Global Economy
In line with market expectations, the Federal Open Market Committee (FOMC), at its June 2025 meeting, voted to maintain the target range for the federal funds rate at 4.25% – 4.50%, keeping rates unchanged for the fifth consecutive time. The Committee noted that economic activities in the US continued to expand at a moderate pace, supported by resilient consumer spending and a strong labour market, while unemployment rate remains low. However, it acknowledged the lingering inflationary pressures and elevated geopolitical risks, which continue to cloud the US medium term economic outlook.
Additionally, the Committee reaffirmed its dual mandate of promoting maximum employment and price stability, reiterating a data-dependent approach going forward. Interestingly, the Fed maintained its projection for two rate cuts in 2025, signaling a measured pace of policy easing as it seeks to balance inflation control with the potential downside of keeping interest rates elevated for an extended period. Given the current macroeconomic backdrop and heightened economic uncertainty, we expect the FOMC to retain a “wait-and-see” posture in the near term. According to the CME FedWatch Tool, there is a 91.7% probability that the Fed will hold the benchmark rate steady at the July meeting.
According to the Office for National Statistics (ONS), headline inflation in the UK climbed at a slower pace in May, settling at 3.4% y/y (April: +3.5% y/y) – in line with market expectations. The modest slowdown was driven by easing transport costs and a moderation in services inflation. Notably, transport prices (+0.7% y/y vs April: +3.3% y/y) grew at a slower pace due to post-Easter airfare reductions and falling petrol prices. Services inflation (+4.7% y/y vs April: +5.4% y/y) also cooled, helping offset renewed pressure from rising food costs.
Specifically, food inflation (+4.4% y/y vs April: +3.4% y/y) jumped, reflecting higher prices for items such as chocolate, butter, and beef. In contrast, core inflation eased to 3.5% y/y (April: +3.8% y/y), as the transport-led moderation outweighed upward pressures from food and housing-related categories.
On a month-on-month basis, consumer prices slowed by 0.2% in May (April: +1.2% m/m). Looking ahead, inflationary pressures may remain sticky in the near term, driven by the lagged impact of earlier increases in household energy bills and renewed upward pressure on oil prices fueled by heightened geopolitical tensions in the Middle East. Nonetheless, the softer May inflation reading alongside signs of moderating domestic demand has strengthened expectations for monetary policy easing, with markets increasingly anticipating a 25bps rate cut by the Bank of England at the August meeting.
Global Markets
The global equities market traded with caution this week as investors closely monitored escalating geopolitical instability in the Middle East and key policy decisions from major central banks, including the US Federal Reserve, the Bank of Japan, and the Bank of England. Accordingly, US equities (DJIA: -0.1%; S&P 500: +0.1%) ended the holiday-shortened week on a subdued note, as concerns grew over the potential for direct US involvement in the escalating Israel-Iran conflict. Sentiment was further dampened by the Federal Reserve’s revised economic outlook, which included lower growth projections and higher inflation expectations, alongside weaker-than-expected retail sales data (-0.9% in May), signalling a potential slowdown in consumer spending.
Elsewhere, European equities (STOXX Europe 600: -1.1%; FTSE 100: -0.2%) trended lower, weighed down by fears of Middle East conflict escalation and investor reaction to the Bank of England’s interest rate decision. In Asia, market performance was mixed, as Chinese equities (SSE: -0.5%) declined due to persistent geopolitical uncertainties and the absence of concrete policy support or stimulus measures, while Japanese equities (Nikkei 225: +1.5%) advanced, as investors reacted positively to the Bank of Japan’s decision to keep its key short-term interest rate unchanged at 0.5%. Meanwhile, the Emerging and Frontier Markets (MSCI EM: -1.1%; MSCI FM: -0.4%) indices closed lower, reflecting losses in China (-0.5%) and Morocco (-3.3%), respectively.
Nigeria: Domestic Economy
According to the National Bureau of Statistics (NBS), headline inflation eased by 74bps to 22.97% y/y in May (April: 23.71% y/y), marking the second consecutive month of moderation. Accordingly, food prices moderated by 12bps to 21.14% y/y (April: 21.26% y/y) largely driven by a notable slowdown in imported food inflation, given the relative stability of the naira, while core inflation fell sharply by 110bps to 22.38% y/y (April: 23.39% y/y) reflecting a decline in education services, utilities, health, clothing & footwear, transport, ICT and miscellaneous goods & services costs.
On a month-on-month basis, headline inflation slowed by 33bps to 1.53% (April: 1.86% m/m). Looking ahead, consumer price inflation is expected to ease further in June. The recent stability of the naira should help moderate imported food prices, partly offsetting the upward pressure on overall food inflation which stems from the ongoing planting season and resultant shortage of farm output. Meanwhile, core inflation is likely to continue its downward trend, supported by stable energy prices and limited exchange rate pass-through.
Federation Accounts Allocation Committee (FAAC) disbursements to the three tiers of government in June (from the total revenue generated in May) declined by 1.3% m/m to NGN1.66 trillion (May: NGN1.68 trillion). The decline can be attributed to reduced receipts from the Petroleum Profit Tax (PPT), Customs External Tariff (CET) levies, Oil and Gas Royalty, and Electronic Money Transfer Levy (EMTL), despite improvements in receipts from Companies Income Tax (CIT), Value Added Tax (VAT), Import Duty and Excise Duty. We estimate that the amount disbursed is 56.4% of the total gross revenue (NGN2.94 trillion) generated in the month, with the remaining balance allocated to transfers, interventions, and refunds (NGN1.17 trillion), as well as the cost of collection (NGN111.91 billion).
