February 2023 – MCR

Economy Overview in February

On the Global Scene, U.S Inflation rose by 6.4% in January, a moderation from 6.5% recorded in December. The rise in general price level reflects rising shelter, gas and fuel prices. Core CPI rose by 0.4% monthly and 5.6% from a year ago. Elsewhere, Russia announced a 500,000bpd cut in crude production, effective in March, in retaliation to the price caps implemented by EU and G7. For context, the EU and G7 imposed a $60 price cap on Russian oil shipped to non-western regions, effective in April. This is in a bid to prevent price spikes as observed last year, while limiting Russia’s financial gains that can be used to pay for its campaign against Ukraine.

On the Domestic Scene, the, U.S Inflation rose by 6.4% in January, a moderation from 6.5% recorded in December. The rise in general price level reflects rising shelter, gas and fuel prices. Core CPI rose by 0.4% monthly and 5.6% from a year ago. Elsewhere, Russia announced a 500,000bpd cut in crude production, effective in March, in retaliation to the price caps implemented by EU and G7. For context, the EU and G7 imposed a $60 price cap on Russian oil shipped to non-western regions, effective in April. This is in a bid to prevent price spikes as observed last year, while limiting Russia’s financial gains that can be used to pay for its campaign against Ukraine.

Crude oil price remained relatively low in the month of February, touching as low as $80 per barrel, with concerns for further rate hikes and elevated U.S. inventories putting a downward pressure on the price of the commodity. However, the anticipation of China’s significant purchase, after relaxing most of its anti-Covid measures, lent the necessary support to see the price close at $83.4/b. FX reserves closed relatively flat at $36.7 billion (-0.5% month-on-month).

The Nigerian Capital Market

The Domestic Equity Market closed the month of February on a positive note, for the fourth consecutive month, with a monthly return of 4.82% (v. 3.72% in Jan’22). Bullish sentiment lingered as most sectors closed in green, with Banking (+3.99%), Industrials (+2.57%), energy (+15.97%) and consumer (+8.24%) sectors. Year – to – date, the NGXASI is 8.89%. Positive earnings release coupled with depressed short-term fixed income yields supported the market performance.

In the month of March, we expect mixed market reaction, hinged on the outcome of the presidential elections and corporate disclosures. While the president elect is perceived to be pro-market, kickbacks by the opposition parties to challenge the results as well as doubts over transparency of the election result may dampen investor confidence. However, positive corporate disclosures should drive continued participation by domestic investors.

The Nigerian Fixed income market was largely bullish in most trading sessions in February as system liquidity remained elevated due to inflows from OMO maturities, bond coupon payments and FAAC allocation. At the FGN Bond Auction, the DMO offered four maturities- Feb’28, Apr’32, Apr’37 and Apr’49 with stop rates at 13.99%, 14.90%, 15.90% and 16.00% respectively with the DMO selling N993.1bn as against initial offer of N360bn across all maturities.

At the last NTB primary auction conducted in January, stop rates increased by 290bps, 294bps and 766bps for the 91, 182-day and 364-day bill to print at 3.00%, 3.24% and 9.90% respectively. The DMO only allocated the N263.5bn, of the N296.75bn subscription levels.

In March, we expect more of the same bullish sentiments hinged on elevated liquidity. However, continued intervention through CRR debits and FX auction would leave average yields somewhat elevated.