Weekly Economic Update (May 27th – May 31st)

Key Economic Events

·         OPEC+ extends output cuts amid weak demand and rising US oil inventories

During its meeting on June 2nd, OPEC and its allies opted to extend their oil output cuts in line with expectations, aiming to stabilize the market amidst sluggish demand growth in China, elevated interest rates, and increasing US oil inventories. Notably, the extension included continuing the 3.66 million barrels per day (mbpd) production cuts initially set to expire by the end of 2024 for an additional year until the end of 2025. Additionally, the voluntary cuts of 2.2 mbpd by eight members—Algeria, Iraq, Kazakhstan, Kuwait, Oman, Russia, Saudi Arabia, and the United Arab Emirates—originally set to expire by the end of June 2024, were extended by three months until September 2024. The group outlined plans to gradually phase out these voluntary cuts from October 2024 to September 2025.

In a noteworthy development, discussions regarding capacity targets were deferred until November 2025. Meanwhile, a new production target for the UAE was established, allowing for a gradual increase in output by 0.3 mbpd from the current level of 2.9mbpd.

OPEC expects demand for its crude to average 43.65 mbpd in the second half of 2024, potentially reducing stocks if production levels remain steady. However, the International Energy Agency predicts a lower demand of 41.9 mbpd.


The decision to extend output cuts would allay fears of oversupply amid demand uncertainties. Hence, oil prices are expected to remain above $80 per barrel in the near term. Oil price above $80 per barrel is positive for Nigeria, given the 2024 benchmark price of $77.96 per barrel. However, the country has failed to meet its OPEC quota (1.78 million barrels per day), which will continue to cap the gains in oil prices.


·         US Federal Reserve maintains the status quo but expressed concerns about inflation

At the recent Federal Reserve meeting, officials expressed growing concern about inflation, indicating a reluctance to proceed with interest rate reductions. They noted inflation's persistence above the Fed's 2% target, with significant price increases in goods and services. While some officials mentioned the possibility of tightening policy further if inflation risks materialize, others, including Chair Jerome Powell, expressed skepticism about hiking rates.

The Fed maintained its benchmark interest rate of 5.25%-5.5%, citing continued economic growth. Despite some recent signs of inflation easing, consumer surveys reflected increasing worries. Upside risks to inflation were noted, particularly from geopolitical events, with concerns about the financial pressure on lower-income households and their resorting to riskier financing methods.

While officials remained largely optimistic about growth prospects, they anticipated some moderation and uncertainty about the duration of elevated inflation. Immigration was highlighted as a factor supporting the labor market and consumption levels.

Market expectations for rate cuts have diminished, with futures pricing indicating a reduced likelihood of rate reductions, compared to earlier expectations of multiple cuts this year. Fed officials' remarks have taken a cautious tone, with a need for sustained positive data before considering rate cuts.


The renewed fears about inflation and the possibility of a further rate hike should inflation risks materialize will have significant implications for emerging markets, including Nigeria. Higher interest rates will push up external debt service costs, squeezing available funds for capital projects. It could also trigger a resurgence in capital flight, which will threaten currency stability in most Sub-Saharan African countries. Since the US Fed started maintaining the status quo in July 2023, several countries in Saharan Africa have recorded significant appreciations in their currencies. For instance, the Ghanaian Cedis gained 32.98% to close at GH₵0.06873/$ on May 24, 2024, from GH₵0.0914/$ on August 4, 2023. The Kenyan Shilling has also recorded a YTD gain of 18.15%.


Market Update

·         Oil market – Mixed market sentiment

Oil prices began the week on a bullish note, reaching a four-week peak of $84.22 per barrel on May 28. This uptrend was fuelled by expectations of OPEC+ extending its voluntary production cuts during the June 2 meeting. Additionally, the prospect of increased fuel demand with the onset of the peak summer demand season lent further support. Nevertheless, Brent prices retreated by mid-week, concluding the week at $81.58 per barrel. Factors contributing to this decline include an unexpected increase in US oil inventories, slow demand growth in China, and uncertainties surrounding the commencement of the US Federal Reserve's monetary easing cycle. On average, oil prices increased marginally by 0.59% to $82.88 per barrel from $82.39 per barrel in the preceding week. Screenshot 0.png Outlook

We expect Brent crude prices to remain above $80 per barrel, buoyed by OPEC and its allies’ decision to extend output cuts. Additionally, heightened tensions in the Middle East could further elevate price prospects. Meanwhile, further delay in the commencement of the monetary easing cycle in the US would weigh on oil demand, potentially moderating oil price increases.

