Global Economy
According to S&P Global, the United States (US) composite PMI held above the 50.0 points psychological threshold for the 27th consecutive month, strengthening to 53.0 points in May (April: 50.6 points) as both the services and manufacturing sectors recorded stronger output amid new business growth.
Specifically, the services PMI (53.7 points vs April: 50.8 points) witnessed a solid rebound, driven by increased client spending amid a more stable business environment. However, the sector faced intensifying cost pressures, primarily from tariffs and rising wages, which led to the steepest increase in output prices since August 2022.
At the same time, manufacturing PMI (52.0 points vs April: 50.2 points) improved, supported by gains in production and new orders. We anticipate that overall private sector activity in the US will remain in expansionary territory over the short term, driven by strong domestic demand and steady operating conditions in both the services and manufacturing sectors. However, we envisage some near-term downside risks stemming from uncertainties and rising price pressures linked to tariffs and pass-through costs, which may dampen sentiments.
Based on the recently released data from Eurostat, headline inflation in the Euro Area moderated by 30bps to 1.9% y/y in May (April: +2.2% y/y) – below market expectations (2.0% y/y). The disinflationary trend was primarily driven by a slowdown in services inflation (+3.2% y/y vs April: 4.0% y/y) amid a steady pace of decline in energy prices (-3.6% y/y vs April: -3.6% y/y). Meanwhile, food, alcohol & tobacco inflation increased to 3.3% y/y (April: +3.0% y/y).
On a month-on-month basis, consumer prices were flat compared to a 0.6% m/m increase in April. Looking ahead, barring any major shocks from geopolitical or trade-related developments, we expect inflation to remain anchored below the ECB’s 2.0% target in the near term, supported by sustained weakness in energy prices and softening goods inflation.
While we do not rule out the possibility of a further rate cut in July, especially given the moderation in headline inflation and signs of cooling wage growth, we think the ECB will likely opt to favor a more cautious approach, which entails embracing a neutral stance, with a focus on examining subsequent economic data. We note that core inflation, particularly in the services sector, remains relatively sticky, and the Governing Council may prefer to assess the impact of the June cut on financial conditions and inflation expectations before committing to further easing.
Global Markets
Global equities maintained a bullish trajectory this week as investors digested a mix of economic data and tracked key policy signals across major markets. At the time of writing, US equities (DJIA: +0.4%; S&P 500: +1.0%), were on pace to end the week higher, buoyed by stronger-than-expected job openings data (JOLTS) and a rally in technology stocks.
These gains offset concerns stemming from weaker ISM manufacturing and services PMI prints, as well as a softer pace of private-sector hiring. Elsewhere, European equities (STOXX Europe 600: +0.5%; FTSE 100: +0.3%) traded higher following a surprise moderation in Eurozone inflation, which came in below the market and ECB’s 2.0% target. The downside inflation surprise reinforced expectations for a 25bps rate cut by the European Central Bank at its next policy meeting (today) and increased the probability of further easing later in the year.
Meanwhile, Asian markets were mixed as Chinese equities (SSE: +1.1%) advanced, supported by gains in technology stocks and positive spillover from Wall Street, while Japanese equities (Nikkei 225: -1.1%) declined, weighed down by hawkish commentary from the Bank of Japan’s Governor and renewed global trade tensions after the US announced a doubling of tariffs on steel and aluminum imports to 50.0%. Lastly, the Emerging and Frontier market indices (MSCI EM: +1.3%; MSCI FM: +2.1%) closed higher, supported by gains in China (+1.1%) and Romania (+3.0%), respectively.
Nigeria: Domestic Economy
According to the CBN, the Purchasing Manager’s Index (PMI) printed above the 50-point threshold for the sixth consecutive month, indicating continued expansion of business activities in the Nigerian economy. Nonetheless, the composite PMI moderated to 52.1 points in May (April: 52.2 points), driven by broad-based moderation across the Agriculture, Industry and Services sectors.
Specifically, the Agriculture sector PMI (53.4 points vs April: 53.8 points) fell slightly due to a slowdown in general farming activities and inventories. While the Industry PMI (51.6 points vs April: 51.8 points) remained in the expansionary territory, it pared due to ease in activities in Transportation equipment and Electricity, Gas team and Air conditioning supply subsectors.
The Services sector PMI (51.7 points vs April: 51.8 points) also moderated, reflecting a slowdown in activities across the Management of companies, Educational services and Finance & Insurance sub-sectors. Looking ahead, we expect sustained expansion in private sector activity, underpinned by improving macroeconomic fundamentals such as a more stable naira and moderating inflation. Nonetheless, tight financial conditions remain a potential headwind to broader economic performance in the near term.
According to the data from FMDQ, total inflows into the Nigerian Foreign Exchange Market (NFEM) surged by 62.0% m/m to USD5.96 billion in May (April: USD3.67 billion). The improvement was primarily due to a substantial increase in inflows from both local (83.2% of total inflows) and foreign (16.8% of total inflows) sources.
Specifically, inflows from local sources rose to a six-year high, rising by 64.2% m/m to USD4.96 billion (April: USD3.02 billion) driven by increase in inflows from exporters/importers (USD3.11 billion vs USD655.70 million in April), non-bank corporates (USD1.11 billion vs USD1.00 billion in April) and individuals (USD91.4 million vs USD15.1 million in April), amid lower inflows from the CBN (USD649.80 million vs USD1.35 billion in April).
