Macroeconomic Review
Nigeria’s Consumer Price Index… Festivities Drive Increase in Price Levels

In December, the Consumer Price Index (CPI) expanded 15.63% Y-o-Y, a 0.23% increase from 15.40% recorded in November 2021. The composite food inflation grew by 17.37% year-on-year (vs. 17.21% recorded in November 2021) while the All items less farm produce sub-index also expanded 13.87% year-on-year (vs. 13.85% recorded in November 2021).

The food sub-index grew 2.19% month-on-month largely due to the increased consumer spending observed in the yuletide season. Bread and cereals, Meat, Fish, Potatoes, yam and other tubers, soft drinks, and fruit all saw price rises, contributed to the increase in the food sub-index.

The core sub-index (all items less farm produce) grew at a slower rate, settling at 1.12% M-o-M in December, a 0.13% reduction from 1.26% in November.  Prices for gas, liquid fuel, wine, actual and imputed housing rentals, narcotics, tobacco, spirit, cleaning, repair, and hire of clothes, garments, shoes, and other footwear, and clothing materials, other pieces of clothing, and clothing accessories grew the most for the period under review.

Likewise, the Urban and Rural Inflation figures rose by 1.87% and 1.77% from 1.12% and 1.04% recorded in November 2021, respectively.

With the yuletide season over, we expect to see a moderation in inflation rate for the rest of Q1 2022 as the impact of the high base from the previous year should dictate headline inflationary trend. However, we believe pressures from utilities reflected in the core index present a case for additional inflationary pressures further into the year.

Fixed Income and Foreign Exchange Market Review and Outlook

The local fixed income space witnessed an influx of liquidity, buoyed by coupon inflows and NTB, OMO and bond maturities. Thus, the market was skewed to the bulls, particularly on the short end of the curve (NTBs, OMOs and short dated bonds). The longer dated papers saw cautious trading, as investors managed their risk levels despite the surfeit liquidity on the back of potential rise in yields later in the year.

On the Eurobond front, the global inflation narrative was reiterated in the Federal Open Market Committee (FOMC) minutes published in Jan 2022, as such all eyes are on March 2022 Fed meeting, market already pricing a minimum of 4 rate hikes this year. The European Central Bank (ECB) maintained benchmark rate, while Bank of England (BoE) increased theirs by 25bps to 0.50% to rein in rising inflationary pressures.

For Sub Saharan Africa, it was largely mixed to bearish, as NIGERIA, GHANA and ANGOLA saw some sell pressures, then occasional cherry-picking of the high yields especially on the GHANA sovereign curve.  For context, the negative GHANA basis persisted at the start of the year due to weak fiscal policies but corrected amid promised spending cuts and e-levy drive. Later, some strong buying flows were mainly concentrated in the short end of the Ghana curve as yield curve remains inverted to a large degree, then turned bearish occasionally. Fitch also upgraded Angola to ‘B-‘; Outlook Stable – Angola will return to international capital markets this year to sell Eurobonds.

Money Market Review and Outlook… A Plethora of Maturities Buoy Liquidity Levels

Inter-bank system liquidity averaged ca ₦122.96bn in January 2022, higher than December 2021’s average of ₦34.88bn. This was due to significant inflows in the month from OMO maturities, bond maturity, as well as bonds coupon payments. As a result, Interbank rates closed lower for the month, as the Open Policy Rate (OPR) and Overnight (ON) rates closed at an average of 9.33% and 9.91% from 12.94% and 13.42% in December 2021.

We opine that interbank rates will trend higher in the coming month, due to expectation of decreased inflows to the banking system, as only N947.59bn is expected to impact the system from bonds coupon payment, OMO and NTB maturities.

Foreign Exchange Market Review and Outlook… Naira appreciates at Official Window

The FMDQ Nigerian Autonomous Foreign Exchange Fixing (NAFEX) closed at ₦415.33/$1.00 for the month. This represents a ₦19.67 appreciation from ₦435.00/$1.00 recorded in December.

In the absence of any significant changes in market conditions, we expect rates to remain unchanged in the near term.

Equities Market Review and Outlook
Equities Market in November… Bellwethers Drive Positive Performance

The bullish run from the tail end of 2021, was sustained into 2022 as investors continued to take advantage of relatively cheap valuation in the domestic bourse. Investors’ interest was majorly on market bellwethers, especially the technology and banking counters, which drove the performance for the month northwards. Consequently, the Benchmark index (NGX ASI) advanced 9.1% M-o-M to settle at 42,624.67 points. Market breath (advancers/decliners) a measure of investor sentiment, reflected this positive view with 61 stocks gaining while 30 stocks declined.

Mixed Sentiments Across Sectors…Earnings Season

Sector performance was generally mixed, albeit with buy impulses and crosses visible across many market bellwethers. The Oil & Gas index advanced 14.1%, spurred by buy interest in SEPLAT. The Banking and Industrial Goods indices followed suit, gaining 8.7% and 3.4% respectively, on the back of sustained buy interest in banking counters trading at relatively attractive prices as well as DANGCEM following the announcement of the stock repurchase program. On the flipside, the Insurance and Consumer Goods indices declined by 6.0% and 2.5%, respectively.

On a YTD basis, the Oil & Gas, Banking, and Industrial Goods are up ca 14.1%, 8.7%, and 3.4% respectively, while the NSE Insurance and Consumer Goods indices are down ca 6.0% and 2.5%. The best performing stocks for the month were ACADEMY and COURTVILLE, while SUNUASSURANCE and SOVRENINS topped the laggards list.

Outlook for February… Investors to take Position at the End of the month

Following a largely positive January, we expect to see increased profit taking for most of February. Nevertheless, we envisage to see renewed buy interest in the later periods of the month as investors take positive ahead of FY:2021 earnings releases in anticipation of dividend income.

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