Global Economy
Based on the recently released data from Eurostat, headline inflation in the Euro Area rose by 20bps to 2.2% y/y in September (August: +2.0% y/y), falling slightly below market expectations (+2.3% y/y). The increase was largely driven by a slower pace of decline in energy prices (-0.4% y/y vs August: -2.0% y/y), alongside a modest uptick in services inflation (+3.2% y/y vs August: +3.1% y/y).
However, food inflation (+3.0% y/y vs August: +3.2% y/y) moderated, reflecting a fall in unprocessed food inflation (+4.7% y/y vs August: +5.5% y/y), while processed food, alcohol & tobacco prices steadied. At the same time, core inflation (excluding energy, food, alcohol, and tobacco) remained unchanged at 2.3% (August: 2.3% y/y), holding at its lowest level since January 2022. On a month-on-month basis, consumer prices rose by 0.1% (August: 0.1% m/m).
We believe the recent uptick in inflation is transitory, with underlying price dynamics remaining broadly stable and suggesting limited inflationary pressures ahead. Moreover, subdued wage growth and fragile consumer demand are expected to contain price momentum. In this context, with inflation near target and activity showing tentative signs of recovery, we expect the ECB to keep policy rates unchanged at its 30 October meeting.
According to the Hamburg Commercial Bank (HCOB), the Euro Area’s Manufacturing PMI slipped back into contraction in September (49.8 points vs August: 50.7 points), reversing a three-year high improvement in August.
We attribute the subdued factory activity to the slowdowns in new order inflows and a sharper rate of job shedding, primarily due to falling demand from overseas. On the other hand, the Services PMI (51.3 points vs. August: 50.5 points) remained robust, reaching an 8-month high due to sustained growth in domestic service demand despite a reduction in new export orders. Overall, the Composite PMI rose to its highest level since May 24, settling at 51.2 points in September (August: 51.0 points), signalling a further gradual acceleration in output growth across the eurozone private sector.
Although easing inflationary pressures and lower borrowing costs will continue to support business activity in the near term, several headwinds could limit a stronger recovery in the region. These include renewed US tariff measures, political uncertainty in France and Spain, Germany’s difficult transition under its new administration, and broader geopolitical tensions that continue to weigh on investor sentiment.
Global Markets
Global equities were positive this week, as investor optimism surrounding artificial intelligence outweighed concerns over the US government shutdown. The broad AI sentiment was driven by OpenAI’s USD6.60 billion share sale, which valued the company at USD500.00 billion and fueled optimism across AI-related sectors.
Accordingly, US equities (DJIA: +0.6%; S&P 500: +1.1%) were set to close higher, driven by gains in tech and AI-focused companies such as Nvidia, AMD, and Micron Technology. Similarly, European equities (STOXX Europe 600: +2.7%; FTSE 100: +1.8%) were on track to close higher, buoyed by strength in industrial and pharmaceutical stocks. Investor sentiment in the region was further shaped by a range of economic data, including UK shop prices, Q2 GDP, Euro area CPI and PPI data, as well as unemployment figures.
The global optimism trickled down into Asian markets, with major indices (SSE: +1.4%; Nikkei 225: +0.9%) closing higher, driven by enthusiasm for artificial intelligence, which boosted AI, semiconductor, and tech stocks. Lastly, the Emerging Markets (MSCI EM: +3.2%) index advanced, supported by gains in China (+1.4%), while the Frontier Markets (MSCI FM: –0.3%) index declined, weighed down by losses in Vietnam (–0.7%).
Nigeria: Domestic Economy
Based on data from the Central Bank of Nigeria (CBN), Credit to the Private Sector (CPS) increased modestly by 1.5% y/y to NGN75.83 trillion in August (August 2024: NGN74.73 trillion). We attribute the moderate pace of growth to the CBN’s tight monetary policy stance, which has constrained credit expansion. At the same time, credit to the government declined by 25.7% y/y to NGN23.13 trillion (August 2024: NGN31.15 trillion), indicating reduced government borrowings from domestic banks for deficit financing.
Overall, broad money supply (M3) rose by 11.5% y/y to NGN119.52 trillion, following increases across narrow (+12.4% y/y) and quasi (+11.4% y/y) money supply. Looking ahead, we expect the MPC’s recent pivot toward monetary easing to support a gradual recovery in credit to the private sector (CPS) over the near to medium term. Softer financing conditions, coupled with improved liquidity in the banking system, should encourage lending activity and ease credit constraints on businesses and households.
According to the Central Bank of Nigeria (CBN), international payments facilitated by the apex bank declined by 14.3% y/y to USD4.14 billion in 8M-25 (8M-24: USD4.83 billion). We attribute the decline to the decrease in foreign debt service payments (69.2% of total international payments) and direct remittances (16.2% of total international payments).
