Global Economy
US – Federal Reserve Holds Interest Rates Steady, Eyes Inflation as Persistent Challenge.
During the week’s US Federal Reserve’s FOMC meeting, the committee opted to maintain its benchmark short-term borrowing rate within the range of 5.25% to 5.50%. This decision was grounded on the resilience of inflation and the imperative to uphold tight monetary policies. Despite notable progress in moderating inflation from its peak of 9.10% YoY in June 2022, persistent inflationary pressures persist, evidenced by recent year-over-year increases of 3.10%, 3.20%, and 3.50% for January, February, and March 2024, respectively.
Trend Analysis of US Inflation and Monetary Policy Rate
Source: Bloomberg, Zedcrest Research
Looking Ahead, we posit that the US Federal Reserve will likely maintain interest rates at their current
levels until Q4 2024. We do not foresee a near-term reduction in rates, given that inflation remains
substantially above the 2.00% benchmark. Additionally, the US economy exhibits relative resilience
amidst ongoing geopolitical concerns, which mitigates the urgency for rate cuts shortly.
United States: Labor Market Continues to Send Mixed Signals
During the week, the U.S. Bureau of Labor Statistics released the Labor Statistics for April 2024. Total
non-farm payroll rose by 175,000, compared to 303,000 last month. The unemployment rate rose
marginally to 3.90% YoY, compared to 3.80% YoY in March. Similarly, the number of unemployed
people advanced marginally to 6.5mn. The labor force participation rate remained at 62.70% while the
employment population ratio dipped marginally to 60.20%.
Trend Analysis of Key US Labor Market Figures
Source: Bloomberg, Zedcrest Research
The Health Care (+56,000), Social Assistance (+31,000), Transportation and Warehousing (+22,000)
and Retail Trade (+20,000) saw the largest uptick in job gains. Average hourly earnings rose by 7 cents
to USD34.75. Considering the latest GDP data for Q1 2024, which indicates sluggish economic growth and a decrease in government expenditure, we anticipate that the labor market may exhibit signs of weakness in the upcoming months.
Euro Area – Eurozone Inflation Steadies at 2.4% in April as GDP Sees Modest 0.3% Growth in Q1
During the week, Eurostat released the inflation figures for the Euro area for April 2024. Inflation in the
region remained steady at 2.40% YoY. Core inflation rose by 2.70% YoY, a slowdown compared to 2.90% YoY in March. Price pressures remain relatively subdued as economic activities continue to slow down, an offshoot of the previous rate hikes. Furthermore, we believe this echoes the recessionary scares that we witnessed as the Q1:2024 GDP results were revised to 0.00% compared to a contraction of -0.1 YoY previously
recorded.
Trend Analysis of Euro-Area Inflation and Monetary Policy Rate.
Source: Bloomberg, Zedcrest Research
In line with analysts’ expectations, we opine that the European Central Bank (ECB) may initiate interest
rate cuts at the monetary policy meeting scheduled for June 6th, 2024. Our view is based on the Euro
area’s proximity to the benchmark inflation target (2.00%) and recent concerns about recessionary
trends, which could prompt the committee to commence rate cuts.
Domestic Economy
NDIC Raises Maximum Coverage Limits for Depositors Across All Banks
The Nigeria Deposit Insurance Corporation (NDIC) announced a significant increase in the maximum
deposit insurance coverage for all categories of deposit-taking institutions in the country. This move
aims to strengthen depositor confidence, promote financial inclusion, and enhance the overall stability
of the Nigerian financial system.
Under the revised guidelines, the maximum deposit insurance coverage has been raised to:
1. N5 million for Deposit Money Banks (DMBs), up from N500,000.
2. N2 million for Microfinance Banks (MFBs) and Primary Mortgage Banks (PMBs), up from
N200,000 and N500,000 respectively.
3. N2 million for Payment Service Banks (PSBs), up from N500,000.
4. N5 million per subscriber for Mobile Money Operators (MMOs), aligned with the DMBs
coverage.
