact of large debits from last Friday’s OMO auction (NGN1.00 trillion), which outweighed inflows from net NTB maturities (NGN285.37 billion) and FGN bond coupon payments (NGN154.23 billion). As a result, the average system liquidity settled at a net short position of NGN195.37 billion (vs a net long position of NGN514.01 billion in the previous week).
Next week, in the absence of significant inflows to saturate system liquidity, we expect the OVN rate to remain elevated.
Treasury Bills
The Treasury bills secondary market traded with bullish sentiments this week as market participants sought to fill unmet bids from the NTB PMA. Accordingly, the average yield declined by 64bps to 24.6%. Across the market segments, the average yield declined by 89bps to 22.5% in the NTB segment, while it declined by 46bps to 27.1% in the OMO segment. At Wednesday’s NTB auction, the DMO offered bills worth NGN670.00 billion – NGN50.00 billion for the 91D, NGN120.00 billion for the 182D, and NGN500.00 billion for the 364D bills.
Subscription level settled significantly higher at NGN3.22 trillion (previous auction: NGN2.54 trillion), with a bid-to-offer ratio of 4.8x (previous auction: 4.8x). The auction closed with the DMO allotting exactly what was offered – NGN31.94 billion for the 91D, NGN18.69 billion for the 182D, and NGN619.37 billion for the 364D papers – at respective stop rates of 18.00% (unchanged), 18.50% (unchanged) and 20.32% (previous: 21.80%).
We expect the liquidity dearth in the system next week to cause demand for bills to wane, causing yields in the T-bills secondary market to trend higher.
Bonds
In line with our expectations, the bond secondary market was bullish this week, underpinned by renewed interest in the JAN-2035 bond, which declined by 92bps during the week. Hence, the average yield decreased by 16bps to 20.5%. Across the benchmark curve, the average yield decreased at the short (-15bps) and mid (-28bps) segments, driven by demand for the JAN-2026 (-113bps) and JUN-2033 (-54bps) bonds respectively, while the average yield closed flat at the long end.
Next week, we anticipate sustained investor interest in high-yielding bonds, precisely the new 10-year bond. Over the medium term, we expect a moderation in yields consequent on the (1) anticipated direction of monetary policy administration and (2) slower borrowing pace by the Federal Government.
Foreign Exchange
The naira depreciated by 1.8% to NGN1,501.61/USD at the Nigerian Foreign Exchange Market (NFEM), despite inflows from FPIs and the intervention of the CBN, selling USD60.30 million to authorized dealers. Also, the FX reserves level declined for the fifth consecutive week by USD269.78 million w/w to USD39.45 billion (6 February). In the forwards market, the naira rates decreased on the 1-month (-0.1% to NGN1,533.91/USD) contract, while it increased across the 3-month (+0.8% to NGN1,592.44/USD), 6-month (+1.6% to NGN1,678.48/USD) and 1-year (+3.7% to NGN1,844.88/USD) contracts.
In the near term, we expect FX market liquidity to remain strong, driven by inflows from foreign portfolio investors (FPIs), supported by attractive carry trade opportunities and a relatively stable naira. However, global uncertainties, including the ripple effects of US trade tariffs, pose a significant risk. Additionally, we anticipate that the CBN will maintain its interventions, particularly during periods of liquidity shortages. As a result, we foresee the naira holding steady in the short term.
