Global Economy
According to the United States Bureau of Labor Statistics, total non-farm payroll employment in the US increased by 227,000 jobs in November, a marked recovery from the previous month’s increase (October: +36,000), which was impacted by Hurricane Helene and the Boeing strike.
Analysing the breakdown, significant employment gains were noted across healthcare (+54,000), leisure & hospitality (+53,000), government employment (+33,000) and transportation equipment manufacturing (+32,000). However, job losses were recorded in retail trade (-28,000) as the decline in general merchandise retailers offset gains in electronics and appliance retailers. Nonetheless, the unemployment rate rose to 4.2% m/m (October: 4.1% m/m), indicating ease in labour market conditions, while the labour force participation rate declined to 62.5% m/m (October: 62.6% m/m).
While labour market conditions have eased recently, we expect a possible increase in economic activity, given the improvement in financial conditions, to support employment activities in the short term. However, we expect the recent data outturn to bolster the US Fed’s decision to implement another interest rate cut at its December meeting. We note that the CME FedWatch Tool assigns an 88.8% probability of a 25bps rate cut at the December 12 meeting.
According to S&P Global, the United States (US) Composite PMI recorded its highest print in 31 months, coming in at 54.9 points in November (October: 54.1 points). The robust outturn is driven by the continued expansion in the services sector, which offset the decline in the manufacturing sector. Notably, the Services PMI climbed to 56.1 points (October: 55.1 points), its fastest growth since March 2022, propelled by a sharp rise in new business activities due to rebounding customer demand and improved business confidence following the lower interest rates.
Meanwhile, the Manufacturing PMI remained below the 50-point threshold, indicating contraction, but improved to 49.7 points (October: 48.5 points), reflecting a slower decline in new orders and gains in employment activity. Business activities in the US are poised to remain strong due to significant improvements in consumer and business confidence, which have been supported by relatively lower interest rates following the US Fed rate cuts and reduced uncertainties with the now concluded US elections.
Global Equities
Global equities were broadly positive this week, driven by heightened expectations of an interest rate cut by the US Federal Reserve as investors digested the US November job report, and expectations of additional stimulus from the Chinese government. US equities (S&P 500: +0.7%) mirrored the broader market sentiment following heightened optimism on a potential Federal Reserve rate cut. Meanwhile, the Dow Jones Industrial Average (DJIA: -0.3%) faced downward pressure as investors rotated out of defensive sectors, such as utilities, which had previously been favoured due to the high-interest rate environment.
Elsewhere, European equities (STOXX Europe: +1.8%, FTSE 100: +0.7%) are on track to close the week higher, supported by expectations of an ECB rate cut and robust corporate earnings. Asian Equities (Nikkei 225: +2.3%, SSE: +2.3%) closed higher, buoyed by expectations that the Bank of Japan (BOJ) will adopt a dovish stance at its next policy meeting, alongside optimism of additional stimulus measures from the Chinese government. The Emerging (MSCI EM: +2.2%) and Frontier (MSCI FM: +1.1%) market indices advanced, driven by gains in China (+2.3%) and Vietnam (+1.7%), respectively.
Nigeria: Domestic Economy
According to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC), Nigeria’s crude oil production (including condensates) was steady at 1.54 mb/d in October (September: 1.54 mb/d). The Forcados terminal experienced a significant decline in output (-30.1% m/m) due to a shutdown for repairs following a sabotage incident, which offset production increases from terminals such as Qua Iboe (+45.1% m/m), Tulja-Okwuibome (+9.0% m/m), Escravos (+5.2% m/m), and Bonga (+5.0% m/m).
Overall, crude oil production averaged 1.52 mb/d in 9M-24 (9M-23: 1.45 mb/d | 2023FY: 1.47 mb/d). While progress is still underway as regards the fight against crude oil theft and pipeline vandalism, we believe that challenges plaguing the sector, including the (1) suboptimal investment underpinned by increasing IOC divestment and (2) infrastructure decay, still pose downside risks to crude oil production in the near term. Thus, we maintain our average crude oil production estimate (including condensate) at 1.52 mb/d in 2024E (FGN budget: 1.78 mb/d).
Based on data from FMDQ, total inflows into the Nigerian Autonomous Foreign Exchange Market (NAFEM) rose by 32.9% m/m to USD4.05 billion in November (October: USD3.04 billion). This was driven by a broad-based increase across local (57.8% of total transaction value) and foreign (42.2% of total transaction value) inflows.
Analysing the breakdown provided, inflows from local sources rose by 38.5% m/m to USD2.34 billion (October: USD1.69 billion) due to increases from the CBN (+27.0% m/m) and non-bank corporates (+56.0% m/m) segments, while inflows from Individuals (-88.5% m/m) and exporters (-63.5% m/m) fell. Similarly, inflows from foreign sources reached its highest level since January 2020, increasing by 26.0% m/m to USD1.71 billion (October: USD1.36 million), reflecting sharp increases in inflows from FPI (+39.9% m/m) and Other Corporates (+43.9% m/m), amid a decline in FDI inflows (-84.2% m/m).
