Global Economy
According to the United States Bureau of Labor Statistics, total non-farm payroll employment in the US rose above market expectations (+160,000 jobs) in December, increasing by 256,000 jobs relative to the 212,000 jobs recorded in November. Sectoral analysis revealed notable job growth in healthcare (+46,000 jobs), retail trade (+43,000 jobs) and government (+33,000 jobs) sectors. Consequently, the unemployment rate eased marginally to 4.1% m/m (November: 4.2% m/m), while the labour force participation rate stayed steady at 62.5% m/m for the third consecutive month.
Despite the recent improvement, the average job additions for 2024FY (+201,000 jobs) remain below the 2023FY average (+251,080 jobs), indicating a softer labour market induced by reduced hiring activities despite low layoff levels and increased labour supply. While the US job market remains relatively soft, the consistent growth in non-farm payroll employment and reduced layoffs by companies reflect tight labour market conditions. In light of these, we expect the Federal Open Market Committee (FOMC) to maintain a cautious stance on rate cuts in the near term, aligning with market expectations of a 97.3% probability that the Fed will keep the key policy rate unchanged at the 29 January policy meeting.
According to the recently released data from Eurostat, consumer prices in the Euro Area rose to a five-month high, increasing by 20bps to 2.4% y/y in December (November +2.2% y/y). We attribute the upturn in inflationary pressure to increased energy and services costs. Precisely, energy prices (+0.1% y/y vs November: -2.0% y/y) rose for the first time after four consecutive months of contraction, while services inflation (+4.0% y/y vs November: +3.9% y/y) increased following the moderation in the prior month. At the same time, the food (+2.7% y/y vs November: +2.7% y/y) and core (+2.7% y/y vs November: +2.7% y/y) recorded steady increases.
On a month-on-month basis, consumer prices rose by 0.4%, reversing the 0.3% m/m decline recorded in November. We expect high energy prices and sticky services costs to continue to keep inflation elevated over the short to medium term, prompting calls for the ECB to adopt a cautious stance on further rate cuts. However, we believe the committee will cut its key interest rates at its 30 January meeting to support the economy given the weak growth outlook, especially as the potential introduction of new US tariffs by the incoming Trump administration presents additional downside risks.
Global Market
Global stocks posted mixed performances this week as investors assessed key economic data releases, including the US December jobs report, alongside inflation and PMI figures from the Eurozone and China. At the time of writing, US equities (DJIA: -0.2%; S&P 500: -0.4%) were on track for a weekly decline, as recently released economic data (November JOLTS, ISM PMI, initial jobless claims, and December nonfarm payroll) stoked inflation concerns, raising fears of a slower pace of interest rate cuts.
In contrast, European equities (STOXX Europe: +1.5%, FTSE 100: +1.2%) were set to end the week on a positive note, driven by (1) a modest recovery in the region’s services sector, (2) expectations of interest rate cuts, following Eurozone inflation data which aligned with market forecasts, and (3) positive corporate earnings reports in the UK. In Asia, the Japanese market (Nikkei 225: -1.8%) ended the week lower, weighed down by revised PMI data, declining wage growth, and concerns over potential government intervention in the currency market. Similarly, Chinese equities (SSE: -1.3%) declined as investors weighed inflation data pointing to sticky deflationary pressures despite government stimulus efforts. Sentiment was further weakened by US President-elect Donald Trump’s denial of reports suggesting a softer approach to tariffs. Elsewhere, Emerging Market (MSCI EM: -0.6%) and Frontier Market (MSCI FM: -0.1%) indices settled lower, reflecting losses in China (-1.3%) and Vietnam (-1.9%), respectively.
