Global Economy
Based on the data obtained from the Bureau of Economic Analysis (BEA), the United States Personal Consumption Expenditures (PCE) price index rose by 2.3% y/y in May (April: +2.2% y/y). The modest increase primarily reflected a rebound in goods prices amid a steady rise in service costs. Specifically, goods prices increased by 0.1% y/y (April: -0.4% y/y), reflecting higher durable goods prices (+0.5% y/y vs. April: -0.3% y/y) despite the continued weakness in prices of non-durable goods (-0.2% y/y vs. April: -0.4% y/y). Meanwhile, services inflation held steady at 3.4% y/y (April: +3.4% y/y), signaling persistent price pressures in this segment.
Excluding volatile food and energy categories, the core PCE price index rose by 2.7% y/y (April: +2.6% y/y), slightly above market expectations (+2.6% y/y). On a month-on-month basis, the PCE price index was flat at 0.1% m/m (April: +0.1% m/m). Looking ahead, we highlight that inflation risks remain tilted to the upside, particularly due to potential supply chain disruptions and the pass-through effects of recent tariff increases. Accordingly, we expect the US Fed to maintain the funds rate in the near term as it continues to monitor the inflation trajectory. This aligns with the CME FedWatch tool, which indicates a 77.3% probability that the Fed will hold the funds rate at its next monetary policy.
According to S&P Global, the US Services PMI moderated to 53.1 points in June (May: 53.7 points), reflecting a slowdown in domestic activity and the steepest quarterly contraction in services exports since 2022. Meanwhile, the Manufacturing PMI held steady at 52.0 points (May: 52.0 points), supported by a return to output growth and the strongest pace of factory employment in 12 months, despite a renewed surge in input prices primarily driven by tariffs.
As a result, the Composite PMI softened slightly to 52.8 points (May: 53.0 points), the lowest level in two months, amid easing new business inflows and weakening business confidence. Looking ahead, the outlook for US private sector activity remains fragile. Notably, inflationary pressures have resurfaced, driven by higher input costs, particularly from tariffs, while external demand remains weak. At the same time, we note that lingering uncertainty surrounding trade policy and fiscal tightening is weighing on business confidence. In the absence of sustained disinflation and a recovery in export demand, we anticipate a further moderation in business activity in the near term.
Global Markets
The global equities market was broadly bullish this week as easing geopolitical tensions lifted investor sentiment. Optimism was further lifted after Washington downplayed upcoming tariff deadlines, helping to calm fears of renewed trade hostilities. At the time of writing, US equities (DJIA: +2.8%; S&P 500: +2.9%) were on track for their strongest weekly gains since May 16, as President Trump’s announcement of a ceasefire between Israel and Iran encouraged flows back into risky assets. Investor sentiment was further supported by expectations of potential interest rate cuts and hopes for a more conciliatory trade policy stance.
Similarly, European equities (STOXX Europe 600: +0.8%; FTSE 100: +0.2%) are set to close higher, supported by relief over de-escalating Middle East tensions and signs of progress in US-China trade talks. Meanwhile, Asian equities (Nikkei 225: +4.6% | SSE: +1.9%) advanced, largely tracking Wall Street’s gains, with additional support coming from investor reaction to Japan’s manufacturing sector returning to growth for the first time since May 2024, as well as new policy support measures from Beijing. Finally, the Emerging and Frontier Market indices (MSCI EM: +3.1%; MSCI FM: +2.3%) closed higher, reflecting gains in China (+1.9%) and Vietnam (+1.6%), respectively.
Nigeria: Domestic Economy
According to data from the Central Bank of Nigeria (CBN), Credit to the Private Sector (CPS) increased by 4.7% y/y to NGN77.83 trillion in May (May 2024: NGN74.31 trillion). We note that the pace of growth has slowed significantly relative to the previous year, largely due to the reduced impact of currency depreciation on banks’ foreign-denominated assets, following the recent stabilization of the naira as well as the CBN’s tight monetary policy. At the same time, credit to the government declined by 11.6% y/y to NGN25.07 trillion (May 2024: NGN28.38 trillion), indicating reduced government borrowing from domestic banks for deficit financing.
Overall, broad money supply (M3) rose by 19.9% y/y to NGN119.00 trillion, following increases across narrow (+20.9% y/y) and quasi (+19.8% y/y) money supply. On a month-on-month basis, the CPS declined moderately by 0.3% to NGN77.82 trillion in May (April: +2.1% m/m to NGN78.08 trillion). Looking ahead, we expect CPS growth to remain subdued in the near term, constrained by the prevailing tight monetary policy stance. However, a potential pivot toward monetary easing in the second half of 2025 could provide some support for a gradual recovery in CPS growth over the medium term.
According to the data from the Domestic and Foreign Portfolio Report of the Nigerian Exchange (NGX), total transactions in the local bourse surged by 45.3% m/m to NGN700.50 billion in May (April: NGN482.04 billion). The performance was driven by the higher participation from both domestic (83.0% of gross transactions) and foreign (17.0% of gross transactions) investors. Analysing the breakdown, domestic investors’ inflows increased by 38.8% m/m to NGN581.59 billion (April: NGN418.97 billion), driven by a rise in transactions from retail investors (+86.1% m/m) and institutional investors (+2.7% m/m).
