Global Economy
According to the Bureau of Labor Statistics (BLS), the United States Personal Consumption Expenditures (PCE) price index eased to a seven-month low in April, moderating by 20bps to 2.1% y/y in April (March: +2.3% y/y). The slowdown was primarily driven by a deeper contraction in goods prices and continued softening in services inflation. Precisely, goods prices (-0.4% y/y vs March: -0.3% y/y) dipped further into the negative territory in line with the sharp contraction in prices of non-durable goods (-0.4% y/y vs March: +0.1% y/y) despite a softer decline in prices of durable goods (-0.3% y/y vs March: -1.0% y/y).
Additionally, services expenditures (+3.3% y/y vs March: +3.5% y/y) moderated for the second consecutive month. Excluding volatile food and energy components, the core PCE price index increased at a slower pace of 2.5% y/y (March: 2.7% y/y), in line with consensus estimates. On a month-on-month basis, the PCE price index rose by 0.1% m/m (March: 0.0% m/m), indicating mild underlying inflation momentum. Although the data offers some relief on the inflation front, we note that price risks remain tilted to the upside, given the supply-side price pressures expected to stem from the recently implemented tariff increases.
Consequently, we expect the US Fed to maintain the current federal funds rate in the short term as it continues to monitor underlying inflation dynamics. This aligns neatly with the CME FedWatch tool, which reflects a 97.9% probability that the committee will keep the target range of the US Fed Funds rate at 4.25% – 4.50% at the 18 June meeting.
According to the United States Department of Labor, the initial jobless claims in the US increased by 14,000 to 240,000 in the week ending 24 May (vs. the week ending 17 May: 226,000) – above market expectation (230,000). For us, the rise in claims suggests layoffs are becoming more prevalent, potentially reflecting employers’ cautious stance amid economic headwinds.
At the same time, continuing claims for unemployment insurance rose by 26,000 to 1.92 million in the week ending 17 May, reaching the highest level since November 2021 (1.97 million). On a four-week moving average, initial jobless claims edged down by 250 to 230,750 (vs. the week ending May 17: 231,000), indicating that while there is a slight uptick in layoffs, the broader trend remains relatively stable.
Looking ahead, we expect labour market conditions to gradually soften, driven by a combination of factors such as trade tensions, inflationary pressures, and a shift toward more conservative hiring practices by firms following previous periods of workforce expansion.
Global Markets
Global equities remained positive following gains at the top of the week from the postponement of the 50.0% tariffs on the EU announced last week, and Nvidia’s positive earnings. In line with this, US stocks (DJIA: +1.5% and S&P 500: +1.9%) are set to close the week higher even as sentiments weakened in the last trading session following a fresh wave of tariff uncertainty. Elsewhere, European equities (STOXX Europe: +0.9% and FTSE 100: +0.6%) were lifted by renewed hopes for a US-EU trade deal following President Trump’s decision to delay the planned 50.0% tariff on EU imports.
A rebound in consumer confidence in May, after five consecutive months of decline, also supported sentiments. Asian markets (Nikkei 225: +2.2%; SSE: 0.0%) posted mixed performances, with Japanese stocks advancing on a weaker yen and strong global tech earnings, while Chinese equities were flat as optimism over policy support was offset by renewed US-China trade tensions. On a broader note, the Emerging Market (MSCI EM: -0.1%) index slipped, dragged by the decline in India (-0.3%). Conversely, the Frontier Market (MSCI FM: +1.2%) index outperformed rising on the back of notable gains in Vietnam (+1.4%) and Romania (+3.3%).
Nigeria: Domestic Economy
According to data from the Central Bank of Nigeria (CBN), Credit to the Private Sector (CPS) increased by 6.8% y/y to NGN77.91 trillion in April (April 2024: NGN72.92 trillion). We highlight that the pace of growth has slowed considerably compared to the previous year (2024 average: 48.1% y/y), primarily due to the diminished impact of currency depreciation on banks’ foreign-denominated assets, following the recent stability of the naira.
At the same time, credit to the government rose by 17.9% y/y to NGN23.55 trillion (April 2024: NGN19.96 trillion), indicating increased government borrowings from domestic banks for deficit financing. Overall, broad money supply (M3) grew by 22.8% y/y to NGN119.11 trillion, following increases across quasi (+23.6% y/y) and narrow (+21.3% y/y) money supply. On a month-on-month basis, the CPS increased moderately by 2.1% to NGN77.91 trillion in April (March: +2bps m/m to NGN76.27 trillion, possibly reflecting banks’ efforts to expand risk assets.
Looking ahead, we expect CPS growth to remain subdued in the near term, reflecting the impact of the current tight monetary policy stance. However, a potential shift toward monetary easing in the latter part of the year could offer some support for a gradual rebound in CPS growth over the medium term.
Based on the data from the Domestic and Foreign Portfolio Report of the Nigerian Exchange (NGX), total transactions in the local bourse significantly declined by 56.8% m/m to NGN482.04 billion in April (March: NGN1.12 trillion). The performance was due to the normalisation of inflows from foreign sources, which were primarily boosted by block trade transactions in the previous month. Specifically, inflows from foreign investors (13.1% of gross transactions) dipped by 91.0% m/m to NGN63.07 billion in April (March: NGN699.89 billion).
On the other hand, inflows from domestic investors (86.9% of gross transactions) marginally increased by 0.8% m/m to NGN418.97 billion (March: NGN415.62 billion) due to a rise in transactions from institutional (+8.8% m/m) amid a decline in transactions from retail investors (-8.0% m/m). Net flows turned positive in April at NGN5.74 billion (March: -NGN3.67 billion), driven by strong net domestic inflows of NGN15.53 billion that outweighed net foreign outflows of NGN9.79 billion.
