Weekly Economic Update (Oct 14th – Oct 18th)

Economic Update

·         UK inflation falls below BOE’s 2% for the first time since April 2021 UK inflation declined sharply by 0.5% to 1.7% in September, falling below the Bank of England's 2% target for the first time in over three years. Core inflation, which excludes volatile items, also dropped to 3.2% from 3.6%. This was largely due to lower fuel prices. Outlook and implications

The decline in inflation has heightened expectations for a potential rate cut by the Bank of England in November. However, potential increases in energy prices pose a significant threat to the downward inflation trend. Lower inflation in the UK has important implications for the Nigerian economy. A continued decrease in inflation is likely to enhance purchasing power, potentially leading to higher remittances from the Diaspora. Additionally, the anticipated rate cut could lower foreign debt servicing costs.

Market Update

Oil market – Bearish sentiment due to demand concerns

During the review period, oil prices trended downward, ending the week at a month-to-date low of $73.06 per barrel. On average, Brent crude prices decreased by 5.01%, dropping to $74.69 per barrel from $78.63 per barrel the preceding week. This bearish sentiment was largely attributed to concerns about demand in China, following persistent deflationary pressures in producer prices (2.8%)—the steepest contraction since March—and uncertainty regarding additional economic stimulus measures. Additionally, OPEC reduced its demand growth forecasts for 2024 and 2025 to 1.93mbpd and 1.6mbpd, respectively, which, along with tensions in the Middle East, further contributed to the bearish price trend. Outlook

Considering the persistent worries about deflationary pressures in China and the uncertainty surrounding stimulus measures, the short-term outlook for crude oil is likely to remain bearish.

Forex Market – Persistent currency pressures as forex demand outpaces supply

Currency pressures continued during the review period, with the Naira falling to an 8-month low of ₦1,725/$ by the end of the week, down from ₦1,690/$ the previous week. Similarly, at the official exchange rate, the currency depreciated to ₦1,660.49/$ on October 17, before slightly recovering to close the week at ₦1,600.78/$. This decline is primarily due to a faster pace of growth in forex demand compared to supply, as manufacturers and traders stock up for the year-end festivities. Average forex sales rose by 8.19%, reaching $283.91 million, up from $262.56 million last week. Meanwhile, gross external reserves continued to grow, increasing to $38.99 billion from $38.71 billion the prior week. Outlook

The Naira is projected to remain in the ₦1,600/$ to ₦1,750/$ range in the short term, driven by ongoing strong demand for dollars from manufacturers preparing for festive sales. Additionally, appealing yields in the fixed-income market are expected to boost foreign portfolio investment (FPI) inflows, which could help maintain relative currency stability.

Money market – Persistent tight liquidity conditions

Liquidity remained tight throughout the review period due to a lack of significant inflows into the system. At the start of the week, banks had a net negative position of -₦2.33 trillion, which improved by the end of the week to -₦837.29 billion. On average, banks’ opening position was ₦1.51 trillion short compared to the previous week’s net negative balance of -₦681.96 billion. As a result, average short-term interbank interest rates increased to 32.50%, up from 32.42% the week before. Outlook

We anticipate that the inflows from the FAAC allocation in the upcoming week will help alleviate the pressure on liquidity.

Fixed income market – Bearish performance persist

The average benchmark yield across the FGN bond curve rose by 0.14% to close the week at 18.79%, up from 18.65% the previous week. There was a bearish trend across all segments, particularly in the short to mid-sections, with selloffs seen in the 2026, 2027, and 2033 bonds due to profit-taking.

Bearish sentiment was also present across the Treasury bills curve last week, driven by tight liquidity. Consequently, the average benchmark yield increased by 1.04% to close the week at 24.11%, up from 23.07% the previous week. Significant selloffs throughout the week primarily affected the curve's mid to long sections.

Outlook

We expect bearish trends to continue at the beginning of the week, barring any catalysts, as investors prepare for the NTB-PMA on Wednesday.

Stock market

The stock market concluded the week positively, with the NGX ASI rising by 0.48% to reach 98,070.28 points on October 18, up from 97,606.63 points on October 11. Likewise, market capitalization grew by 5.95%, ending at ₦59.43 trillion, compared to ₦56.09 trillion the week before. Average trading volume fell by 51.23%, decreasing to 289.34 million units from 593.23 million units, while average trading value increased by 134.23%, rising to ₦14.78 billion from ₦6.31 billion the previous week.

The market breadth for the week was negative, with 31 stocks gaining, 42 declining, and 67 remaining unchanged. TRANSPOWER led the gainers with a 19.29% increase, closing at ₦359.90 per share. MECURE followed with an 18.81% rise, closing at ₦12.00 per share, and DANGSUGAR increased by 13.06% to finish at ₦35.05 per share. The underperforming stocks included REGALINS, which decreased by 15.28%, TRIPPLEG, which fell by 14.93%, ARADEL, which dropped by 11.00%, CAVERTON, which declined by 9.23%, and ABCTRANS, which also saw a decrease of 9.09%. Outlook

The market is anticipated to maintain a mixed sentiment in the upcoming weeks as investors adjust their portfolios to capitalize on the release of Q3 financial statements.