Global Economy
According to S&P Global, the United States’ (US) Composite PMI rose to a three-month high of 53.5 points in March (February: 51.6 points). The improvement primarily reflects a robust expansion in the services sector, which offset a renewed decline in manufacturing activity. Specifically, the Services PMI surged to 54.3 points (February: 51.0 points), driven by stronger new business inflows resulting from rising consumer demand and favourable weather conditions.
Meanwhile, the Manufacturing PMI (44.6 points vs February: 46.9 points) declined further into the negative territory, settling at an 18-month low on the back of weaker input buying and a slowdown in new orders growth, as the temporary boost from tariff-related front-loading faded. We expect overall private sector activity in the US to remain in expansionary territory in the short term, primarily driven by the resilient services sector.
Nonetheless, we highlight that downside risks will remain prominent, as business confidence weakens amid growing concerns over the negative effects of recent policy measures introduced by the new administration, particularly Federal spending cuts and tariffs.
According to the Office for National Statistics (ONS), inflation eased in the United Kingdom (UK) by 20bps to 2.8% y/y in February (January: +3.0% y/y) – below market expectation (+2.9% y/y). Analyzing the breakdown, core inflation (+3.5% y/y vs January: +3.7% y/y) retreated from the nine-month high print in the prior month, highlighting the weaker price growth of clothing (-0.6% y/y vs January: +1.8% y/y), recreation & culture (+3.4% y/y vs January: +3.8% y/y) and housing & utilities (+1.9% y/y vs January: +2.1% y/y).
Additionally, energy prices (-6.8% y/y vs January: -6.6% y/y) declined further, while food inflation was stable at 3.3% y/y. Meanwhile, on a month-on-month basis, consumer prices increased by 0.4% (January: -0.1% m/m). Inflationary pressures remain skewed to the upside in the medium term, as the anticipated 6.4% increase in energy bills from April is likely to reignite price pressures, compounded by emerging risks from global trade tensions.
Given this backdrop, we expect the Bank of England (BoE) to adopt a measured and cautious stance in its upcoming monetary policy decisions and continually reassess its inflation outlook. Ultimately, we anticipate the BoE will keep interest rates unchanged at its May policy meeting.
Global Equities
Global equities retreated this week, as renewed uncertainty surrounding global trade policy and escalating tariff tensions, alongside investor reactions to economic data such as inflation and PMI reports from major economies, weighed on sentiment. At the time of writing, U.S. equities (DJIA: -0.5%, S&P 500: -1.1%) were poised to end the week lower, as investor sentiment was dampened by a higher-than-expected core PCE inflation reading and renewed concerns over global trade following President Trump’s announcement of new tariffs on imported automobiles.
These reversed earlier gains fueled by upbeat macroeconomic data, including an upward revision to Q4-2024 GDP, improving labour market indicators, and resilient PMI readings. Similarly, European equities (STOXX Europe: -1.5%, FTSE 100: 0.0%) were also set to post a weekly decline, as weaker-than-expected eurozone PMI data and concerns over the potential impact of U.S. tariffs on the region’s economy outweighed softer inflation prints from the UK, France, and Spain.
Elsewhere, Asian equities (Nikkei 225: -1.5%, SSE: -0.4%) closed lower as investor sentiment remained subdued amid ongoing economic concerns in China, weakening private sector activity in Japan, and rising uncertainty over potential US reciprocal tariffs. Finally, the Emerging Markets (MSCI EM: -0.1%) index declined, reflecting losses in China (-0.4%), while the Frontier Market (MSCI FM: +0.7%) index advanced, driven by gains in Romania (+1.2%).
Nigeria: Domestic Economy
Federation Accounts Allocation Committee (FAAC) disbursements to the three tiers of government in March (from the total revenue generated in February) declined by 1.4% m/m to NGN1.68 trillion (February: NGN1.70 trillion). The decline was due to declines in collections from Value Added Tax (VAT), Petroleum Profit Tax (PPT), Companies Income Tax (CIT), Excise Duty, Import Duty, and Customs External Tariff levies (CET) Levies despite the improvements in receipts from Electronic Money Transfer Levy (EMTL) and Oil & Gas Royalties.
Based on the stipulated sharing revenue formula, the FGN received NGN569.66 billion (February: NG552.59 billion), State Governments received NGN562.20 billion (February: NG590.61 billion), Local Governments received NGN410.56 billion (February: NGN434.57 billion), while oil producing states received an additional NGN136.04 billion (February: NGN125.28 billion) as derivation (13% of mineral revenue). We estimate that the amount disbursed is 71.6% of the total gross revenue (NGN2.34 trillion) generated in the month, with the remaining balance was allocated to transfers, interventions and refunds (NGN755.10 billion), and the cost of collection (NGN89.09 billion).
In the near term, we anticipate potential revenue improvements from two key areas: (1) a potential increase in domestic oil production, and (2) increased Company Income Tax (CIT) collections, driven by improving macroeconomic conditions. However, we note that the recent stability of the naira could lead to reduced exchange rate gains on foreign collections, which could tether the growth in overall FAAC disbursements.
According to data from the Central Bank of Nigeria (CBN), Credit to the Private Sector (CPS) increased marginally by 3.4% y/y to NGN73.66 trillion in February (February 2024: NGN71.21 trillion). While CPS continued to grow, the pace of growth has slowed significantly due to the waning impact of currency depreciation on banks’ foreign-denominated assets, following the recent stability of the naira. On the other hand, credit to the government surged by 35.2% y/y to NGN26.49 trillion (February 2024: NGN19.59 trillion), indicating increased government borrowings from domestic banks for deficit financing.