This substantial increase ensures that nearly all depositors across these institutions will be fully covered
in case of bank failure. The NDIC highlighted that these changes bring coverage for DMB depositors to
98.98% of the total number and 25.37% of the total value of deposits, compared to the previous 89.20%
and 6.31% respectively. Similar significant increases were reported for other categories as well.
The NDIC emphasized that this decision strengthens public trust in the banking system and encourages
financial inclusion by promoting saving habits among the unbanked population. The revised guidelines
were made possible by the corporation’s strong financial position, enhanced supervisory practices to
reduce bank failures, and effective bank resolution frameworks. The NDIC remains committed to safeguarding depositors’ funds and ensuring the stability of the Nigerian financial system.
Fitch Upgrades Nigeria’s Outlook, Citing Policy Changes and Improved Stability
Credit rating agency, Fitch Ratings has upgraded the outlook for Nigeria’s long-term foreign-currency
issuer default rating to positive. This signifies an improved perception of the country’s creditworthiness
based on recent reforms implemented by the current administration.
Fitch highlighted several positive developments, including adjustments to the exchange rate and monetary policy frameworks, reductions in fuel subsidies, and improved coordination between governments.
These reforms have addressed distortions created by previous policies and attracted renewed inflows to the official foreign exchange market.
Despite the upgrade, Fitch acknowledges the remaining challenges. High inflation and an unstable foreign exchange market require ongoing attention. The government’s commitment to reform and its ability to improve revenue collection and reduce debt servicing will be crucial factors in determining whether these positive trends continue.
The Nigerian Equities Market- Bulls Charge Back! Nigerian Stocks Snap Losing Streak
The Nigerian stock market finally snapped its six-week losing streak, closing the week bullish with a
146bps gain as the All-Share Index settled at 99,587.25 points. Market capitalization rose to N56.32
trillion as investors gain N811.48 billion while the year-to-date returns prints at 33.18%.
The Banking sector led the charge with a 9.42% WoW gain. Conversely, the Oil & Gas sector witnessed
the highest decline (-68bps WoW), an offshoot of losses in SEPLAT (-2.33%).
Renewed optimism propelled heavyweights like MTN (+6.44%), ZENITH (+6.13%), GTCO (+7.32%),
JULIUS BERGER (+23.76%), FMN (+20.66%), UBA (+12.17%), and FBNH (+32.68%) forward, despite some
losses in NASCON (-17.03%) and LAFARGE (-8.75%).
Leading the price advancers for the week were FBNH (+32.68% to N27.00), STERLING (+27.75% to
N4.88), and UACN (+24.60% to N15.45). On the flip side, leading the top price decliners were NASCON
(-17.03% to N43.60), UPL (-16.67% to N2.05), and NEIMETH (-14.14% to N1.70).
The Nigerian Fixed Income Market
This week, the Nigerian Secondary Treasury Bills market closed on a bullish note with the average yield
slightly declined further by 2-basis points WoW printing at 22.26%. We saw a mix of buying and selling
interest in the market during the week. There was a major selloff across the curve, particularly on the
MAR-2025 and MAY-2024 as their average yield declined by 111bps and 184bps WoW respectively. We
also noticed a mild selling interest on some instruments, notably DEC-2024 and FEB-2025 as the
average yields surged by 186bps and 84bps WoW respectively.
In the same manner, the secondary bond market closed the week bullish as the average yield dipped by
12 basis-points WoW to close at 18.81%. This follows major buying interest on the short to mid-end of the curve particularly the APR-2032, APR-2029, and FEB-2028 as the yields declined by 40bps, 35bps, and 33bps WoW respectively. For the most part, the Fixed income market closed the week bullish as the
average yield decreased by 7 basis points WoW to settle at 20.53%.
In the Eurobond market, we saw a bullish week as the average yield declined by 19 basis points WoW to
settle at 9.80%. This performance is driven by buying interest from investors across the curve
particularly the SEP-2028 and JAN-2049 Eurobonds as their yields decreased by 24bps and 20bps
WoW respectively.
