Global Economy
According to the United States Department of Labor, initial jobless claims in the US increased by 6,000 to 223,000 in the week ending 18 January (vs the week ending 11 January: 217,000). We highlight that the increase suggests a gradual loss of momentum in the labour market as job vacancies continue to decline. On a non-seasonally adjusted basis, notable increases were recorded across Michigan (+14,985), California (+12,731), and Texas (+11,439), while the most significant declines were recorded in New York (-15,396), Washington (-3,877), and Wisconsin (-3,830).
Sequentially, the continuing claims for unemployment insurance increased by 87,908 claims to 2.30 million in the week ending 4th January. On a 4-week moving average, we highlight that the initial jobless claims increased by 750 to 213,500 (vs week ending 11 December: 212,750). We expect job numbers in the US to remain strong in the short term due to resilient economic activities, underscoring the chance that the Fed will maintain interest rates at the next monetary policy meeting. Indeed, the CME FedWatch Tool currently indicates a 99.5% probability that the Fed will keep the key policy rate unchanged in the 29 January policy meeting.
At the January meeting, the Monetary Policy Committee (MPC) of the Bank of Japan (BoJ) voted 8 -1 to raise the key policy rate. Consequently, the MPC increased the short-term interest rate by 25bps to 0.50% (Previously: 0.25%), which represents the highest level since October 2008 (0.50%). We believe this decision underscores the strong momentum in wage growth and rising inflation, consistent with the bank’s statement that a “virtuous cycle”—where higher salaries fuel price increases—was necessary for it to raise rates. Although there was no explicit forward guidance at the meeting, the committee noted that it would continue to raise interest rates as its economic and price forecasts were realised.
Additionally, the BoJ revised its inflation forecasts upwards to 2.40% y/y in 2025FY (previously: 1.90% y/y), citing upside risks to the price outlook, particularly from wage growth, while maintaining its GDP forecast at 1.1% y/y in 2025FY. Given the expected wage increases supported by improved corporate profits and tight labour market conditions amidst persistent inflationary pressures from rising energy prices, we anticipate the committee will further hike interest rates at its next monetary policy meeting. This aligns with the market expectation that the BoJ will potentially push the key interest rate to a neutral point of 1.0% over the short to medium term.
Global Equities
Global stock markets maintained a positive trajectory this week as optimism surrounding Trump’s economic policies, resilient corporate earnings, and a buoyant economic outlook boosted investor confidence. At the time of writing, US equities (DJIA: +2.5%; S&P 500: +2.0%) were set to end the week higher, underpinned by (1) optimism surrounding Trump’s announcement of plans for a USD500.00 billion private-sector investment aimed at advancing the US’ AI infrastructure, and (2) strong corporate earnings reports from Netflix, Procter & Gamble, Johnson & Johnson, and General Electric.
Similarly, European equities (STOXX Europe: +1.6%, FTSE 100: +0.7%) were on course to end the week positively due to strong corporate earnings updates and dovish signals from European Central Bank policymakers hinting at potential interest rate cuts at next week’s policy meeting. Meanwhile, Asian equities (Nikkei 225: 3.9%, SSE: +0.3%) reflected the broader market optimism, supported by (1) Trump’s more measured stance on tariffs, (2) stronger-than-expected trade data from Japan, and (3) additional support measures announced by Chinese authorities to channel capital into the stock market. Elsewhere, the Emerging Market (MSCI EM: 1.0%) and Frontier Market (MSCI FM: +1.3%) indices advanced, reflecting gains in China (+0.3%) and Vietnam (+1.3%), respectively.
Nigeria: Domestic Economy
According to recently released data by the Debt Management Office (DMO), Nigeria’s public debt increased by 6.0% q/q to NGN142.32 trillion in Q3-24 (Q2-24: NGN134.30 trillion). We highlight that the increase primarily reflects new borrowings to finance rising government expenditure and the impact of the depreciation of the naira (+8.2% q/q to NGN1,601.03) on foreign debt. Accordingly, the total domestic debt stock (51.6% of the total public debt) rose by 3.1% q/q to NGN73.43 trillion (Q2-24: NGN71.22 trillion), while the total external debt (48.4% of the total public debt) marginally increased by 0.3% q/q to USD43.03 billion (vs +1.9% q/q to USD42.90 billion in Q2-24) due to higher obligations to multilateral creditors.
In naira terms, external debt stock surged by 9.2% q/q to NGN68.89 trillion (Q2-24: NGN63.07 trillion). On a year-on-year basis, total debt grew by 61.9%, raising the country’s debt-to-GDP ratio to 53.8% (Q2-24: 50.8%). Looking ahead, we anticipate a significant increase in Nigeria’s total debt due to (1) increased borrowings by the FG to fund the 2024 budget deficit (Cordros estimate: NGN12.85 trillion) and (2) the impact of the naira depreciation on external debt. We project total public debt to settle at NGN146.94 trillion (or 55.6% of GDP) in 2024E.
Federation Accounts Allocation Committee (FAAC) disbursements to the three tiers of government in January (from the total revenue generated in December) declined by 17.5% m/m to NGN1.42 trillion (December: NGN1.73 trillion). We attribute the significant decline partly to (1) a 6.6% m/m naira appreciation (December: NGN1,563.47/USD vs November: NGN1,667.41/USD), which lowered exchange rate gains from foreign-related revenue sources, and (2) a decline in domestic oil production (-1.4% m/m to 1.67 mb/d) in December amid steady oil prices.