·         Forex market choppy movement The currency exhibited volatile movements in official and parallel markets during the period under review. In the parallel market, the Naira strengthened to a four-week high of N1,375/$ on May 29 before weakening to close the week at N1,485/$. Similarly, the currency recorded a three-day winning streak from May 24 to 28 at the official window, reaching a six-week high of N1,173.88/$ on May 28, before weakening to close the week at N 1485.99/$.  Notably, the official exchange rate appreciation coincided with a decline in external reserves. The gross external reserves experienced a three-day consecutive decrease from May 24 to 28, following a month of steady increase. This suggests that the CBN intervened in the forex market to boost liquidity ahead of the May 29 NDF maturity of $1.3 billion. Screenshot 1.png Outlook

The Naira is likely to weaken further in the near term, primarily due to the delayed impact of the $1.3 billion payment, unless there are substantial injections into the market.

Money market

Banks’ opening position was negative in the first two days of the week, before recovering to close the week in a net long position. During the week, there were OMO sales of N500 billion and primary market repayment of N5.59 billion. On average, banks’ opening position was N100.8 billion long compared to a short position of N509.53 billion in the prior week. Consequently, average short-term interbank rates rose to 30.63% from 31.42% in the preceding week. Screenshot 2.png

Outlook We expect interest rates to remain elevated as liquidity challenges persist. ·         Fixed income market Sentiments were subdued along the FGN bond curve during the review period. However, there was an uptick in activity by mid-week as market participants displayed some interest, primarily concentrated on the short and middle tenors, seeking attractive yields. On a week-on-week basis, the average benchmark yield across the bond curve experienced a marginal increase of 0.02%, closing the week at 18.57%. Activity in the Treasury bills market remained largely positive during the week, with the average benchmark yield decreasing by 0.6% on a week-on-week basis, closing at 21.72% compared to the previous week's 22.32%. At the beginning of the week, market sentiment was predominantly bullish, particularly towards the 1-year bill. However, as the week progressed, improved offers emerged, with trades observed on the NTB-22-May maturity at discount rate levels ranging from 20.40% to 20.30%. Outlook There will be a primary market treasury bill auction this week. We expect yields to remain at current levels. ·         Stock market – Market sentiment largely bullish The Nigerian stock market experienced positive performance during the review period. The NGX ASI gained 1.73% to close the week at 99,300.38 points from 97,612.51 points at the end of the preceding week while market capitalization rose by 1.72% to N56.17 trillion from N55.22 trillion on May 24. This improved performance was partly due to the reinvestment of the dividend to enhance liquidity. Screenshot 3.png The average traded volume fell by 10.25% to 437.85 million units from 397.16 million, while the average traded value declined by 23.1% to N6.26 billion from N8.14 billion.

Market breadth for the week was positive as 45 stocks gained, 21 lost, and 73 remained unchanged. Fidelity Bank topped the gainers' list with a 22.89% increase, closing at N10.20 per share. Dangote sugar followed with a gain of 20.51% to close at N47.00 per share, while Nascon rose by 20.15% to close at N40.85 per share. Screenshot 4.png The laggards were led by C&I Leasing (-13.66%), NPFMCRFBK (-11.11%), FTNCOCOA (-8.33%), LEARNAFRCA (-6.25%) and FIDSON (-5.40%). Screenshot 5.png Outlook We expect the positive sentiments to persist as market participants adjust their portfolios in response to low valuations, focus on dividend investing, and react to corporate earnings reports from insurance companies, which have been announcing dividends on the Nigerian Exchange (NGX). Additionally, investors are likely to seize opportunities during market pullbacks to adjust and rebalance their portfolios.




Ready to Get Started?

Begin your journey to financial freedom. Make your money work for you. Let's go!

Join the club

Subscribe to our Newsletter and be the first to receive updates on our new investment opportunities and promotions.