Global Economy
According to the Bureau of Labor Statistics (BLS), the United States Personal Consumption Expenditures (PCE) price index increased by 20bps to 2.3% y/y in October (September: +2.1% y/y). We attribute the acceleration to the unfavourable base effect from last year amid the upward pressure on goods and services costs. Parsing through the breakdown provided, goods prices (-1.0% y/y vs September: -1.2% y/y) declined at a softer pace due to higher prices of durable and non-durable goods, while service charges (+3.9% y/y vs September: +3.7% y/y) rose to a five-month high. At the same time, the core PCE price index increased by 2.8% y/y (September: +2.7% y/y), influenced by higher spending on healthcare, housing and utilities.
That said, the PCE price index was unchanged at +0.2% on a month-on-month basis (September: +0.2% m/m). We anticipate the elevated services price pressures will continue to drive upward momentum in the PCE price index in the near term. Nonetheless, we expect the Federal Open Market Committee (FOMC) to proceed with their monetary policy easing cycle at the next monetary policy meeting, particularly as the recent data print aligns with forecasts. This synchronizes neatly with the CME FedWatch tool, which reflects a 66.3% probability of a 25bps reduction in the target range of the federal funds rate at the 18 December meeting.
According to the recently released data from Eurostat, Euro Area’s consumer prices increased for the second consecutive month, rising by 30bps to 2.3% y/y in November (October: +2.0% y/y). The increase was primarily driven by a statistical base effect, as last year’s sharp declines in energy prices are no longer accounted for in the annual comparisons. Thus, there was a softer decline in energy prices (-1.9% y/y vs October: -4.6% y/y), while food (+2.8% y/y vs October: +2.9% y/y) and services (+3.9% y/y vs October: +4.0% y/y) inflation moderated marginally.
Meanwhile, on a month-on-month basis, consumer prices declined by 0.3% (October: +0.3% m/m). We anticipate headline inflation in the zone to hover around current levels as the existing factors stoking prices remain intact. Nonetheless, we believe the recent inflation print will not deter the European Central Bank (ECB) from cutting interest rates amid the potential imposition of new US tariffs by the incoming Trump administration further exacerbates concerns over sluggish growth. Consequently, we expect the ECB to proceed with a measured approach to easing the key interest rate, aligning with market expectations of a 25bps reduction at the 12 December monetary policy meeting.
Global Equities
The global stock market experienced mixed sentiments this week, driven by robust US GDP data, expectations of further stimulus measures in China, and speculation over interest rate outlook in Japan and Europe. As of the time of writing, US equities (DJIA: +1.0%; S&P 500: +0.5%) are on track to close the week higher, supported by positive sentiments around GDP growth and declining jobless claims, which outweighed concerns over stalled progress in reducing inflation. European equities (STOXX Europe: -0.2%, FTSE 100: +0.2%) faced sustained pressures as investors evaluated November’s Eurozone inflation data for implications on interest rate policy; however, expectations for further economic stimulus from China offered some support. In Asia, Japanese equities (Nikkei 225: -0.2%) settled lower following the higher-than-expected inflation data, which fueled speculation of a potential Bank of Japan rate hike.
Meanwhile, Chinese equities (SSE: +1.8%) advanced, following optimism surrounding additional stimulus measures, and the prospect of reduced US sanctions. The Emerging Market (MSCI EM: -0.7%) index settled lower due to losses in Taiwan (-2.8%) and South Korea (-1.8%), while the Frontier Market (MSCI FM: +0.9%) index advanced, reflecting gains in Vietnam (+1.8%).
Nigeria: Domestic Economy
According to the National Bureau of Statistics (NBS), the domestic economy grew by 3.46% y/y in Q3-24 (Q2-24: 3.19% y/y). Parsing through the breakdown, the oil sector growth moderated but remained positive for the fourth consecutive quarter, rising by 5.17% y/y (Q2-24: +10.15% y/y) primarily due to a high statistical base despite the modest improvement in domestic crude oil production compared to the corresponding period last year (1.47 mb/d vs Q2-24: 1.41 mb/d | Q3-23: 1.45 mb/d). Conversely, the non-oil sector improved, growing by 3.37% y/y (Q2-24: 2.80% y/y) driven by the improvement in the service subsector (ICT and Finance & Institution), which offset the moderation observed across the agriculture (+1.14% y/y vs Q2-24: +1.14% y/y) and manufacturing (+0.92% y/y vs Q2-24: +1.28%) subsectors.
Looking ahead, we expect the broader economy to maintain a steady growth trajectory in Q4-24. While we foresee improvement in the non-oil sector, these gains are likely to be tempered by the subdued performance of the oil sector. Specifically, given our oil production estimate of 1.57mbpd in Q4-24E (using NUPRC production figures), we anticipate a slowdown in the oil sector growth due to a high statistical base from the previous year (1.53 mb/d; +12.11% y/y). At the same time, we expect non-oil sector growth to improve due to several factors: (1) increased agricultural output from the main harvest season, (2) increased consumer demand induced by the festive period, and (3) robust services sector growth. Consequently, we project the real GDP to grow by 3.47% y/y in Q4-24, culminating to a full-year growth of 3.27% y/y (2023FY: +2.71% y/y).
The Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) unanimously voted to increase the Monetary Policy Rate (MPR) by 25bps to 27.50% (Previous: 27.25%) at the November meeting (last meeting of the year). The hike marks the sixth consecutive rate hike this year, bringing the total rate increase to 875bps (2023FY: +225bps). The Committee’s decision to tighten further aligns with their goal to (1) curb inflationary pressures, (2) stabilise the naira, and (3) anchor inflation expectations.
At the same time, the Committee voted to keep all other parameters unchanged – Cash Reserve Requirement (CRR) for Deposit Money Banks (DMBs) and Merchants Banks at 50.0% and 16.0%, respectively; asymmetric corridor around the MPR at +500bps/-100bps and the liquidity ratio at 30.0%. Given the Committee’s commitment to stabilize prices and the anticipated uptick in headline inflation in the coming months, primarily driven by the lingering effects of elevated PMS prices, sub-optimal food harvests, and the seasonal uptick in consumer demand following the festive period, we expect the MPC to tighten further. Specifically, we expect the MPC to raise the policy rate by an additional 25bps at the next meeting scheduled for January 2025.
Capital Markets: Equities
The domestic bourse closed the week lower as the market reacted negatively to the MPC’s interest rate hike. Consequently, the All-Share Index (ASI) declined by 0.3% w/w to 97,507.87 points, as sell pressures on SEPLAT (-6.0%), GTCO (-3.0%), and MTNN (-1.2%), outweighed gains in WAPCO (+7.4%), OANDO (+6.7%), and FBNH (+3.5%). Thus, the Month-to-Date and Year-to-Date returns settled at -0.1% and +30.4%, respectively. Meanwhile, market activity was robust, with trading volume and value rising by 63.6% w/w and 52.8% w/w, respectively. Sectoral performance was mixed, as the Oil & Gas (-1.9%), Consumer Goods (-0.4%) and Banking (-0.3%) indices settled lower, while the Insurance (+1.2%) and Industrial Goods (+0.8%) indices posted gains.
Next week, we expect cautious trading to persist due to the absence of any significant positive catalyst to boost sentiments.
Money Market and Fixed Income
The overnight (OVN) rate contracted by 290bps w/w to 29.9% following inflows from FAAC disbursements (NGN300.00 billion) and FGN bond coupon payments (NGN5.66 billion). However, the preceding was insufficient to support system liquidity. Thus, the average liquidity closed at a net short position of NGN325.66 billion (vs net long position of NGN121.25 billion in the prior week).
Next week, we expect the OVN to trend upwards in the absence of any notable inflows into the financial system.
Treasury Bills
The Treasury bills secondary market traded with bearish sentiments this week as market players reacted to the 25bps increase in the monetary policy rate. Accordingly, the average yield across all instruments expanded by 71bps to 26.0%. Across the market segments, the average yield declined by 113bps to 25.2% in the NTB segment and pared by 4bps to 27.2% in the OMO segment.
Based on our expectation of a possible liquidity deficit in the coming week, we expect demand for bills to wane, causing yields to trend higher.
Bonds
Similarly, proceedings in the FGN bond secondary market were bearish this week following the outcome of the MPC meeting. Consequently, the average yield increased by 6bps to 19.5%. Across the benchmark curve, the average yield expanded at the short (+4bps) and mid (+9bps) segments, following selloffs of the JAN-2026 (+13bps) and JUN-2033 (+53bps) bonds, respectively. The average yield closed flat at the long end.
Next week, we expect quiet proceedings in the FGN bond secondary market as investors reassess their portfolios and prepare for the last auction of the year. Meanwhile, we also maintain our short-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 this week by 1.2% w/w to NGN1,672.69/USD at the Nigerian Autonomous Foreign Exchange Market (NAFEM) despite (1) the FX inflows from FPIs in anticipation of an OMO auction and (2) the CBN’s intervention, selling c. USD102.00 million to authorized dealers. Notably, for the first time in twelve weeks, the country’s FX reserves declined, as the gross reserve level decreased by USD34.92 million w/w to USD40.24 billion (27 November). Total turnover at the NAFEM as of 28 November increased by 67.1% WTD to USD1.97 billion, with trades consummated within the NGN1,557.00/USD – NGN1,706.00/USD band. In the forwards market, the naira rates increased across the 1-month (+2.2% to NGN1,703.48/USD), 3-month (+2.3% to NGN1,776.14/USD), 6-month (+2.1% to NGN1,888.22/USD) and 1-year (+2.5% to NGN2,104.86/USD) contracts.
In anticipation of the upcoming Eurobond issuance (USD1.70 billion), we expect stronger FX reserves in the short term, supporting CBN’s ability to keep the naira stable in the short to medium term. However, in line with CBN’s FX reserve management and price discovery goal, we do not expect a significant appreciation in the naira as the CBN maintain tepid intervention to keep the naira stable.
Cordros