At the same time, inflows from foreign sources increased by 51.7% m/m to USD997.60 million (April: USD657.40 million) – the highest level in three months – supported by increased market confidence amid the uncertainty in the global space. As a result, the FPI (+61.3% m/m to USD880.80 million) and other corporates (+10.0% m/m to 83.9 million) segments recorded higher accretion, while inflows from the FDIs (-6.3% m/m to USD32.9 million) segment declined.
In the near term, we anticipate that foreign exchange inflows will continue to improve, supported by growing market confidence. However, the lingering global trade uncertainties remain a downside risk to robust inflows from the foreign counterparts, potentially constraining growth in overall FX liquidity.
Capital markets: Equities
The Nigerian equities market extended its positive momentum this week, closing higher in all four trading sessions and kicking off the month of June on a strong note. Specifically, the All-Share Index (ASI) advanced by 2.6% w/w to 114,595.72 points, driven by buying interests in MTNN (+14.0%), DANGCEM (+2.3%), FIRSTHOLDCO (+17.6%), OANDO (+25.8%) and GTCO (+4.6%). As a result, the year-to-date returns settled higher at +11.3%.
Meanwhile, trading volume and value declined by 15.3% and 36.1% w/w, respectively, mostly reflecting the holiday-shortened week. Also, sectoral performance was broadly positive, as the Banking (+4.7%), Insurance (+3.4%), Oil & Gas (+3.3%), Consumer Goods (+2.3%) and Industrial Goods (+1.2%) indices all closed higher.
Looking ahead, we expect market direction to remain driven by company and sector-specific developments, in the absence of broader catalysts to sustain momentum.
Money Market and Fixed Income
The overnight (OVN) rate expanded by 1bp w/w to 27.0%, as debits for the OMO auction (NGN1.51 trillion) subdued system liquidity. Accordingly, system liquidity deteriorated, albeit remaining positive, settling at a net long position of NGN628.90 billion (compared to a net long position of NGN1.88 trillion in the previous week).
Next week, barring any mop-up activity by the CBN, we expect inflows from OMO maturities (NGN263.33 billion) to boost system liquidity. As a result, we expect the OVN rate to taper, albeit marginally.
Treasury Bills
The Treasury bills secondary market was quiet, albeit with a bullish undertone, driven by market participants looking to fill unmet bids from the PMA. Consequently, the average yield across all instruments declined by 3bps to 23.0%.
Across the market segments, the average yield declined by 4bps to 20.7% in the NTB segment, while it advanced by 10bps to 25.8% in the OMO segment. At Wednesday’s NTB auction, the DMO offered bills worth NGN450.00 billion – NGN50.00 billion for the 91D, NGN100.00 billion for the 182D, and NGN300.00 billion for the 364D bills.
Total subscription levels settled higher at NGN1.31 trillion (previous auction: NGN1.17 trillion), indicating a bid-to-offer ratio of 2.9x (previous auction: 2.3x). The auction closed with the DMO allotting exactly the total amount offered – NGN50.00 billion for the 91D, NGN30.03 billion for the 182D, and NGN369.97 billion for the 364D papers – at respective stop rates of 17.98% (previous: 18.00%), 18.50% (unchanged) and 19.35% (previous: 19.56%).
The CBN conducted an OMO auction on Monday (2 June), offering instruments worth NGN600.00 billion – NGN300.00 billion for the 106D and NGN300.00 billion for the 232D. The auction was met with strong demand with total subscription settling at NGN1.53 billion (bid-to-offer: 2.5x), with the CBN allotting NGN1.51 trillion – NGN204.87 billion for the 106D and NGN1.31 trillion for the 232D at respective stop rates of 24.20% and 24.64%.
Looking ahead, we expect the improved liquidity to drive the demand for bills, causing yields to decline further in the Treasury bills secondary market, albeit slightly. Additionally, the DMO is scheduled to conduct an NTB PMA next Wednesday (11 June) with NGN81.84 worth of bills on offer. At the auction, we expect rates to slightly taper.
Bonds
Similarly, the FGN bond secondary market was quiet, as the average yield closed flat at 18.9%. Across the benchmark curve, the average yield increased at the short (+4bps) end, driven by selloffs of the JAN-2026 (+14bps) bond, while it decreased at the mid (-9bps) and long (-6bps) segments following demand for the APR-2032 (-32bps) and MAR-2036 (-29bps) bonds, respectively.
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 appreciated by 2.3% w/w to NGN1,550.00/USD, supported by increased supply from FPIs who were looking to participate in the OMO auction. Meanwhile, gross FX reserves declined for the second consecutive week, decreasing by USD89.58 million w/w to USD38.36 billion (3 June). In the forwards market, the naira rates appreciated across the 1-month (+1.0% to NGN1,606.00/USD) and 3-month (+0.4% to NGN1,675.50/USD) contracts, while it depreciated across the 6-month (-0.5% to NGN1,776.30/USD) and 1-year (-2.1% to NGN1,977.47/USD) contracts.
The naira is projected to remain relatively stable in the near term, supported by continued interventions from the Central Bank of Nigeria (CBN) and a gradual moderation in global headwinds. The easing of global pressures has partly contributed to a renewed interest from foreign investors in Nigeria’s capital markets, thereby enhancing FX inflows. Nonetheless, a marked appreciation of the currency appears unlikely, as persistent global uncertainties are expected to temper the pace of foreign inflows and constrain overall market liquidity.
