Global Economy
United States – December Spending Halts Disinflationary Pressures
During the week, the US Bureau of Labor and Statistics released the Inflation Report for December
2023. As culled from the report Headline Inflation advanced by 3.4% YoY, compared to 3.1% YoY in
November. For context, Food Inflation rose 2.7% YoY (vs 2.9% YoY in November) while Core Inflation
rose 3.9% YoY (vs 2.7% YoY in November). Energy Index contracted mildly by 2.0% YoY (vs -5.4% YoY
in November). On a month-on-month basis, Headline (+0.3%) and Energy (+0.3%) inflation saw the
highest uptick while Food (+0.2%), and Core (+0.3%) all rose at the same pace compared to the previous month.

Source: US BLS, Zedcrest Wealth

In our analysis, we observed that the shelter index played a significant role in the monthly uptick in
headline CPI, rising by 0.5% MoM and contributing to over half of the overall increase. Moreover, we
anticipate that the tensions in the Red Sea region may escalate, causing an additional rise in shipping
costs and potentially influencing another inflationary trend. Nevertheless, we project that inflation
will resume its downward trajectory in the upcoming months, driven by the prevailing low general
prices and the ongoing effects of aggressive monetary policy tightening.

 Source: BLS, Zedcrest Wealth

China – A Positive Era in Sight?
According to the Inflation report released by the National Bureau of Statistics, in China, the Headline
Inflation for December 2023 further decreased to 0.3% YoY (compared to -0.5% YoY in November
2023), marking the third consecutive monthly decline. The average Consumer Price Index (CPI) for
2023 was 0.2% YoY, notably below the government’s 3.0% forecast. On a month-on-month basis, the
December CPI increased by 0.1% (compared to -0.5% in November 2023), representing the first
monthly uptick in three months. Additionally, the Producer Price Index (PPI) contracted by 2.7% YoY
(vs -3.0% in November 2023), marking the 15th consecutive month of decline.

Source: NBS China, Zedcrest Wealth.

While the inflation report suggests a slight improvement in the Chinese economy’s inflationary trends,
analysts caution against optimism, attributing the positive trend to the general uptrend during the
December period. Furthermore, the ongoing property sector crisis and geopolitical tensions are
expected to weigh on economic expansion in China. Nevertheless, some analysts anticipate improved
growth in the Chinese economy as the impacts of several expansionary policies implemented by the
government unfold.

 

Domestic Economy
FAAC Allocation – A Contributing Factor to Fixed Income Market Liquidity

During the week, the National Bureau of Statistics released the Federation Account Allocation
Committee (FAAC) disbursement. As outlined in the report, a total of N1.35 trillion was disbursed to
the three tiers of government in November 2023, derived from the total revenue generated in October
2023. The statutory allocation, which is the primary contributor to the total allocation, experienced a
34.96% MoM decrease to N660.09 billion (compared to N1,014.95 trillion in October). The Electronic
Money Transfer Levy (EMTL) and Value Added Tax (VAT) saw increases of 41.51% MoM and 14.43% MoM, settling at N16.20 billion and N346.34 billion, respectively. Overall, the total allocation declined
by 15.57% MoM, amounting to N1,346.52 trillion.

Since the removal of the subsidy around last year, there has been a noticeable surge in FAAC figures.
We believe these figures will continue to be a significant factor influencing the trajectory of yields in
the Fixed Income market this year.

The Nigerian Equities Market – Still Basking in the January Rally

The Nigerian equities market closed the second trading week of the year with a positive tone, as the
NGX All-Share Index (ASI) advanced 4.24% WoW to settle at 83,042.96 points. In consequence, the
Year-to-date (YTD) returns settled at 11.06%. Leading the gainer’s chart are CADBURY (+42.30% to NGN24.05), JBERGER (+32.90% WoW to NGN56.50) and JAIZBANK (+31.30% WoW to NGN3.02). The top losers for the week were DAARCOM (-30.20% WoW to NGN0.90), TOTAL (-10.00% WoW to NGN346.50) and NEM (-9.40% WoW toNGN5.75). We expect a sustained bullish run on the local bourse.

The Nigerian Fixed Income Market – The Bears Are Weary.
In this week’s OMO auction, the average stop rate experienced a significant increase, rising by 508
basis points to 14.08%, in contrast to the 9.00% recorded in the previous auction. Conversely, there
was a noticeable decline in the average bid-to-cover ratio, dropping by 285 basis points to 1.38x
(compared to 4.23x in the last auction).
At the primary NTB auction for the week, the average stop rate showed a considerable decrease of
473 basis points, settling at 5.02% from the previous rate of 9.75%. Consequently, the average bid-to-cover ratio surged by 468 basis points to reach 20.16x, indicating an increased demand for the
instruments.
This positive sentiment extended to the secondary market, where the average yield in the Treasury
Bills market saw a week-on-week decline of 267 basis points to 3.28%. Similarly, the FGN Bond market
closed positively with the average yield decreasing by 52 basis points to 13.28%, driven by buying
interest across the curve.
In summary, the Naira Fixed Income market concluded the week on a bullish note, with the average
yield dropping by 160 basis points to settle at 8.28%. Anticipating improved liquidity in the system, we
expect this bullish sentiment to persist in the coming week.