January 2025

Economy Overview in January

Foreign Economy Overview

The December 2024 Consumer Price Index (CPI) report showed some relief, as Core CPI (excluding food and energy) rose by a modest 0.2% month-over-month (MoM), down from four consecutive 0.3% increases. On a year-over-year (YoY) basis, Core CPI increased by 3.2%, slightly easing from 3.3% in November. Headline CPI rose by 0.4% MoM in December, with YoY growth at 2.9%, up from 2.7% in November.

At the December Federal Open Market Committee (FOMC) meeting, the Federal Reserve lowered interest rates by 25bps, marking the third consecutive cut after reductions of 25 bps in November and 50 bps in September. The September cut, the first in over four years, indicated a shift in the Fed’s priorities toward addressing labor market concerns over inflation. Since then, the labor market has stabilized, reducing downside risks.

Brent crude closed the month at $76.81 per barrel, up from $73.92 in November, amid mixed market drivers. Weakening demand from China and uncertainty over U.S. energy policy kept volatility low, as the president signalled plans to replenish strategic reserves and expand energy exports. However, prices found support after the U.S. Treasury imposed sweeping sanctions on Russia’s oil sector, raising supply concerns. Market sentiment remains driven by geopolitical risks and shifting energy policies.

Local Economy Overview
Nigeria’s Headline inflation rate rose to 34.80% YoY, an increase from 34.60% in November. This marks the fourth consecutive monthly rise and represents the highest level recorded in over six months. This uptick can largely be attributed to increased consumer demand during the festive season, which led to higher prices for a range of goods and services. Food inflation remained notably high at 39.84% YoY, slightly down from November’s 39.93%.

The surge in demand during the festive season further intensified these inflationary pressures. Additionally, the core inflation rate, which excludes the more volatile categories of food and energy, increased to 29.28% YoY in December, up from November’s 28.75%, highlighting persistent underlying inflationary pressures.

In response, the Central Bank of Nigeria (CBN) Monetary Policy Committee (MPC) maintained its hawkish stance, raising interest rates by 25 bps while keeping the Cash Reserve Ratio (CRR) at 50%, the Liquidity Ratio at 30%, and the asymmetric corridor at +500/-100 bps.

Macro Economic Variables

The Nigerian Capital Market

The Domestic Equity Market closed with a bullish performance in January, increasing from 102,926.4 as of December 31, 2024, to 104496.12 as of January 31, 2024. The NGX ASI YTD closed the month at c.1.53% as market capitalization stood at c.NGN64.7trillion

The Nigerian equities market recorded mixed sectoral performances in January. The banking sector led the charge, with the NGX Banking Index surging 9.47%, fueled by double-digit gains in Wema, FCMB, Fidelity, and Stanbic, alongside notable strength in FUGAZ stocks.

The consumer goods sector also performed well, with the NGX Consumer Goods Index rising 4.31%, supported by strong rallies in Vitafoam, Northern Nigerian Flour Mills, and Honeywell Flour Mills.

Conversely, the NGX Insurance Index declined by 9.91%, weighed down by sharp sell-offs in seven insurance stocks. The NGX Industrial Goods Index dropped 8.51%, driven by a significant pullback in Dangote Cement (-17%), while the NGX Oil & Gas Index edged lower by 1.58%.

The Nigerian Fixed Income Market income closed with a bearish theme in the month of January. Major interests were within the belly to the end of the curve. Consequently, average rose closing at c.20.32% (vs. 19.59% % in December ‘24).

At the FGN bond auction, ₦450 billion was offered across April 2029, February 2031, and a new January 2035 bond. Marginal yields settled at 21.79%, 22.50%, and 22.60%. The DMO sold a total of N606.499billion with Total bid/cover ratio at c.1.34x.

At the last NTB primary auction conducted during the month, stop rates stood at 18%, 18.5% and 22.62% for the 91-day, 182-day and 364-day papers, respectively. The DMO allocated N755.98 across the three tenors.

For Q1 2025, inflation is expected to ease slightly, supported by exchange rate stability, the base year effect, and potential CPI rebasing. Average inflation is projected at approximately 33%, barring significant macroeconomic disruptions.

Securities Recommendations: