Global Economy
According to the Bureau of Labor Statistics (BLS), headline inflation in the United States came in below market expectation (2.9% y/y), easing by 20bps to 2.8% y/y in February (January: 3.0% y/y). We attribute the deceleration in US consumer prices to the sharp decline in energy prices (-0.2% y/y vs January: +1.0% y/y), induced by the contraction in gasoline and fuel oil prices due to falling crude oil prices.
At the same time, core inflation (+3.1% y/y vs January: +3.3% y/y) decelerated, recording its lowest level in 47 months, primarily due to weaker costs of shelter, used cars & trucks, and transportation amid the subdued vehicle prices.
Conversely, food prices (+2.6% y/y vs January: +2.5% y/y) rose to a 13-month high on higher prices of food-away-from-home (+3.7% y/y vs January: +3.4% y/y) while the cost of food at home (+1.9% y/y) steadied. That said, US headline inflation eased on a month-on-month basis, with prices of goods and services climbing at a slower pace of 0.2% in February (January: +0.5% m/m).
Looking ahead, we anticipate that US headline inflation will remain above the 2.0% target in the short to medium term, primarily driven by the ongoing tariff wars between the US and key trading partners. Consequently, we retain our expectation that the FOMC will favour a more cautious stance, keeping interest rates unchanged in the near term. Ultimately, the CME FedWatch tool now reflects a 97.0% probability of a “HOLD” decision at the March 19 meeting.
According to the Chinese National Bureau of Statistics, China’s consumer prices contracted for the first time in 13 months, declining by 0.7% y/y in February (January: +0.5% y/y). We note that the observed deflationary pressure is attributable to the fading seasonal demand following the recently concluded Lunar New Year holiday, amid weaker food, tobacco, and alcohol prices in the period.
Analyzing the breakdown, food inflation (-3.3% vs January: +0.4% y/y) declined primarily due to the sharp contraction in fresh vegetable prices (-12.6% y/y vs January: +0.4% y/y) and the slowdown in pork prices (+4.1% y/y vs January: +13.8% y/y). Additionally, core inflation (-0.1% y/y vs January: +0.6% y/y) declined for the first time since January 2021 (-0.3% y/y) partly due to weaker transport prices in the period. Ultimately, from a month-on-month standpoint, prices of goods and services in China declined to 0.2% (January: +0.7% m/m).
Looking ahead, we expect deflationary pressures to persist in the near term as China continues to struggle with subdued domestic demand. For us, these pressures pose a significant risk to the country’s growth outlook, exacerbated by weak consumer spending, an uncertain employment landscape, a prolonged property sector downturn, and escalating trade tensions with the U.S.
These factors create additional headwinds for the Chinese economy, reinforcing the need for further monetary policy easing in the short to medium term. While the central bank may opt to keep rates unchanged at this month’s meeting (March 20), we do not rule out the possibility of a rate cut in the second quarter.
Global Market
The global equities market experienced intensified selloffs this week as escalating trade tensions between the United States and its trading partners continue to fuel inflationary concerns and weigh on global growth prospects. At the time of writing, US equities (DJIA: -4.6%, S&P 500: -4.3%) were on track to close the week in negative territory, with investor sentiment weighed down by uncertainty surrounding tariffs and the potential for a recession, despite a cooler-than-expected February inflation report.
Market sentiments were further dampened by mounting fears of a US government shutdown and downgrades to economic growth and equity market forecasts. Similarly, European equities (STOXX Europe: -2.3%, FTSE 100: -1.6%) mirrored Wall Street’s losses, further pressured by weak corporate earnings from midcap stocks and a deeper-than-expected contraction in the British economy in January 2025.
In contrast, Asian equities (Nikkei 225: +0.4%, SSE: +1.4%) ended the week higher, shrugging off global trade tensions. Precisely, gains in the region were driven by (1) rising expectations of increased policy support from Beijing (2) the People’s Bank of China’s (PBoC) plans to implement additional monetary measures, including potential interest rate cuts, to stimulate growth and (3) investor interest in undervalued technology stocks in Japan. Meanwhile, Emerging and Frontier Markets (MSCI EM: -2.0%, MSCI FM: -0.7%) closed the week lower reflecting losses in India (-0.7%) and Romania (-0.5%), respectively.
Nigeria: Domestic Economy
Based on the foreign trade report by the National Bureau of Statistics (NBS), total foreign trade rose significantly by 68.3% y/y to NGN36.60 trillion in Q4-24 (Q4-23: NGN21.75 trillion | Q3-24: NGN35.82 trillion). We attribute the sharp increase to the currency translation effect resulting from the sharp depreciation of the naira (-48.1% y/y to NGN1,620.15/USD in Q4-24 vs Q4-23: NGN840.50/USD) from the prior year.
For context, total trade in USD fell by 12.7% y/y to USD22.59 billion (Q4-23: USD25.87 billion) due to the decline in both total exports (-18.2% y/y to USD12.35 billion) and imports (-4.9% y/y to USD10.24 billion). The fall in total exports was primarily due to slight moderation in domestic crude oil production (Q4-24: 1.54 mb/d vs Q4-23: 1.56 mb/d) based on oil production data from the NBS amid lower oil prices (Q4-24: USD74.21/bbl vs Q4-23: USD82.85/bbl).
Furthermore, the slowdown in imports primarily reflects reduced petroleum imports (-22.7% y/y) due to increased domestic refining activities, amid a mild increase in non-oil imports (+7.1% y/y) partly supported by improved FX liquidity. Overall, the trade balance fell by 51.2% y/y to USD2.11 billion (Q4-23: USD4.33 billion), given the faster decline in exports compared to imports.
