Global Economy
According to the Bureau of Labor Statistics (BLS), consumer prices in the United States increased for the first time since April, rising by 20bps to 2.6% y/y in October (September: 2.4% y/y). The increase was primarily attributed to the slower decline in energy prices (-4.9% y/y vs September: -6.8% y/y) due to higher gasoline and fuel oil costs. Meanwhile, food prices eased to 2.1% y/y (September: +2.3% y/y), reflecting the lower price pressures in both food at home (+1.1% y/y vs September: +1.3% y/y) and food away from home (+3.8% y/y vs September: +3.9% y/y).
On a month-on-month basis, headline inflation remained steady at 0.2% in September, consistent with the previous three months. We anticipate that consumer prices in the United States will remain above the 2.0% target in the near term, driven by elevated core and services inflation. However, we expect the Federal Open Market Committee (FOMC) to stay within the monetary policy easing stance in the near term, particularly as the recent data print aligns with forecasts. Consequently, we expect the US Fed will implement another 25bps rate cut at the next meeting, in line with the CME FedWatch tool’s indication of a 62.4% probability of further rate easing at the 18 December monetary policy meeting.
Economic activities in the United Kingdom (UK) moderated for the second consecutive quarter, as the weaker business and consumer confidence dampened growth in Q3-24. According to the Office for National Statistics (ONS), the UK economy slowed by 0.1% q/q in Q3-24 (Q2-24: +0.5% q/q) – below market expectations (+0.2% q/q). The weaker growth reflects the deceleration in general government expenditure (+0.6% q/q vs Q2-24: +1.1 q/q), despite improvement recorded across household consumption (+0.5% q/q vs Q2-24: +0.2% q/q) and gross fixed capital formation (+1.1% q/q vs Q2-24: +0.6% q/q).
On a year-on-year basis, real GDP grew by 1.0% in Q3-24 (Q2-24: 0.7% y/y), supported by gains in the manufacturing and services sectors. While we expect the subdued optimism to pose downside risks to growth in the near term, we believe the UK economy will remain resilient, supported by government debt-financed spending that could bolster economic activity amid easing pressures from elevated inflation and interest rates. Accordingly, the IMF expects the UK economy to grow by 1.1% in 2024E (2023FY: +0.4% y/y).
Global Equities
Global stocks took a breather this week after a post-election rally, as the Federal Reserve signalled a slower pace of future interest rate cuts. Additionally, concerns about a potential resurgence of the China-US trade war dampened market sentiments. Accordingly, US equities (DJIA: -0.5%; S&P 500: -0.8%) were headed for a weekly loss as investors digested an uptick in inflation (PPI and CPI) and the likelihood of the Federal Reserve adopting a cautious stance at the final meeting of the year. Similarly, European equities (STOXX Europe: -0.1%; FTSE 100: 0.0%) were on track to close lower as investors assessed the latest UK GDP data and weighed the Federal Reserve Chairman’s hawkish tone on rate cuts.
Asian markets (Nikkei 225: -3.1%; SSE: -3.1%) mirrored the global trend, posting declines due to fading momentum in Wall Street’s rally, limited stimulus measures from China, and persistent concerns over potential US tariffs. The Emerging Market (MSCI EM: -4.5%) index declined due to bearish sentiments in China (-3.1%) and India (-2.4%), while the Frontier Market (MSCI FM: -0.5%) index also ended lower, reflecting losses in Vietnam (-2.3%).
Nigeria: Domestic Economy
According to the National Bureau of Statistics (NBS), consumer prices increased for the second consecutive month, rising by 118bps to 33.88% y/y in October (September: 32.70% y/y). The persistent price pressures reflect the synchronised effects of (1) lingering currency pressures, (2) elevated gas and other energy prices, (3) increased flooding incidents, and (4) lingering structural challenges impeding food supply. Thus, food prices (+139bps to 39.16% y/y) rose to a three-month high, while the core inflation (+94bps to 28.37% y/y) increased to its highest level since March 2004 (32.60% y/y).
On a month-on-month basis, the headline inflation increased by 12bps to 2.64% – tracking above the 10M-24 average (2.52% m/m). Over the rest of the year, we expect the headline inflation to be influenced by the existing challenges and the increased demand that accompanies the festive season. Consequently, we project the headline inflation to rise by 2.65% m/m in November, translating to a y/y reading of 34.60%.
According to the Debt Management Office (DMO), Nigeria’s public debt increased by 10.4% q/q to NGN134.30 trillion in Q2-24 (Q1-24: NGN121.67 trillion). We attribute the increase to new borrowings to finance rising government expenditures against persistent revenue underperformance, as well as the impact of the naira depreciation on foreign debt. Consequently, there was a broad-based increase across the domestic (53.0% of the total public debt) and external (47.0% of total public) debt stock. Specifically, the total domestic debt stock rose by 8.5% q/q to NGN71.22 trillion (Q1-24: NGN65.65 trillion), while total external debt increased by 1.9% q/q to USD42.90 billion (vs -0.9% q/q to USD42.12 billion in Q1-24), reflecting additional borrowing from the World Bank (USD1.22 billion) amid matured IMF loan repayments (USD418.8 million).