As a result, receipts from Oil and Gas Royalty and Customs External Tariff levies (CET), Import and Excise Duties, Petroleum Profit Tax (PPT) and Company Income Tax (CIT) all declined. We estimate that the amount disbursed is 61.7% of the total gross revenue (NGN2.31 trillion) generated in the month, with the remaining balance allocated for transfer, intervention and refunds (NGN801.18 billion), and the cost of collection (NGN84.78 billion).
Based on the stipulated sharing revenue formula, the FGN received NGN451.19 billion (December: NGN581.86 billion), State Governments received NGN611.98 billion (December: NGN743.08 billion), while the Local Governments received NGN361.75 billion (December: NGN402.55 billion). In the near term, we anticipate potential revenue improvements from two key areas: (1) a possible increase in domestic oil production amid still elevated oil prices and (2) higher CIT collections driven by improving macroeconomic conditions. Nonetheless, we highlight that the recent stability in the naira could reduce exchange rate gains on foreign collections, reducing growth in overall FAAC disbursements.
Capital Markets: Equities
The domestic equities market closed the week on a positive note, driven by bargain hunting in MTNN (+6.4%) following the NCC’s approval of a 50.0% tariff hike for telecommunication services. The market also reacted positively to TRANSPOWER’s (+8.0%) positive earnings release and accompanying dividend payment. Consequently, the All-Share Index (ASI) advanced by 1.2% w/w to 103,598.46 points, bringing the Year-to-Date (YTD) return to +0.7%. Market activity remained vibrant, with trading volume and value increasing by 36.3% w/w and 28.5% w/w, respectively. Meanwhile, sectoral performance was mixed, as the Banking (+4.1%) and Industrial Goods (+0.1%) indices recorded gains, while the Consumer Goods (-1.2%), Insurance (-1.2%) and Oil & Gas (-0.9%) indices posted declines.
With the commencement of the 2024FY earnings season, we expect the NGX to be flooded with corporate earnings in the coming weeks as companies publish unaudited 2024FY numbers with accompanying dividend declarations. We believe this should provide a catalyst for buying activities and improve general market sentiments.
Money Market and Fixed Income
The overnight (OVN) rate declined by 525bps w/w to 27.5% as inflows from FGN bonds coupons (NGN499.41 billion) offset debits for net NTB issuances (NGN226.01 billion) and FX sales. As a result, the average liquidity short position moderated to NGN23.68 billion (vs a net short average of NGN145.29 billion in the previous week).
In the absence of any significant mop-up activity by the CBN, we expect the inflows from OMO maturities amounting to NGN335.00 billion to support system liquidity and drive down the OVN rate.
Treasury Bills
The Treasury bills secondary market traded with bullish sentiments this week as market participants sought to fill unmet bids from the NTB PMA. Accordingly, the average yield declined by 38bps to 26.2%. Across the market segments, the average yield declined by 38bps to 24.8% in the NTB market, while it declined by 31bps to 28.0% in the OMO market. At Wednesday’s NTB auction, the DMO offered bills worth NGN530.00 billion – NGN50.00 billion for the 91D, NGN80.00 billion for the 182D, and NGN400.00 billion for the 364D bills.
Subscription level settled significantly higher at NGN2.54 trillion (previous auction: NGN1.52 trillion), with a bid-to-offer ratio of 4.8x (previous auction: 3.0x). The auction closed with the DMO allotting NGN756.01 billion – NGN26.45 billion for the 91D, NGN17.09 billion for the 182D, and NGN712.48 billion for the 364D papers – at respective stop rates of 18.00% (unchanged), 18.50% (unchanged) and 21.80% (previous: 22.62%).
We expect the liquidity surfeit in the system next week to boost demand for bills, causing yields in the T-bills secondary market to decline.
Bonds
In the FGN bond secondary market this week, market participants continued to aggressively offload securities in anticipation of higher yields at next week’s auction. Hence, the average yield increased by 65bps to 20.7%. Across the benchmark curve, the average yield increased at the short (+87bps), mid (+27bps), and long (+92bps) segments following selloffs of the JAN-2026 (+249bps), APR-2032 (+81bps) and MAR-2035 (+189bps) bonds, respectively.
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 (27 January). At the auction, the DMO is set to offer instruments worth NGN450.00 billion through re-openings of the APR-2029 and FEB-2031 bonds, as well as a new JAN-2035 issue. Over the medium term, we expect yields to moderate, consequent on the (1) anticipated monetary policy administration and (2) slower borrowing pace by the Federal Government.
Foreign Exchange
The naira appreciated by 1.1% to NGN1,531.20/USD at the Nigerian Foreign Exchange Market (NFEM), following the CBN’s intervention, selling c. USD113.85 million to authorised dealers. Following these interventions, the FX reserves level declined by USD303.95 million w/w to USD39.99 billion (23 January). In the forwards market, the naira rates decreased across the 1-month (-0.1% to NGN1,591.41/USD), 3-month (-0.8% to NGN1,667.93/USD), 6-month (-1.6% to NGN1,779.33/USD) and 1-year (-1.4% to NGN1,962.32/USD) contracts.
In the short term, while we expect FX demand pressure to remain intact, we believe sustained CBN intervention and increased transparency and market efficiency from the adoption of the Electronic Foreign Exchange Matching System (EFEMS) will support naira stability.
Cordros
