Market reactions were swift and optimistic, with stocks surging and expectations leaning toward a pause in Fed rate increases. The stabilization of headline CPI was attributed in part to the decline in energy prices, while promising decreases in shelter costs and vehicle prices added to the positive outlook.
However, certain elements cast shadows of concern. Consumer inflation expectations continue to rise due to factors like volatile gasoline prices and global geopolitical uncertainties arising from conflicts in regions like Ukraine and Gaza. Recent remarks by Fed Chair Jerome Powell introduced an air of uncertainty, suggesting potential further rate hikes if substantial improvement in inflation isn’t observed.
Despite signs of progress in economic indicators such as labor market reactions and slower labor cost increases, the Fed maintains a cautious approach. Balancing the need to tackle inflation while sustaining economic growth poses a complex challenge.
The data presents a nuanced scenario, indicating a gradual easing of inflationary pressures alongside persistent uncertainties. The Fed’s stance is expected to remain vigilant, potentially maintaining a cautious tone to ensure market readiness for necessary actions, even if a temporary pause in interest rate hikes seems likely for now.
Turning to Nigeria’s local market, the October 2023 inflation data unveils enduring economic hurdles. The headline inflation surge to 27.33% primarily driven by a 1.52% year-on-year increase in food prices, especially essentials like Bread, Oil, and Vegetables, significantly impacts consumers.
Regional disparities are stark, with Kogi, Kwara, and Lagos facing the highest food price escalations, while Borno, Kebbi, and Jigawa recorded slower increases. Core inflation at 22.58% underscores broader economic strain, with notable spikes in transport, healthcare, and housing costs.
Urban areas experienced a sharper inflationary spike, reaching 29.29%, compared to the rural rate of 25.58%. However, marginal monthly inflation drops in both urban and rural sectors offer a nuanced economic landscape.
Tackling the root causes of inflation, especially fluctuating food prices, becomes imperative to mitigate its adverse impact on households. Implementing targeted policies to stabilize essential commodity prices could potentially alleviate inflationary pressures, fostering a more resilient and stable economic environment
Money Market
The interbank rate experienced a significant increase during the week due to reduced liquidity in the financial system caused by the settlement debit from the bonds auction. When comparing week-to-week, there was a notable rise of 425 bps in the Open Buy Back (OBB) rate and a 462 bps increase in the Overnight rate (O/N), closing the week at 20.83% and 22.20%, respectively.
We anticipate the rate to persist at similar levels in the upcoming week.
Treasury Bills
Despite the tight interbank liquidity environment, the Treasury Bills market exhibited a bullish trend throughout the week, propelled by the absence of Open Market Operations (OMO) auctions, further bolstering buying sentiments. Predictably, the average benchmark yield experienced a decline of 101 bps, concluding the week at 12.32%.
We anticipate a comparable sentiment in the upcoming week.
FGN Bond Market
The FGN Bonds market exhibited a bearish stance throughout the week. At the start, the bearish sentiments was buoyed by expectations of the bonds auction result which held on Monday. At the auction, the DMO offered N360 billion worth of across the four instruments. However, it bonds sold N434.5 billion against a subscription of N445.30 billion. Compared to the previous auction, the average stop rate surged by 110bps, 125bps, 170bps and 140bps each to 16.00%, 17.00%, 17.50% and 18.00% respectively.
Taking a cue from the auction results, there was a retracement in bond prices in the secondary market which caused yields to trend higher to the end of the week. This bearish sentiment was also supported by the anticipation of the outcomes of the MPC meeting slated for the next week. Consequently, the average benchmark yield concluded the week at 15.95%, reflecting an 11 bps uptick on a week-over-week (WoW) basis.
We anticipate a sustained continuation of this prevailing trend in the upcoming week.
Eurobond Market
The FGN Eurobonds experienced a bullish trajectory throughout the week, bolstered by positive reports from the US that sustained heightened buying interest. The average benchmark yield closed the week with a 25 basis points decrease, settling at 10.84%.
We anticipate a sustained bullish momentum in the upcoming week.
Currency Market
The value of the Naira to the dollar depreciated by 149 bps week-on-week to print at ₦791.75/$ this week at the Nigerian Autonomous Foreign Exchange Market (NAFEM).
Equities Market
The local equities market exhibited a bullish trajectory this week, evident in the weekly uptick of 41 bps in the NGX All-Share Index (NGXASI), concluding at 71,112.99 points. This led to a substantial year-to-date gain of 38.75%. Furthermore, the overall market capitalization, settling at ₦39.11 trillion, experienced a week-on-week increase of ₦0.18 trillion. Market breadth closed at 1.80x with 54 advancers outperforming the 30 decliners.
Upon scrutinizing the comprehensive trading metrics, the total trading volume contracted by 20.68%, reaching 441.58 million units, while the total traded value expanded by 8.46%, amounting to ₦6.03 billion.
Looking forward, we anticipate a continuation of similar market dynamics in the upcoming trading session.
