Global Economy
United States – S&P Breaking New Heights
The S&P 500 index reached a historic milestone on Friday, surpassing 5,000 points for the first time and settling at 5,026.61 points. The year-to-date return printed at 5.38%. This notable surge can be attributed to the growing positive sentiment in the market. Factors such as the pause in interest rate hikes and resilient economic growth have bolstered investor confidence in the US stock market.
Source: Bloomberg, Zedcrest Wealth.
Despite concerns about the declining number of stocks contributing to the index’s positive performance, we anticipate a sustained bullish trend. Improved economic recovery, the pause in interest rate hikes, and promising earnings results are expected to drive continued growth in the US equities market. According to the National Bureau of Statistics, China, January 2024 CPI further declined 0.80% YoY (vs -0.3% YoY in December 2023), the 4th straight month of decline in CPI and the longest streak of drop since October 2009. However, on a month-on-month basis, CPI rose 0.30% (vs 0.10% MoM in Dec. 2023). For context, Food inflation dipped 5.90% YoY (vs -3.70% in Dec. 2023). Similarly, non-food inflation declined 0.4% YoY (vs 0.50% YoY in Dec. 2023).
Source: NBS China, Zedcrest Research
China persists in grappling with economic deceleration stemming from prolonged lockdowns and lingering property sector crisis resulting from the COVID-19 pandemic. This is underscored by the Manufacturing PMI, which languishes below expectations, settling at 49.2 points in January 2024 compared to 49.0 points in December 2024. These figures reflect subdued demand and reduced productivity levels. Our outlook on China’s economic resurgence remains cautious, given these challenges.
Kenya – CBK Sustains Hawkish Stance on Economy
During the week, the Central Bank of Kenya, in a surprising move further raised the interest rate by 50bps 13.00% (the highest level since 2012) from 12.50%. This marks the seventh interest rate since May 2022. The decision stemmed from the apex banks’ move to curb inflationary pressures. For context, Kenya’s inflation rose to 6.9% YoY in Jan. 2024 (vs 6.6% in Dec 2023). Surging Food and energy prices continue to trail the economy. While inflation remains a major concern in Kenya, we opine that the depreciating local currency and surging food prices remain the major drivers of inflation.
Domestic Economy
Coerced Cashless Policy Spur Cashless Transactions Surge in 2023
According to a report released by the Nigeria Inter-Bank Settlement System (NIBSS), Cashless transactions in 2023 soared 54.55% from NGN395.38trn to NGN611.06trn. Total transactions for the year 2023 amounted to 11.05bn. For context, the total value of instant payments rose to NGN600.36trn while the total Point-of-Sale (POS) was NGN10.7trn. In December, we observed the highest transaction volume of NGN71.90trn, attributed to a cash crunch during the festive season, which spurred increased spending.
The primary catalyst for this growth in 2023FY was the implementation of the CBN Naira redesign policy in Q1:2023. This policy resulted in a scarcity of Naira, prompting widespread adoption of the cashless policy and utilization of digital payment channels for business transactions. While this shift has improved digital payments for business activities, we believe that the Nigerian economy still lacks sufficient technological advancement and financial inclusion to fully harness the potential of the digital payment system.
World Bank Economic Forecast
During the week, the World Bank released a report named “Global Economic Prospects Report. According to the report, Nigeria’s economy is estimated to grow by 3.3% YoY and 3.7% YoY in 2024 and 2025 respectively. They anticipate enhanced fiscal revenue due to the effects of policies enacted last year, along with an anticipated decline in inflation driven by subsidy removal and the expected moderation of Naira depreciation.
However, we maintain a less optimistic outlook regarding inflation reduction and Naira appreciation this year. Our stance is grounded in the ongoing challenges Nigeria faces, including lower oil revenue, a growing FX demand-supply gap, and elevated production costs, which collectively suggest a lack of supportive fundamentals for such improvements.
The Nigerian Equities Market- The Bears Revisit the Local Bourse
The Nigerian stock market halted its five-week bullish streak after a mixed performance during the week. The NGX All-Share Index (ASI) declined 2.45% week-on-week to settle at 101,858.37 points, with year-to-date returns closing at 36.22%.
Leading gainers were MEYER (+60.70% to NGN6.91), JULI (+44.29% to NGN1.01), and GEREGU (19.00% to NGN675.90). In contrast, top losers included ETERNA (-18.78 to NGN17.95), ABBEYBDS (-18.39% to NGN2.44), and UNITYBNK (-17.79% to NGN 2.31).
The Nigerian Fixed Income Market – The Bears Dominate the Fixed Income Space
At the primary NTB auction for the week, the CBN moved to raise 1 trillion naira (an all-time high offer) in the market. At the close of the auction, the average stop rate increased notably by 10.18% to 18.08% (vs 7.90% at the previous auction). There was a significant uptrend in the stop rates across the curve as the 91-day (closed at 17.24% vs 5.00% at the previous auction), 182-day (closed at 18.00% vs 7.15% at the previous auction), and 364-day (closed at 19.00% vs 11.54% at the previous auction) all saw a significant uptick. Investors’ bids tilted more toward the 364-day instruments as the bid-to-cover ratio closed at 3.11x.
Following the uptrend in stop rates at the primary market, the bearish momentum trickled down to the Secondary Treasury Bills market as average yields rose 5.70% WoW to settle at 15.35%. Similarly, the FGN Bond market closed bearish with the average yield rising by 3.21% WoW to settle at 15.49%. This was driven by sell-offs across the curve. Elsewhere, the FGN Eurobond market ended bearish as the average yield reduced by 11bps to 9.78%.
For the most part, the Naira Fixed Income market concluded the week on a bearish note, with the average yield further rising by 3.21% to settle at 15.42%.