At the same time, foreign investor inflows rebounded after a month of decline, rising by 88.5% m/m to NGN118.91 billion (April: NGN63.07 billion), partly supported by moderating fixed income yields and improved market sentiment, which boosted foreign investors’ demand in the equities market. Net flows declined by 54.0% m/m to NGN2.64 billion (April: NGN5.74 billion), driven by strong net foreign inflows of NGN13.31 billion that outweighed net domestic outflows of NGN10.67 billion.
In the near term, we expect domestic investors to remain the primary drivers of transaction value, supported by an anticipated decline in fixed income yields, which is expected to sustain buying interest. Furthermore, the relative stability of the naira is likely to encourage increased participation from foreign investors in the equities market; however, prevailing global uncertainties present a downside risk to sustained inflows.
Capital Markets: Equities
The domestic stock market sustained its bullish momentum, marking a fifth consecutive weekly gain, driven by bargain hunting in select names amid moderating oil price volatility and easing tensions in the Middle East. Specifically, the All-Share Index (ASI) advanced by 1.6% w/w to 119,995.76 points, driven by gains in BUACEMENT (+8.5%), ZENITHBANK (+15.2%), OKOMUOIL (+15.7%), TRANSCOHOT (+7.2%), and DANGSUGAR (+19.1%).
As a result, the month-to-date and year-to-date returns settled higher at +7.4% and +16.6%, respectively. Meanwhile, trading activity was mixed, as trading volume increased by 9.4% w/w, while trading value declined by 11.4% w/w. Sectoral performance was broadly bullish, as the Industrial Goods (+3.9%), Insurance (+3.7%), Consumer Goods (+3.7%), and Banking (+2.6%) indices advanced, while the Oil & Gas (-2.2%) index settled lower.
Next week, we expect choppy trading characterized by profit-taking in recent outperformers and sustained bargain hunting in undervalued stocks. Market performance might also be influenced by portfolio rebalancing ahead of half-year earnings releases and developments in the fixed income space.
Money market and fixed income
The overnight (OVN) rate declined by 192bps w/w to 27.0%, as the inflows from NTB maturities (NGN283.79 billion) and FGN bond coupon payments (NGN216.17 billion) outweighed debits for FGN payments (c. NGN200.00 billion), FGN bond PMA debit (NGN100.00 billion), and FX sales (c. NGN94.00 billion). Notably, system liquidity settled at a net long position of NGN468.76 billion (compared to a net long position of NGN780.22 billion in the previous week) due to increased activities at the CBN SLF window (average: NGN264.03 billion | last week’s average NGN140.59 billion).
Next week, barring any mop-up activity by the CBN, we expect inflows from OMO maturities (NGN300.00 billion) to boost system liquidity, causing the OVN rate to remain at depressed levels.
Treasury bills
The Treasury bills secondary market was bullish driven by renewed interest from local and offshore investors. Accordingly, the average yield across all instruments declined by 29bps to 23.3%. Across the market segments, the average yield declined by 29bps apiece to 20.2% and 26.4% in the NTB and OMO segments, respectively.
We expect the improved liquidity position to drive demand for bills, causing yields in the Treasury bills secondary market to decline.
Bonds
Proceedings in the FGN bond secondary market were bullish as investors looked to the secondary market to fill unmet bids from the PMA. Increased liquidity aided by the inflows from coupon proceeds also supported sentiments. Consequently, the average yield declined by 19bps to 18.4%. Across the benchmark curve, the average yield decreased at the short (-18bps), mid (-2bps), and long (-13bps) segments driven by demand for the MAR-2027 (-37bps), FEB-2031 (-33bps), and JUN-2038 (-90bps) bonds, respectively. At Monday’s PMA, the DMO offered instruments worth NGN100.00 billion to investors through the re-opening of the 19.30% FGN APR 2029 (Bid-to-offer: 0.8x; Stop rate: 17.75%) and issuance of a new 17.95% FGN JUN 2032 (Bid-to-offer: 11.2x; Stop rate: 17.95%) bonds. Total subscription level settled at NGN602.86 billion (previous: NGN436.40 billion), with a bid-to-offer ratio of 6.0x (previous: 1.1x). Eventually, the DMO allotted the exact amount offered across the two tenors, resulting in a bid-to-cover ratio of 6.0x.
We reiterate our medium term expectation of 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 appreciated by 0.5% w/w to NGN1,541.00/USD driven by increased supply from FPIs. Notably, the CBN made no intervention during the week. Meanwhile, gross FX reserves declined for the sixth consecutive week, decreasing by USD298.83 million w/w to USD37.41 billion (June 25). In the forwards market, the naira rates appreciated across the 1-month (-0.2% to NGN1,583.39/USD), 3-month (-1.0% to NGN1,654.10/USD), 6-month (-2.0% to NGN1,759.14/USD) and 1-year (-2.6% to NGN1,955.18/USD) contracts.
We expect the continued reform efforts to strengthen investor sentiment and sustain foreign inflows, enhancing FX market liquidity. Should global pressures remain contained, the naira is expected to remain relatively stable in the short term.
Cordros