Nigeria: Domestic Economy
The Nigerian Bureau of Statistics (NBS) proposed the rebasing of the GDP and CPI, marking a pivotal step towards enhancing the accuracy and relevance of the economic indicators. Specifically, the NBS proposed changing the real GDP base year from 2010 to 2019 while also expanding the scope of the GDP calculation to include the Digital Economy, Pension Fund Administrators, the National Health Insurance Scheme, the Nigerian Social Insurance Trust Fund, Modular Refineries, Domestic Households as employers of labour, and Illegal & Hidden Activities.
Additionally, the proposal includes the digitalisation of data collection methods. On CPI, the Bureau has proposed (1) changing the price reference period from 2009 to 2024, (2) increasing the number of items in the CPI basket from 740 to 960, (3) adjusting the weight of items in the CPI basket using 2023 as the reference period, (4) including other key indexes such as services, energy, farm produce and goods, (5) conducting a national census of retail outlets including online retail outlets, and (6) transitioning to a short-term relative index rather than a long-term one.
The NBS expects to launch the results of the rebasing at the end of January 2025, after validation. In line with the rebasing exercise, we expect a possible increase in the nominal GDP, while key economic ratios such as debt-to-GDP, tax-to-GDP ratio, etc. are expected to decline. However, for Inflation, the reduced weight of food and non-alcoholic beverages — where prices have risen at a faster pace (November 2024 inflation: 39.83% y/y) — may lead to a downward adjustment of our 2025 base-case inflation projection (2025 average: 32.4% y/y), even with increased core item weights.
Based on CBN’s Quarterly Statistical Bulletin, the total sectoral utilization of foreign exchange in Nigeria increased by 10.1% y/y to USD18.78 billion in 9M-24 (9M-23: USD17.06 billion). We highlight that the outturn was supported by the substantial increase in the invisibles category even as FX utilization for trade imports declined. Specifically, trade import utilisation (56.3% of gross utilisation) dropped by 9.5% y/y to USD10.58 billion (9M-23: USD11.69 billion) primarily driven by declines in FX utilisation in the industrial sector (-12.7% y/y to USD5.43 billion vs 9M-23: USD6.23 billion) and manufactured products (-23.0% y/y to USD1.33 billion vs 9M-23: USD1.72 billion).
The downturn is likely to be driven by weakened demand induced by sustained currency depreciation and a highly inflationary environment despite the increases in utilisation for Food products (+14.4% y/y to USD1.87 billion vs 9M-23: USD1.64 billion) and in the Oil sector (+40.1% y/y to USD1.25 billion vs 9M-23: USD891.68 million). On the other hand, utilization of FX for invisibles (43.7% of gross utilization) increased by 52.6% y/y to USD8.20 billion in 9M-24 (9M-23: USD5.37 billion), primarily due to the increases in utilization across the Financial (+85.2% y/y to USD7.25 billion vs 9M-23: USD3.91 billion) and Transport (-31.6% y/y to USD292.29 million vs 9M-23: USD222.13 million) services. Looking ahead, we expect a possible improvement in FX liquidity to support growth in the sectoral utilisation of FX. However, we believe imports are likely to remain constrained by (1) elevated inflationary pressures and (2) expected reduction in petroleum imports due to increased domestic refining activities, which could tether growth in overall FX utilization.
Capital Markets: Equities
Positive sentiments prevailed in the domestic stock market, as bargain-hunting in MTNN (+21.0%), following signals of an imminent tariff hike in the telecommunications sector, as well as strong performances by TRANSCORP (+18.3%) and TRANSCOHOT (+9.8%) drove the All-Share Index higher by 1.8% w/w to 105,451.06 points. Consequently, the Year-to-Date returns settled at +2.5%. Also, trading activities were robust, as the trading volume and value increased by 80.8% w/w and 22.4% w/w, respectively. Finally, the return performances across sectors were broadly negative, as the Insurance (-6.9%), Oil & Gas (-0.3%), Industrial Goods (-0.3%) and Consumer Goods (-0.3%), indices settled lower, while the Banking (+1.9%) index advanced.
Looking ahead, we expect the market to maintain its positive momentum, supported by strategic positioning ahead of earnings releases, sector-specific developments, and potential policy updates.
