Global Economy
According to the US Bureau of Labor Statistics (BLS), consumer prices in the United States rose for the first time in four months, rising by 10bps to 2.4% y/y in May (April: 2.3% y/y), coming in below market expectation (+2.5% y/y). Analyzing the breakdown, food inflation (+2.9% y/y vs April: +2.8% y/y) increased due to a faster rise in food at home prices (+2.2% y/y vs April: +2.0% y/y), despite a slight moderation in costs of food away from home (+3.8% y/y vs April: +3.9% y/y).
Meanwhile, energy inflation (-3.5% y/y vs April: -3.7% y/y) contracted at a slower pace, driven by a softer decline in fuel oil costs (-8.6% y/y vs April: -9.6% y/y) and increased electricity prices (+4.5% y/y vs April: +3.6% y/y). On a month-on-month basis, headline inflation eased by 0.1% in May (April: +0.2% m/m), mainly due to a slowdown in shelter costs.
Despite the lower-than-expected inflation print, we believe the balance of risks remains tilted to the upside. In our view, the May inflation data did not likely capture the full effect of recently introduced import tariffs on key products including appliances, electronics, and industrial goods, as most retailers may still be selling merchandise accumulated before the import duties took effect.
As these inventories are gradually depleted, the inflationary impact of higher import costs is expected to become more visible, particularly in the second half of the year. Accordingly, we expect the US Fed to keep the funds rate unchanged at the next monetary policy meeting, in line with the CME FedWatch Tool’s 97.2% probability of a “HOLD” decision on 18 June.
Recent data from the National Bureau of Statistics showed that China recorded a deflation rate of 0.1% y/y in May (April: -0.1% y/y) – above market expectations (-0.2% y/y). Although deflationary pressures persisted for the fourth consecutive month, primarily driven by subdued consumer demand, the outturn reflects a slowdown in food price declines and a gradual recovery in core inflation. Analyzing the breakdown, food inflation (-0.4% y/y vs April: -2.7% y/y) contracted at a slower pace, supported by higher pork prices and rising costs of fresh vegetables.
Meanwhile, core inflation rose to a four-month high of 0.6% y/y (April: +0.5% y/y), underpinned by the positive impact of government-led consumption stimulus. On a month-on-month basis, consumer prices dipped by 0.2% (April: -0.2% m/m), driven mainly by weaker energy prices. Looking ahead, deflationary pressures are likely to persist, driven by weak consumer demand and subdued industrial input costs, which continue to dampen overall price momentum. Although food price stabilization and gradual recovery in core inflation offer some support, external headwinds, particularly escalating trade tensions, pose additional risks to the inflation outlook.
Global Equities
The global equities market traded mixed this week as investors weighed optimism over US-China trade progress and softer US inflation prints against renewed geopolitical tensions in the Middle East, which triggered a flight to safe-haven assets towards the latter part of the week. At the time of writing, US equities (DJIA: +0.5%; S&P 500: +0.7%) were holding modest weekly gains, largely reflecting early-week optimism driven by softer-than-expected May inflation prints (CPI and PPI: both +0.1% m/m) alongside optimism over a tentative US-China agreement covering rare earth supplies and eased restrictions on Chinese student visas.
However, risk appetite faded later in the week amid heightened tensions following reports of Israeli strikes on Iranian nuclear facilities and renewed concerns over President Trump’s threat to reinstate tariffs. Elsewhere, European equities (STOXX Europe 600: -1.7%; FTSE 100: -0.1%) are set to close the week lower as geopolitical risks in the Middle East weighed on sentiment and drove flows into safe-haven assets.
Meanwhile, across Asia, performance was mixed, as Chinese equities (SSE: -0.2%) came under pressure due to persistent deflationary trends and weaker-than-expected trade data, while Japanese equities (Nikkei 225: +0.2%) advanced, buoyed by positive sentiment surrounding US-China trade talks, a softer yen, and easing inflation concerns. Finally, the Emerging and Frontier market indices (MSCI EM: +1.7%; MSCI FM: +0.6%) closed higher, supported by gains in Taiwan (+1.9%) and Kazakhstan (+2.2%), respectively.
Nigeria: Domestic Economy
According to the recently released trade report by the National Bureau of Statistics (NBS), total foreign trade rose by 6.2% y/y to NGN36.02 trillion in Q1-25 (Q1-24: NGN33.93 trillion | Q4-24: NGN36.60 trillion). The increase primarily reflects currency translation effect resulting from the depreciation of the naira (-12.1% y/y to NGN1,521.82/USD in Q1-25 vs Q1-24: NGN1,338.20/USD) from the prior year.
For context, total trade in USD fell by 6.6% y/y to USD23.67 billion (Q1-24: USD25.35 billion) due to the decline in both total imports (-8.0% y/y to USD10.14 billion) and exports (-5.5% y/y to USD13.54 billion). The decline in total exports was partly due to the decline in crude oil exports (-26.4% y/y) underpinned by lower crude oil prices (Q1-25: USD74.98/bbl vs Q1-24: USD81.76/bbl) despite improvements in the domestic crude oil production (Q1-25: 1.67 mb/d vs Q1-24: 1.54 mb/d) in the period.
On the other hand, the slowdown in imports can be attributed to the decline in petroleum imports (-33.9% y/y), given the increase in domestic refining activities. This more than offset the increase in non-oil imports (+12.4% y/y), which was driven by improved FX liquidity and consumer demand. Overall, the trade balance increased by 2.7% y/y to USD3.40 billion (Q1-25: USD3.31 billion), given the faster decline in imports compared to exports.