We attribute the sturdy performance in FPI inflows to improved investor confidence and increased FPI participation in the Nigerian Capital Market as naira yields remain attractive. Barring any shock, we anticipate FX inflows to remain robust in the short term, supported by improved market confidence, following the implementation of the Electronic Foreign Exchange Market System (EFEMS).
Capital Markets: Equities
The Nigerian equities market closed the week on a positive note, largely driven by gains in WAPCO (+27.6%) – following the announcement of the proposed sale of the company’s majority stake to Huaxin Cement – SEPLAT (+7.6%), and ACCESSCORP (+6.9%). As a result, the All-Share Index (ASI) advanced by 0.7% w/w to 98,210.75 points, with the Year-to-Date returns settling at +31.3%. Market activity was robust, as trading volume and value increased by 21.8% w/w and 61.0% w/w, respectively.
Sectoral performance mirrored the overall market sentiment, as the Insurance (+10.5%), Oil & Gas (+4.8%), Industrial Goods (+2.5%), Banking (+1.3%) and Consumer Goods (+0.1%) indices all closed higher.
Looking ahead, we expect choppy trading to persist as investors engage in selective positioning, focusing on fundamentally sound stocks ahead of the new year.
Money Market and Fixed Income
The overnight rate contracted by 174bps w/w to 28.2% as market liquidity saw a reversal in the trend from last week, with bank balances opening in positive territory (NGN451.07 billion). Consequently, the average system liquidity for the week settled at a net long position of NGN628.56 billion (vs net short position of NGN325.66 billion in the prior week).
Next week, barring any liquidity management measures by the CBN, we expect the inflows from OMO maturities (NGN125.80 billion) to further support system liquidity, and drive the OVN rate lower.
Treasury Bills
Trading in the Treasury bills secondary market was bearish this week as the average yield across all instruments expanded by 36bps to 26.4%. We note that this was despite the buoyant system liquidity as market participants largely focused on the newly issued 364-day bill, driving the bill to close at 21.5% (143bps lower than the auction stop rate).
Across segments, the average yield contracted by 56bps to 25.7% at the NTB segment and declined by 13bps to 27.3% at the OMO segment. At Wednesday’s NTB auction, the DMO offered bills worth NGN583.26 billion – NGN7.86 billion for the 91-day, NGN12.27 billion for the 182-day, and NGN563.12 billion for the 364-day bills. Subscription level settled significantly higher at NGN2.55 trillion (previous auction: NGN1.12 trillion), with a bid-to-offer ratio of 4.4x (previous auction: 1.9x).
The auction closed with the DMO allotting instruments worth NGN756.70 billion – NGN2.31 billion for the 91-day, NGN13.25 billion for the 182-day, and NGN741.15 billion for the 364-day papers – at respective stop rates of 18.00% (unchanged), 18.50% (unchanged) and 22.93% (previous: 23.50%).
Based on our projection of a liquidity surfeit next week, we expect yields in the Treasury bills market to trend lower. Additionally, the CBN is scheduled to hold an NTB PMA next Wednesday (11 December), with NGN275.71 billion worth of maturing bills on offer.
Bonds
In line with our expectations, the FGN bond secondary market was quiet this week as investors remained on the sidelines in anticipation of the last auction of the year. Accordingly, the average yield inched higher by 2bps to 19.5%. Across the benchmark curve, the average yield increased at the short (+4bps) end, following selloffs of the JAN-2026 (+13bps) bond, while it pared at the mid (-1bp) segment, driven by demand for the FEB-2031 (-5bps) bond. The average yield was unchanged at the long end.
We still expect cautious trading next week as investors anticipate the release of the December bond auction circular. Meanwhile, we maintain our short-term expectation of yields remaining elevated consequent to (1) anticipated monetary policy administration globally and domestically and (2) sustained imbalance in the demand and supply dynamics.
Foreign Exchange
The Electronic Foreign Exchange Matching System (EFEMS) was launched on Monday by the Central Bank of Nigeria (CBN) to streamline foreign exchange transactions. Consequently, the naira appreciated by 7.3% w/w to NGN1,558.65/USD following an increase in FPI inflows. Meanwhile, the country’s FX reserves level grew by USD68.65 million w/w to USD40.30 billion (3 December).
Total NAFEM turnover (as of 5 December) decreased by 26.3% WTD to USD1.80 billion, with trades consummated within the NGN958.00/USD – NGN1,710.00/USD band. In the forwards market, the naira rates increased across the 1-month (+5.1% to NGN1,620.44/USD), 3-month (+3.8% to NGN1,711.20/USD), 6-month (+5.6% to NGN1,788.12/USD), and 1-year (+5.5% to NGN1,995.14/USD) contracts.
FX market liquidity is expected to remain strong in the short term as attractive naira yields and a more efficient FX trading system, given the implementation of EFEMS, continue to support inflows from FPIs. Additionally, we anticipate the recently issued Eurobond (USD2.20 billion) to bolster the CBN’s capacity to support market liquidity. This is likely to further strengthen the naira in the near term. Nonetheless, we highlight that the upside risk to the naira remains, which includes the increasing geopolitical tension.
Cordros
