| What shaped the past week?
Global: This week, global market activity was mixed, as investors remained cautious in light of global recessionary pressures and the prospect of weaker corporate earnings. In the Asian region, key indices closed positive, with investors closely monitoring economic data releases, particularly the People’s Bank of China’s decision to maintain benchmark lending rates at 3.65% and 4.3% for the fifth consecutive time, as well as Japan’s notable year-over-year inflation increase of 4%, the highest since 1981. Conversely, European markets experienced declines as investors evaluated statements from major central banks in the region. The European Central Bank (ECB) President acknowledged persistent inflationary pressures in the Eurozone, despite recent monthly declines, and the ECB is reportedly contemplating an additional interest rate hike of 50 basis points. Additionally, the Bank of England Governor has predicted a “long but shallow” recession for the UK. Economic indicators in the United States are pointing towards a potential slowdown, as evidenced by weaker housing starts and retail sales figures. Additionally, investors continued to analyze the latest earnings results of listed firms and monitor statements from members of the Federal Reserve. For the past week, all key indices in the U.S. were trading in negative territory at the time of publishing.
Domestic Economy: Inflation fell for the first time in 11 months at the end of 2022. The 13bps slowdown to 21.34% was caused by high base effects from the previous year. However, inflation increased at a stronger pace (1.71% m/m, +32bps faster) due to strong demand during the festive season and continued fuel scarcity. While another drop in January is possible, we believe that persisting pressures and the upwardly revised electricity tariffs could put additional pressure on consumer prices.
Equities: The market sentiment was bearish this week with most sectors closing in the red. The Oil and Gas sector was the exception, rising marginally. However, strong interest in AIRTELAFRICA helped drive the NGXASI higher w/w. In the banking sector, we saw a 2.60% decline, driven by profit-taking across the board. The consumer goods sector also saw a 0.40% decline, due to losses in key players such as NB and DANGSUGAR. Lastly, the industrial goods sector fell 1.06%, driven by profit-taking in DANGCEM and WAPCO.
Fixed Income: The fixed income market experienced a week of mixed trading dynamics. While we observed bearish sentiment among NTB and bond investors, there were also pockets of demand present in the OMO space. The release of the Q1’23 bond calendar was a significant catalyst for market sentiment, particularly as it revealed an uptick in the tenors on offer and the borrowing plans of the Federal Government. As a result, benchmark bond yields rose 52bps on a weekly basis. The NTB space saw relatively subdued activity, with some pockets of sell-side activity leading to a 8bps increase in yields. In contrast, the OMO space had a positive week, as yields eased by 22bps on average
Currency: The Naira appreciated ₦0.40 w/w at the I&E FX Window to ₦461.50.
In January, the covert upward revision in electricity tariffs and fuel scarcity incidences could keep inflation elevated. Thus, we expect inflation to rise slightly to 21.38% y/y in the first month of the year. While we do not doubt the possibility of a descent in January, persisting pressures could alter the pace of disinflation. Against this backdrop, we expect the Monetary Policy Committee to raise rates at a modest pace (50 – 100bps) in its first meeting of the year. Overall, we expect headline inflation to average 20.0% y/y in 2023 (2022: 18.76% y/y). . |