For 2024FY, trade balance settled higher at USD11.34 billion (2023FY: USD7.86 billion). Looking ahead, we expect domestic crude oil production to continue to improve; however, weaker oil prices are likely to cap gains in the medium term, potentially lowering growth in total exports. On the other hand, while increased domestic production of petroleum products will lower oil imports, improving consumer demand and increased FX liquidity will likely drive a rebound in non-oil imports partially offsetting the moderation in overall imports. Accordingly, we expect the trade surplus to shrink in 2025E compared to the previous year.
According to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Nigeria’s crude oil production (including condensates) declined by 3.8% m/m to 1.67 mb/d in February (January: 1.74 mb/d). Notably, declines were recorded across all the producing terminals, with the Bonny (-21.8% y/y) terminal recording the most significant decline. We attribute the production downturn at Bonny terminal to the recently concluded maintenance work on the Trans Niger pipeline.
At the same time, declines were witnessed across the Brass (-16.6%), Tulja – Okwuibome (-16.0%), Escravos (-13.5% m/m), Forcados (-12.5%), Odudu (-11.3%) Bonga (-8.2 m/m) and Qua Iboe (-7.6% m/m) terminals. Looking ahead, we expect the combination of improved security measures and a gradual increase in sector investments to sustain production above the 1.60 mb/d mark (including condensates) in the medium term. However, we believe output will likely remain below the FG’s target (2.06 mb/d) in the short term, primarily weighed by suboptimal capital investments in the sector. Overall, we maintain our average oil production estimate (including condensate) at 1.68 mb/d in 2025E (2024FY: 1.56 mb/d).
Capital Markets: Equities
The Nigerian equities market closed the week lower for the third consecutive week, as selloffs in MTNN (-4.2%), OANDO (-7.1%) and UBA (-3.6%) dragged the All-Share Index (ASI) lower by 0.5% w/w to 105,955.13 points. Consequently, the month-to-date and year-to-date returns moderated to -1.7% and +2.9%, respectively.
However, trading activity was robust, as the total volume and value increased by 81.6% w/w and 34.9% w/w, respectively. Meanwhile, sectoral performance was mixed, as the Oil & Gas (-1.2%), Banking (-0.4%), and Industrial Goods (-0.2%) indices ended lower while the Insurance (+0.9%) index advanced. The Consumer Goods index remained unchanged.
Looking ahead, we expect market sentiment to be shaped by investors’ reactions to the February inflation report expected next week, and direction of yields in the fixed income market. However, we do not rule out potential bargain-hunting in some banking names, as recent selloffs suggest attractive re-entry opportunities.
Money Market and Fixed Income
The overnight (OVN) rate expanded by 513bps w/w to 32.8% as the already weak system liquidity was further pressured by net NTB issuances (NGN128.76 billion). Consequently, the average system liquidity worsened, settling at a net short position of NGN463.62 billion (vs net short position of NGN101.66 billion in the previous week).
Next week, we expect debits for the NTB auction (c. NGN800.00 billion) to outweigh inflows from FGN bond coupon disbursements (NGN398.65 billion), causing the OVN rate to remain elevated.
Treasury Bills
The Treasury bills secondary market was mixed this week as market participants shifted focus to the primary market auction. Consequently, the average yield declined by 1bp to 20.7%. Across the market segments, the average yield was flat at 19.2% in the NTB segment but declined slightly by 3bps to 22.4% in the OMO segment.
At Wednesday’s NTB auction, the DMO offered bills worth NGN550.00 billion – NGN70.00 billion for the 91D, NGN80.00 billion for the 182D, and NGN400.00 billion for the 364D bills. Subscription level settled lower at NGN1.27 trillion (previous auction: NGN1.92 trillion), with a bid-to-offer ratio of 2.3x (previous auction: 3.0x).
The auction closed with the DMO allotting NGN678.76 billion – NGN34.72 billion for the 91D, NGN36.23 billion for the 182D, and NGN607.80 billion for the 364D papers – at respective stop rates of 17.00% (unchanged), 17.79% (previous: 17.75%) and 18.39% (previous: 17.82%). Notably, the DMO revised the Treasury bills Q1 auction calendar, scheduling an NTB PMA next Wednesday (March 19), with NGN800.00 billion worth of bills on offer.
Next week, following our projections of liquidity dearth in the financial system, we expect yields in the treasury bills secondary market to rise.
Bonds
Similarly, investors took a cautious stance in the FGN bond secondary market as the limited bids matched offers. Accordingly, the average yield increased by 1bp to 18.5%. Across the benchmark curve, the average yield increased at the short (+4bps) and mid (+12bps) segments following selloffs of the JUL-2030 (+33bps) and FEB-2031 (+12bps) bonds, respectively. The average yield closed flat at the long end.
In the coming week, we anticipate a decline in yields driven by expectations of reinvestment of coupon inflows. Over the medium term, we still expect a moderation in yields consequent on the (1) anticipated monetary policy administration and (2) demand and supply dynamics.
Foreign Exchange
The official FX rate depreciated by 1.3% to NGN1,537.50/USD as CBN’s robust intervention — selling c. USD360.00 million to authorized dealers — helped mitigate a steeper devaluation amid the resurgence of demand pressures. Meanwhile, gross FX reserves increased by USD12.06 million w/w to USD38.36 billion (12 March), after 9 consecutive weeks of decline. In the forwards market, the naira rates decreased across the 1-month (-0.6% to NGN1,577.80/USD), 3-month (-0.8% to NGN1,654.10/USD), 6-month (-0.7% to NGN1,764.98/USD) and 1-year (-0.8% to NGN1,965.95/USD) contracts.
Concerns about oil receipts underpinned by lower oil prices are likely to temper net FX inflows from FPIs, likely sustaining pressure on the naira. Nonetheless, CBN’s sustained market intervention and reduced market distortions are expected to prevent a sharp depreciation of the naira.