Specifically, debt service payments declined by 6.5% y/y to USD2.86 billion (8M-24: USD3.06 billion). Similarly, total direct remittances declined by 48.9% y/y to USD671.86 million (8M-24: USD1.32 billion), due to lower payments for international services by Nigerian residents. However, letters of credit increased by 33.3% y/y to USD605.01 million (8M-24: USD453.91 million), partly due to improved FX availability.
Looking ahead, international payments are expected to rise in the short term, driven mainly by the FG’s debt obligations, particularly the refinancing of the USD1.20 billion 2025 Eurobond in November and other servicing commitments. Furthermore, improved FX liquidity, alongside rising goods imports supported by better macroeconomic conditions and a stronger naira, is expected to bolster payments for letters of credit and direct remittances.
Capital Markets: Equities
The domestic bourse closed higher for the fourth consecutive week, as gains in BUACEMENT (+5.4%), MTNN (+1.2%), GTCO (+3.1%), TRANSCORP (+3.4%), and ARADEL (+16.1%) lifted the All-Share Index by 1.0% w/w to 143,584.04 points. Consequently, the month-to-date and year-to-date returns settled at +0.6% and +39.5%, respectively.
Trading activity was mixed, with trading volume increasing by 9.4% w/w, while trading value declined by 76.6% w/w. Sector performance was also mixed as the Oil & Gas (+5.7%), Industrial Goods (+1.7%), Banking (+1.2%), and Consumer Goods (+0.1%) indices recorded gains, while the Insurance (-2.0%) index closed lower.
Next week, we expect investors to trade cautiously in the absence of clear catalysts to drive market performance. However, we do not rule out reactions to sector and company-specific developments, which could influence the market’s direction.
Money Market and Fixed Income
The overnight (OVN) rate remained unchanged at 24.9%, buoyed by inflows from OMO maturities (NGN 731.14 billion), which outweighed debits from the FGN bond primary market auction (NGN 576.63 billion).
Consequently, the system’s net long position expanded materially to an average of NGN6.28 trillion (vs. NGN3.39 trillion in the previous week).
If the CBN does not conduct another mop-up operation next week, we expect liquidity to remain robust, given the meagre sale (NGN98.00 billion) made by the CBN in today’s OMO auction. Thus, we expect the OVN rate to taper marginally.
Treasury Bills
The strong system liquidity spurred bullish sentiments in the Treasury Bills secondary market. Consequently, the average yield decreased by 58bps w/w to 19.2%. By segment, NTB and OMO yields declined by 6bps and 114bps to 17.9% and 20.5%, respectively.
The CBN returned to the OMO market today (October 3) after several weeks of inactivity, offering NGN600.00 billion worth of bills. Total subscriptions reached NGN 3.32 trillion, representing a bid-to-offer ratio of 5.5x. However, the CBN sold only NGN98.00 billion, with stop rates of 20.49% and 20.61% on the 102D and 123D maturities, respectively.
Next week, strong system liquidity should sustain demand for bills, exerting further downward pressure on yields.
Bonds
Similarly, the FGN bond secondary market sustained its bullish momentum, with the average yield down 24bps w/w to 16.3%. We attribute this to investors’ reaction to lower-than-expected stop rates at the September PMA. Across the curve, the average yield declined at the short (-31bps) and mid (37bps) segments, driven by demand for the JAN-2026 (-51bps) and JUN-2033 (-65bps) bonds, respectively, while it closed flat at the long end.
At Monday’s auction, the DMO reopened the AUG-2030 and JUN-2032 bonds with a total offer size amounting to NGN200.00 billion. Despite robust subscription (NGN1.26 trillion; bid-to-offer: 6.3x), the DMO underwrote NGN576.63 billion (bid-to-cover: 2.2x), setting stop rates at 16.00% (previously: 17.95%) and 16.20% (previously: 18.00%), respectively.
We expect demand in the FGN bond secondary market to remain strong, owing to the robust system liquidity and the recent MPR cut. We also reiterate our expectations of a cautious stance at the long end of the curve, amid persistent concerns over fiscal sustainability and heightened duration risk.
Foreign Exchange
The naira appreciated this week by 1.4% w/w to NGN1,457.00/USD, driven by sustained inflows from both offshore investors and International Money Transfer Operators (IMTOs). Meanwhile, gross FX reserves increased for the twelfth consecutive week, growing by USD150.99 million w/w to USD42.41 billion (October 2).
In the forwards market, the naira rates appreciated across the 1-month (+1.1% to NGN1,500.46/USD), 3-month (+1.0% to NGN1,551.09/USD), 6-month (+0.9% to NGN1,624.24/USD) and 1-year (+0.7% to NGN1,764.10/USD) contracts.
We maintain a positive outlook on the naira, supported by expectations of sustained FX liquidity. On the domestic front, rising non-oil exports and improving market confidence should underpin inflows, while externally, healthy FX reserves, a positive current account position, and a shift toward global monetary easing are expected to reinforce foreign investor sentiment and stimulate additional FX market inflows.
Cordros