Based on the stipulated sharing revenue formula, the FGN received NGN538.00 billion (May: NGN565.31 billion), State Governments received NGN577.84 billion (May: NGN556.74 billion), Local Governments received NGN419.97 billion (May: NGN406.63 billion), while oil producing states received an additional NGN124.08 billion (May: NGN152.55 billion) as derivation (13% of mineral revenue. In the near term, we expect potential revenue gains from two key sources: (1) an uptick in domestic oil production and (2) higher Company Income Tax (CIT) collections supported by improving macroeconomic conditions. However, the recent stability of the naira may dampen exchange rate gains on foreign-denominated collections, potentially limiting the overall growth in FAAC disbursements.
Capital Markets: Equities
The Nigerian equities market closed the week on a positive note, posting its fourth consecutive weekly gain, as the initial selloff in banking stocks—driven by the CBN’s forbearance directive—eased following clarifying disclosures from banks, while a softer May inflation print further supported the improvement in overall market sentiment. Specifically, the All-Share Index (ASI) advanced by 2.4% w/w to 118,138.22 points driven by gains in MTNN (+9.5%), GTCO (+18.8%), BUAFOODS (+4.6%), SEPLAT (+9.8%), and PRESCO (+11.7%). As a result, the month-to-date and year-to-date returns settled higher at +5.7% and +14.8%, respectively. Meanwhile, trading activity was robust, as trading volume and value increased by 73.4% and 126.2% w/w, respectively. Sectoral performance was broadly bullish, as the Oil & Gas (+5.3%), Banking (+3.6%), Insurance (+2.4%), and Consumer Goods (+2.2%) indices advanced, while the Industrial Goods (-0.4%) index settled lower.
In the week ahead, we anticipate a more selective market tone as investors continue to position themselves ahead of the half-year earnings releases. Activity is likely to remain driven by stock-specific developments and early signals from corporate scorecards.
Money Market and Fixed Income
The overnight (OVN) rate expanded by 192bps w/w to 28.9%, as debits for the OMO PMA (NGN1.07 trillion) and CBN FX swaps (c. NGN1.00 trillion) outstripped the inflows from OMO (NGN975.88 billion) and NTB (NGN38.04 billion) maturities. Consequently, the financial system liquidity wrapped up the week in a net long position of NGN780.22 billion (compared to a net long position of NGN986.79 billion in the previous week) due to heightened activities at the CBN’s SDF window (average: NGN872.98 billion).
Next week, barring any mop-up activity by the CBN, we expect inflows from FAAC disbursements (NGN1.12 trillion), NTB maturities (NGN283.79 billion) and FBN bond coupon payments (NGN216.76 billion) to boost system liquidity, thereby weighing on the OVN rate.
Treasury Bills
The Treasury bills secondary market was bearish as the average yield across all instruments expanded by 27bps to 23.6%. Across the market segments, the average yield declined by 13bps to 20.5% in the NTB segment as market participants filled unmet bids from the NTB PMA, while it advanced by 75bps to 26.7% in the OMO segment as investors sold off bills to participate at the OMO auction. At Wednesday’s NTB auction, the CBN offered bills worth NGN162.02 billion – NGN22.02 billion for the 91D, NGN40.00 billion for the 182D, and NGN100.00 billion for the 364D bills.
Total subscription levels settled at NGN1.23 trillion (previous auction: NGN1.31 trillion), indicating a bid-to-offer ratio of 7.6x (previous auction: 2.9x). The auction closed with the CBN allotting exactly the total amount offered – NGN37.98 billion for the 91D, NGN40.54 billion for the 182D, and NGN83.50 billion for the 364D papers – at respective stop rates of 17.80% (previous: 17.98%), 18.35% (previous: 18.50%) and 18.84% (previous: 19.35%). The CBN also conducted an OMO auction on Monday (June 16), offering instruments worth NGN600.00 billion – NGN300.00 billion for the 155D and NGN300.00 billion for the 204D. The auction was met with strong demand with total subscription settling at NGN1.15 billion (bid-to-offer: 1.9x), with the CBN allotting a total of NGN1.07 trillion across the two tenors at respective stop rates of 24.20% and 24.59%.
We expect the liquidity influx to drive demand for bills, causing yields in the Treasury bills secondary market to remain suppressed, possibly tapering further.
Bonds
Proceedings in the FGN bond secondary were bullish, driven by demand from portfolio managers. Accordingly, the average yield declined by 27bps to 18.6%. Across the benchmark curve, the average yield declined at the short (-36bps), mid (-27bps), and long (-23bps) segments driven by demand for the MAR-2027 (-60bps), MAR-2035 (-57bps), and JAN-2042 (-57bps) bonds, respectively.
In the coming week, we believe the outcome of the June FGN bond auction holding on Monday (June 23) will shape the direction of yields in the secondary market. At the auction, the DMO is set to offer instruments worth NGN100.00 billion through the re-opening of the APR-2029 bond and the issuance of a new JUN-2032 bond. At the auction, we expect marginal rates to taper. We reiterate our medium term expectation of 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 0.6% w/w to NGN1,548.00/USD, supported by (1) increased supply from FPIs who were looking to participate in the OMO auction, and (2) CBN’s intervention of c. USD61.00 million to banks. Meanwhile, gross FX reserves declined for the fourth consecutive week, decreasing by USD219.56 million w/w to USD37.71 billion (June 19). In the forwards market, the naira rates appreciated across the 1-month (+0.2% to NGN1,579.78/USD), 3-month (+0.4% to NGN1,636.90/USD) contracts, while it decreased on the 1-year (-0.9% to NGN1,904.50/USD) contract. The rate closed flat on the 6-month contract.
Despite the continued stability of the naira, persistent global pressures, now intensified by renewed tensions in the Middle East, remain a downside risk. However, we expect the Central Bank of Nigeria (CBN) to manage short-term volatility through interventions during periods of market shocks.