Looking ahead, we anticipate continued recovery in domestic crude oil production. However, softer oil prices are expected to limit the upside in the medium term, which may dampen growth in total exports. At the same time, increased local refining capacity is expected to reduce oil imports. However, a rebound in consumer demand and improved foreign exchange liquidity are likely to drive higher non-oil imports, which may partially offset the overall moderation in imports. Consequently, we expect the trade surplus to narrow in 2025FY compared to the previous year.
According to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Nigeria’s crude oil production (including condensates) declined by 1.5% m/m to 1.66 mb/d in May (April: 1.68 mb/d), marking a reversal of the modest increase seen in the previous month. The decline in overall output was primarily driven by reduced production in the Forcados (-13.7% m/m), Odudu (-10.2% m/m) and Bonny (-4.2% m/m) production terminals, which offset production increases from the Brass (+38.2% m/m), Qua Iboe (+14.3% m/m), Agbami (+7.5% m/m), Escravos (+6.2% m/m), and Tulja-okwuibome (+2.6% m/m) terminals.
Although investment in the oil sector is beginning to recover, the long-standing issue of underinvestment continues to hinder production efficiency and has partly contributed to fluctuations in output. Nevertheless, we anticipate that improved security conditions and ongoing investment efforts will help maintain production levels above 1.6mb/d. As a result, we maintain our average crude oil production (including condensates) forecast for 2025FY, at 1.68mb/d. This remains below the Federal Government’s target of 2.06mb/d.
Capital Markets: Equities
The domestic equities market closed the holiday-shortened week on a positive note, marking its third consecutive weekly gain. Gains in DANGCEM (+5.0%), BUAFOODS (+4.3%), BUACEMENT (+7.5%), OANDO (+21.4%) and MTNN (+1.8%) lifted the All-Share Index (ASI) by 0.7% w/w to 115,429.54 points. Consequently, the month-to-date and year-to-date returns settled higher at +3.3% and +12.1%, respectively.
Meanwhile, trading activity moderated due to the shortened trading week, with volume and value declining by 36.0% and 33.2% w/w, respectively. Sectoral performance was mixed as the Consumer Goods (+1.3%) and Industrial Goods (+1.2%) indices advanced, while the Oil & Gas (-1.2%) and Insurance (-0.1%) indices declined. The Banking index remained unchanged.
In the coming week, we expect market sentiment to remain broadly cautious ahead of the release of May’s inflation report, which could provide some direction for market positioning. Nonetheless, we may also begin to see some early portfolio adjustments ahead of the upcoming half-year earnings season, while stock-specific news flow could continue to drive activity in select counters.
Money Market and Fixed Income
The overnight (OVN) rate expanded by 4bps w/w to 27.0% amid inflows from OMO (NGN263.70 billion) and NTB (NGN83.55 billion) maturities. Consequently, these inflows caused the average system liquidity to improve, settling at a net long position of NGN986.79 billion (compared to a net long position of NGN628.90 billion in the previous week).
Next week, barring any mop-up activity by the CBN, we expect significant inflows from OMO maturities (NGN985.88 billion) to bolster system liquidity amid a possible net NTB issuance. As a result, we expect a decline in the OVN rate.
Treasury Bills
The Treasury bills secondary market traded with bearish sentiments as the average yield across all instruments advanced by 32bps to 23.3%. Across the market segments, the average yield declined by 5bps to 20.6% in the NTB segment, while it advanced by 14bps to 26.0% in the OMO segment.
Following our projections of an improved liquidity position, we expect this to spur demand for bills, causing yields to decline. Additionally, the DMO is scheduled to conduct an NTB PMA next Wednesday (18 June) with NGN162.02 billion worth of bills on offer. At the auction, we expect rates to slightly taper.
Bonds
The FGN bond secondary market traded with bullish sentiments driven by demand from local investors. Accordingly, the average yield declined by 1bp to 18.8%. Across the benchmark curve, the average yield increased at the short (+2bps) and long (+10bps) ends, driven by selloffs of the FEB-2028 (+4bps) and JUL-2045 (+79bps) bonds, respectively, while it decreased at the mid (-4bps) segment following demand for the JUL-2034 (-24bps) bond.
Over the medium term, we expect a moderation in bond yields, influenced by two factors – (1) the anticipated dovish monetary policy stance and (2) demand and supply dynamics.
Foreign Exchange
The naira depreciated by 0.5% w/w to NGN1,557.19/USD as the CBN made no interventions. Meanwhile, gross FX reserves declined for the fourth consecutive week, decreasing by USD232.05 million w/w to USD38.05 billion (10 June). In the forwards market, the naira rates appreciated across the 1-month (+1.4% to NGN1,583.16/USD), 3-month (+2.0% to NGN1,642.65/USD), 6-month (+3.0% to NGN1,724.76/USD) and 1-year (+4.8% to NGN1,887.05/USD) contracts.
We note the improved inflows from Foreign Portfolio Investors (FPIs), which have primarily contributed to the stability of the naira. However, persistent global pressures, which have now been exacerbated by the renewed tensions in the Middle East, remain a downside risk to sustained inflows and naira stability. Nonetheless, we expect the CBN to manage volatility in the short term through its intervention in periods of shocks.
Cordros
