Q3 2024: MACROECONOMIC AND FINANCIAL MARKET REVIEW

DOMESTIC MACROECONOMIC REVIEW

To start with, In Q3 2024, The Central Bank of Nigeria (CBN) raised the benchmark interest rate by 50 bps to 27.25% in September 2024, despite moderation ininflationary pressures. While inflation decelerated to 32.15% in August from 33.40% in July, core inflation remained elevated due to rising energy prices and fuel shortages. The CBN Governor cited persistent risks, including floods and currency devaluation, as reasons for the rate hike, despite analyst expectations for a pause. The rate hike aims to stabilize the naira, curbinflationary pressures, and attract foreign capital flows. However, with inflation still far above CBN’s 21% target, the central bank faces the challenge of balancing tight monetary policy with the need for economic growth. Despite concerns over the impact on the equity market, the rate hike is expected to bolster yields in the fixed-income market, providing investors withhigher returns.

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Shifting focus from inflation, National Bureau of Statistics (NBS) announced the Q2:2024 GDP figures, revealing a 3.19% year-over-year growth in the economy, up from 2.51% in the same period lastyear. On a quarter-to-quarter basis, real GDP saw a slight increase of 4 basis points from Q1:2024.

The GDP growth was fueled by both oil and non-oil sectors. The oil sector grew by 10.2% year-over-year, largely due to a low base effect from the previous year (when it contracted by 13.3% in Q2:2023), even though daily average crude oil production fell to 1.41 mbpd this quarter from 1.57 mbpd in Q1:2024.

In contrast, the non-oil sector's real growth slowed to 2.8% year-over-year from 3.6% in the same period last year. This deceleration was due to reduced growth in agriculture (1.4% vs. 1.5%) and services (3.8% vs.4.4%), which together account for 81.4% of the economy. On a quarter-to-quarter basis, non-oil sector growth remained steady at 2.8%. However, the industrial sector experienced a notable improvement with a 3.5% year-over-year growth,compared to a 1.9% decline in the same period last year, primarily driven by a 10.0% increase in crude petroleum production.

GLOBALMACROECONOMIC REVIEW

Federal Reserve's Interest Rate Reduction Triggers MarketFluctuations Amidst Conflicting Inflation Indicators.

The Federal Reserve has implemented its first-interest rate reduction in over four years, marking a significant shift in monetary policy. The central bank lowered its key lending rate by 50 basis points to a target range of 4.75% to 5%, a more substantial cut than many analysts had anticipated. This decision was primarily motivated by the need tobolster a softening labour market and to further stabilize inflation. The announcement triggered a positive response in the banking sector, with major institutions such as Citigroup, JPMorgan, and Capital One experiencing share price increases. Despite this sector-specific rally, broader market indices on Wall Street concluded the trading session marginally lower.

FINANCIAL MARKET REVIEW

EQUITIES MARKET - Bullish Recovery Amid Mixed Market Sentiments and Corporate Actions

The Nigerian stock market exhibited a positive trend in September, with the main index recording a monthly gain of 2.10%. This reversal from previous months' negative performance was largely attributed to significant buy-ins from major shareholders in key stocks such as FBNH, UBA, and SEPLAT. Asa result, the year-to-date performance of the market improved to 32.38%.

Equities Performance (NGX ASI, NGX PEN, PEN BOARD)

Source: Nigerian Exchange Limited (NGX), NUPEMCO Research.

Sectorial Performance: All sectors closed in the green except the industrial index.

The Banking sector experienced a significant increase of 10.18% in September 2024. The Oil & Gas sectors along with the insurance sector also saw growth, increasing by 6.97% and 1.36% respectively. However, the industrial sector and the consumer sector declined by 1.35 and 0.69% respectively.

BOND MARKET:  Bullish Sentiment Prevailed Despite the Rate hike, Liquidity Crunch, and Profit-taking.

The Nigerian bond market experienced mixed sentiment in September, with investors focusing on mid- tolong-term bonds. Early in the month, yields rose due to buyer resistance. A government bond auction mid-month attracted strong interest but resulted in lower stop rates. However, the subsequent hike in the Monetary Policy Rate led to arise in yields for auction papers. Despite this, the average mid-yield across the curve declined slightly.

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TreasuryBills Market – Mixed to Bearish Bias Fueled by the MPR hike, Multiple OMO Auctions, and Tight Market Liquidity.

The Nigerian Treasury bills market experienced fluctuating sentiment in September, driven by factors such as interest rate movements, liquidity conditions, and central bank auctions. Early in the month, the market was bullish, leading to a decline in rates for mid-dated papers. However, sentiment turned bearish mid-month due to reduced liquidity and a focus on longer-dated papers. Towards the end of the month, cautious trading prevailed, influenced by the monetary policy committee meeting.

MoneyMarket-   Sustained Liquidity Crisis Amidst the CBN's Monetary Policy Tightening

Interbank market liquidity in Nigeria experienced significant fluctuations in September. Initial liquidity surpluses were offset by factors such as OMO auction settlements and government outflows, leading to liquidity shortages and higher interest rates. While inflows from FAAC disbursements and bond coupon payments provided some relief, overall system liquidity declined significantly compared to the previous month. Interbank rates showed slight improvement, but tight liquidity conditions continued to prevail.

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Despite the activities seen in fixed income and the domestic equity markets during the third quarter of 2024, our RSA portfolios achieved favorable results throughout the period.

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