In naira terms, total external debt rose by 12.6% q/q to NGN63.07 trillion (Q1-24: NGN56.02 trillion) using an average exchange rate value of NGN1,470.19/USD in Q2-24, compared to NGN1,330.26/USD in Q1-24. Total debt on a year-on-year basis grew by 53.7%, pushing the country’s debt-to-GDP ratio to 50.8%. Looking ahead, we anticipate a significant increase in Nigeria’s total debt due to (1) additional borrowings by the FG to fund the 2024 budget deficit (Cordros estimate: NGN12.85 trillion) and (2) the impact of the depreciation of the naira on foreign debt. Thus, we project total public debt to settle at NGN144.34 trillion (or 54.6% of GDP) in 2024E.
Capital Markets: Equities
As anticipated, the local bourse experienced mixed trading activity for most of the week. However, strong bargain-hunting on the final trading day pushed the market into positive territory, with the All-Share Index rising by 0.5% w/w to close at 97,722.28 points. Notably, buying interest in UBA (+7.9%), GTCO (+4.5%), FLOURMILL (+22.9%), and WAPCO (+9.4%) underpinned the market’s performance. Consequently, the Month-to-Date and Year-to-Date returns settled higher at +0.1% and +30.7%, respectively. Trading activity was weak, with total volume and value declining by 77.1% and 48.4% w/w, respectively. From a sectoral standpoint, the Banking (+2.8%), Insurance (+2.8%), and Consumer Goods (+0.6%) indices advanced while the Oil & Gas (-0.3%) and Industrial Goods (-0.2%) indices declined.
We anticipate cautious trading in the local stock market in the coming week due to the absence of significant positive catalysts to boost sentiments. In the medium term, we expect investors’ sentiments to be shaped by developments in the macroeconomic landscape and the movement of yields in the fixed-income market.
Money Market and Fixed Income
The overnight (OVN) rate contracted by 560bps w/w to 26.8% as inflows from FGN bond coupon (NGN143.52 billion) offset CRR debits (c. NGN100.00 billion) and settlements for FX sales (c. NGN137.00 billion), thereby supporting system liquidity. Thus, the average system liquidity settled at a net short position of NGN57.77 billion (vs net short position of NGN631.08 billion in the previous week).
Next week, we expect debits for the FGN bond PMA (c. NGN120.00 billion) and a possible net issuance at the Wednesday NTB auction to offset inflows from the FGN bond coupon (NGN9.37 billion) and OMO maturities (NGN6.38 billion), thereby pressuring system liquidity. Accordingly, we expect the OVN rate to trend higher.
Treasury Bills
Proceedings in the Treasury bills secondary market were bearish as the liquidity deficit in the financial system caused the demand for bills to wane. Accordingly, the average yield expanded by 16bps to 25.1%. Across the market segments, the average yield increased by 19bps to 24.2% in the NTB segment and expanded by 5bps to 26.4% in the OMO segment.
We believe the subdued system liquidity next week will undermine demand for instruments in the T-bills secondary market, causing yields to expand. Additionally, the CBN is scheduled to hold an NTB PMA next Wednesday (20 November), with NGN610.80 billion worth of maturing bills on offer.
Bonds
Trading in the Treasury bonds secondary market was mixed as the average yield inched higher by 2bps to 19.4%. We saw pockets of demand on the auction bonds following the reduced volume on offer at the upcoming auction to NGN120.00 billion (October: NGN180.00 billion). The preceding was met with both sell pressures and cautious trading from investors. Across the benchmark curve, the average yield expanded at the short (+13bps) and long (+7bps) ends, driven by sell pressures on the MAR-2025 (+47bps) and APR-2037 (+100bps) bonds, respectively. Meanwhile, the average yield contracted at the mid (-17bps) segment following interests in the JUL-2034 (-77bps) bond.
Next week, we believe the direction of yields in the secondary market will be shaped by the outcome of this month’s FGN bond auction holding on Monday (18 November). At the auction, the DMO is set to offer instruments worth NGN120.00 billion through re-openings of the 19.30% FGN APR 2029 and 18.50% FGN FEB 2031 bonds. Notwithstanding, we maintain our short-term expectation of elevated yields consequent to (1) anticipated monetary policy administration globally and domestically and (2) sustained imbalance in the demand and supply dynamics.
Foreign Exchange
The naira appreciated by 1.6% w/w to NGN1,652.25/USD at the Nigerian Autonomous Foreign Exchange Market (NAFEM) following the CBN’s intervention, selling c. USD144.0 million to authorized dealers. We also cite that the country’s FX reserves maintained its upward trend as the gross reserve level increased by USD117.98 million w/w to USD40.24 billion (13 November). The total turnover (as of 14 November) at the market declined by 52.2% WTD to USD1.14 billion, with trades consummated within the NGN1,609.00/USD – NGN1,698.50/USD range. In the forwards market, the naira rates remained flat across the 1-month (NGN1,722.70/USD) and 3-month (NGN1,793.40/USD) contracts, while it expanded across the 6-month (+0.1% to NGN1,902.65/USD) and 1-year (+0.1% to NGN2,129.07/USD) contracts.
The naira’s volatility is likely to continue as FX demand continues to outstrip supply. We highlight that CBN’s continued market interventions are unlikely to stabilise the naira in the near term, given the weak autonomous FX inflows.
Cordros