Money Market And Fixed Income
The overnight (OVN) rate expanded by 61bps w/w to 27.9% as OMO auction debits (NGN500.00 billion) outweighed inflows from OMO maturities (NGN164.68 billion). Nonetheless, financial system liquidity remained strong as the average system liquidity settled at a net long position of NGN401.74billion (vs a net long position of NGN461.76 billion in the previous week).
Barring any mop-up activity by the CBN, we expect inflows from OMO maturities (NGN270.00 billion) to boost system liquidity, causing a decline in the OVN rate.
Treasury Bills
The Treasury bills secondary market was bearish this week as the average yield rose by 8bps to 26.3%. However, the market segments recorded different sentiments underpinned by several factors. At the NTB segment, the average yield declined by 24bps to 25.2%, driven by (1) the buoyant system liquidity and (2) the anticipation of lower yields at the NTB auction. At the OMO segment, the average yield expanded by 65bps to 27.8% as market participants sold off bills to participate in the OMO auction. At Wednesday’s NTB auction, the DMO offered bills worth NGN515.00 billion – NGN50.00 billion for the 91D, NGN80.00 billion for the 182D, and NGN385.00 billion for the 364D bills.
Subscription level settled significantly higher at NGN1.52 trillion (previous auction: NGN663.18 billion), with a bid-to-offer ratio of 3.0x (previous auction: 2.0x). The auction closed with the DMO allotting exactly what was offered – NGN21.30 billion for the 91D, NGN20.49 billion for the 182D, and NGN473.21 billion for the 364D papers – at respective stop rates of 18.00% (unchanged), 18.50% (unchanged) and 22.62% (previous: 22.90%). Also, the CBN held the first OMO auction of the year on Monday, offering instruments worth NGN500.00 billion – NGN250.00 billion for the 350D and NGN250.00 billion for the 364D – to investors. Total subscription settled at NGN1.56 trillion (bid-to-offer: 3.1x), with the CBN allotting exactly what was offered – NGN150.00 billion for the 350D and NGN350.00 billion for the 364D at respective stop rates of 23.8%.
Based on our expectation of surplus liquidity in the coming week, we expect yields in the Treasury bills secondary market to trend lower.
Bonds
Activities in the FGN bond secondary market remained mixed, albeit with a bearish tilt, for the third consecutive week as players continued to trade cautiously in anticipation of the Q1-25 FGN bond calendar. Hence, the average yield inched higher by 8bps to 19.9%. Across the benchmark curve, the average yield increased at the short (+8bps), mid (+13bps), and long (+9bps) segments following selloffs of the MAR-2027 (+38bps), APR-2032 (+38bps) and JUN-2053 (+52bps) bonds, respectively.
Next week, we expect the release of December’s CPI data to influence the direction of market activities. Meanwhile, we also maintain our medium-term expectation of elevated yields consequent on (1) anticipated monetary policy administration globally and domestically, and (2) sustained imbalance in the demand and supply dynamics.
Foreign Exchange
The naira depreciated by 0.6% to NGN1,543.03/USD at the Nigerian Foreign Exchange Market (NFEM) despite the intervention from the CBN, selling c.USD50.00 million to authorized dealers. Notably, the country’s FX reserves declined for the first time in 5 weeks by USD31.56 million w/w to USD40.85 billion (08 January). In the forwards market, the naira rates decreased across the 1-month (-1.2% to NGN1,592.88/USD), 3-month (-2.0% to NGN1,663.99/USD), 6-month (-3.6% to NGN1,775.56/USD) and 1-year (-5.6% to NGN1,993.02/USD) contracts.
We expect the FX liquidity to remain suboptimal despite CBN’s recent intervention, as FPI inflows have remained weak. Consequently, barring any significant inflows from the CBN, the naira could likely come under pressure in the short term just as FX demand increases further.
Cordros