In the near term, we expect domestic investors to continue contributing the most to total transaction value, with the anticipated decline in yields in the fixed income market supporting buying activities. On the other hand, while a more efficient FX market is expected to support foreign investors’ participation in the equities market, existing global uncertainties remain a downside risk to inflows.
Capital Markets: Equities
The local bourse closed the week in the green territory, lifted by strong interest in AIRTELAFRI (+10.0%) as investors reacted positively to the ongoing USD10.00 million share buy-back programme. Further support came from gains in BUAFOODS (+5.3%), MTNN (+3.7%) and TRANSCOHOT (+6.5%). Consequently, the All-Share Index rose by 2.5% w/w, settling at 111,742.01 points. Thus, the month-to-date and year-to-date returns increased to +5.6% and +8.6%, respectively.
Market activity was mixed, as trading volume declined by 3.5% w/w while trading value rose by 59.6% w/w. In line with the market’s bullish tone, sectoral performance was largely positive, with gains across the Consumer Goods (+3.8%), Insurance (+1.0%), Banking (+0.7%), and Industrial Goods (+0.3%) indices. However, the Oil & Gas (-2.1%) index bucked the trend.
In the week ahead, despite this week’s positive momentum, we expect sentiment to turn cautiously optimistic amid ongoing global uncertainties—especially around trade tensions—with market direction hinging on macroeconomic updates and corporate developments.
Money Market and Fixed Income
The overnight (OVN) rate expanded by 3bps w/w to 27.0%, despite the relatively robust system liquidity. For context, inflows from OMO maturities (NGN984.22 billion) outweighed debits from the OMO PMA (NGN482.33 billion) and FGN bond PMA (NGN300.69 billion), suggesting that the slight uptick in OVN was likely driven by short-term funding pressures rather than a liquidity squeeze.
Activities at the CBN’s Standing Deposit Facility (SDF) window were heightened this week (NGN1.64 trillion) ensuring that the financial system wrapped the week buoyant, settling at an average net long position of NGN1.88 trillion (vs a net long position of NGN646.50 billion in the previous week).
In the absence of any mop-up activity by the CBN, we expect inflows from OMO maturities (NGN239.15 billion) to boost system liquidity in the coming week, weighing further on OVN rate, amid heightened activities at CBN’s SDF window.
Treasury Bills
Bullish sentiments prevailed in the Treasury bills secondary market, as robust system liquidity caused the average yield across all instruments to decline by 36bps to 23.0%. Across the market segments, the average yield declined by 6bps and 80bps to 20.7% and 25.7% in the NTB and OMO segments, respectively. At the OMO auction held on Wednesday (28 May) the DMO offered NGN600.00 billion across the 104-day and 139-day tenors at NGN300.00 billion each. Total subscription settled at NGN687.13 billion (bid-to-offer: 1.1x), with the CBN eventually allotting NGN482.13 billion—NGN1.00 billion at 23.60% for the 104D and NGN481.13 billion at 24.98% for the 139D.
Looking ahead, we expect robust system liquidity to sustain demand for Treasury bills, resulting in further declines in secondary market yields. Additionally, CBN is scheduled to conduct an NTB PMA next Wednesday (4 June), with NGN450.00 billion worth of maturing bills on offer. At the auction, we expect yields to taper.
Bonds
The FGN bond secondary market was bullish this week, reflecting investors’ reaction to the lower stop rates recorded at Monday’s FGN bond primary market auction. As a result, the average yield declined by 15bps to 18.8%. Across the benchmark curve, the average yield declined at the short (-33bps), mid (-8bps) and long (-1bp) segments, due to buying interest in the JAN-2026 (-115bps), FEB-2031 (-42bps) and APR-2049 (-6bps) bonds, respectively.
The DMO conducted the monthly bond primary market auction for June on Monday. At the PMA, the DMO offered instruments worth NGN400.00 billion to investors through re-openings of the 19.30% FGN APR 2029 (Bid-to-offer: 0.2x; Stop rate: 18.98%) and 19.98% FGN MAY 2033 (Bid-to-offer: 1.4x; Stop rate: 19.85%) bonds. Total subscription level settled at NGN436.40 billion (previous: NGN495.95 billion), with a bid-to-offer ratio of 1.1x (previous: 1.4x). Eventually, the DMO allotted instruments worth NGN300.69 billion across the two tenors, resulting in a bid-to-cover ratio of 1.5x.
Over the medium term, we retain our expectation for a moderation in bond yields, influenced by two factors including (1) the anticipated dovish monetary policy stance and (2) demand and supply dynamics.
Foreign Exchange
The naira closed flat w/w at NGN1,585.00/USD, as the CBN’s sale of approximately USD170.00 million to the market provided support but was insufficient to drive further appreciation. Meanwhile, gross FX reserves declined by USD48.89 million w/w to USD38.50 billion (29 May). In the forwards market, the naira rates appreciated across the 1-month (+0.1% to NGN1,621.61/USD), 3-month (+0.1% to NGN1,681.37/USD), 6-month (+0.0% to NGN1,767.48/USD) and 1-year (+0.1% to NGN1,936.39/USD) contracts.
The naira is expected to remain relatively stable in the near term, supported by sustained interventions from the CBN and a gradual easing of global pressures. However, a significant appreciation appears unlikely, as foreign exchange liquidity remains tight due to weak foreign portfolio inflows and lingering global uncertainty.
Cordros