Overall, broad money supply (M3) grew by 19.5% y/y to NGN110.31 trillion, following increases across quasi (+21.5% y/y) and narrow (+15.6% y/y) money supply. On a month-on-month basis, the CPS declined by 1.7% to NGN73.66 trillion in February (January: -1.4% m/m to NGN74.91 trillion), reflecting the impact of the CBN’s tight monetary policy. In the near term, we expect the shift toward monetary policy easing at the next MPC meeting in May to support growth in the CPS. Nonetheless, CPS growth is expected to remain subdued compared to the previous year, as the impact of currency depreciation on banks’ foreign-denominated assets continues to fade given the more stable naira exchange rate.
Capital Markets: Equities
The Nigerian equities market advanced this week, snapping a four-week losing streak, as renewed buying interest in banking stocks lifted the All-Share Index by 0.7% w/w to 105,660.64 points. Precisely, the market’s positive performance was driven by gains in GTCO (+18.2%) and ZENITHBANK (+3.1%) following the release of the respective companies’ 2024 full-year audited financial statements and accompanying dividend announcements.
Consequently, month-to-date and year-to-date returns settled at -2.0% and +2.7%, respectively. Furthermore, trading activity was robust, as both volume and value increased by 161.5% w/w and 743.1% w/w, respectively. Meanwhile, sectoral performance was mixed, as the Banking (+5.6%), Insurance (+1.9%), and Consumer Goods (+0.3%) indices advanced, while the Oil & Gas (-1.7%) index declined. The Industrial Goods index closed flat.
Looking ahead, we expect choppy trading to persist in the holiday-shortened week, with potential bouts of profit-taking in recent gainers alongside renewed bargain hunting in beaten-down names.
Money Market and Fixed Income
The overnight (OVN) rate contracted by 594bps w/w to 27.0% as inflows from FAAC disbursements (c. NGN980.00 billion), FGN bond coupon payments (NGN600.19 billion) and NTB maturities (NGN649.81 billion) offset debits for the FGN bond PMA (NGN271.21 billion) and net NTB issuances (NGN108.73 billion). Consequently, the average system liquidity improved, settling at a net long position of NGN29.28 billion (vs a net short position of NGN1.52 trillion in the previous week).
Next week, barring any liquidity mop-up activity by the CBN, we expect inflows from OMO maturities (NGN652.40 billion) to boost system liquidity, causing the OVN rate to temper from current levels.
Treasury Bills
The Treasury bills secondary market was bearish this week, driven by market participants who sold off bills in expectation of higher stop rates at the primary market auction. Consequently, the average yield expanded by 85bps to 21.7%. Across the market segments, the average yield advanced by 15bps and 168bps to 19.4% and 24.2% in the NTB and OMO segments, respectively. At Wednesday’s NTB auction, the CBN offered bills worth NGN700.00 billion – NGN80.00 billion for the 91D, NGN120.00 billion for the 182D, and NGN500.00 billion for the 364D bills.
Subscription level settled higher at NGN1.43 trillion (previous auction: NGN902.04 billion), with a bid-to-offer ratio of 2.0x (previous auction: 1.1x). The auction closed with the DMO allotting NGN808.73 billion – NGN38.65 billion for the 91D, NGN24.27 billion for the 182D, and NGN745.80 billion for the 364D papers – at respective stop rates of 18.00% (unchanged), 18.50% (unchanged) and 19.63% (previous: 19.94%).
Following our projections of a stronger liquidity position next week, we anticipate higher demand for bills, thereby resulting in lower yields.
Bonds
Meanwhile, the FGN bond secondary market was bullish this week, with the average yield declining by 3bps to 18.7%. We attribute this to secondary market bids by investors who lost out on the auction amid the sizeable non-competitive allotment of NGN152.45 billion (36.0% of total allotment). Across the benchmark curve, the average yield decreased at the short end (-34bps) following demand for the MAR-2027 (-43bps) bond, while it advanced at the mid (+8bps) and long (+20bps) segments driven by selloffs of the APR-2032 (+15bps) and MAR-2035 (+48bps) bonds, respectively.
At Monday’s PMA, the DMO offered instruments worth NGN300.00 billion to investors through re-openings of the 19.30% FGN APR 2029 (Bid-to-offer: 0.3x; Stop rate: 19.00%) and 18.50% FGN MAY 2033 (Bid-to-offer: 4.7x; Stop rate: 19.99%) bonds. Total subscription levels settled at NGN530.31 billion (previous: NGN1.63 trillion), with a bid-to-offer ratio of 1.8x (previous: 4.7x). Eventually, the DMO allotted instruments worth NGN423.68 billion across the two tenors, resulting in a bid-to-cover ratio of 1.3x.
Over the medium term, we expect a moderation in bond yields, influenced by two factors – (1) the anticipated dovish monetary policy stance and (2) shifts in demand and supply dynamics.
Foreign Exchange
The official FX rate depreciated by 0.5% to NGN1,538.70/USD even as the CBN intervened in the market by selling c. USD69.50 million to authorized dealers. Meanwhile, gross FX reserves declined for the second consecutive week by USD913.14 thousand w/w to USD38.33 billion (March 27). In the forwards market, the naira rates increased across the 1-month (+0.5% to NGN1,572.44/USD), 3-month (+1.3% to NGN1,635.09/USD), 6-month (+2.4% to NGN1,727.16/USD) and 1-year (+4.8% to NGN1,899.27/USD) contracts.
The CBN is expected to continue supporting market liquidity amid weak FPI participation in the FX market. This will help maintain the naira’s stability at current levels in the short term. However, risks of currency volatility persist, driven by global uncertainties, including potential trade tensions following US tariff hikes and retaliatory measures from affected countries. These factors could trigger capital outflows as foreign investors seek safer assets.
