…Moderating T-Bills, inflation, H1 scorecards fuel decisions on NGX
Nigeria’s stock market furthered its northward movement as recently released inflation points to possible rate cut at the Monetary Policy Committee (MPC) next week.
The stock market is also bullish as investors continue to reroute funds from the fixed income (FI) market. Particularly, moderating rate of the treasury bills (T-bills) is making investors rethink in favour of equities.
This is also in addition to many investors positioning ahead of half year (H1) earnings season in expectation of interim dividend payment by the regular companies.
Equities market has risen this year by 26.58 percent majorly driven by consumer goods, banking and insurance stocks while oil & gas stocks have seen remarkable profit taking by investors.
The recently released consumer price index (CPI) data by the National Bureau of Statistics (NBS) revealed that Nigerian inflation moderated to 22.22 percent year-on-year (YoY) in June versus 22.97 percent in the prior month, a development analysts linked to a combination of softer energy prices and a favourable base effect.
“We expect that, given June’s easing inflation at 22.22 percent year-on-year (y/y), the bond market will maintain a positive outlook, with room for further yield compression at the mid-to long end of the curve. However, tight system liquidity may keep short-term demand relatively subdued,” according to analysts at Lagos-based Vetiva Research.
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Also in their July 16 note, Comercio Partners said, “While headline inflation has been showing signs of disinflation, an encouraging trend, food inflation remains a major concern. The exchange rate of the naira has appreciated significantly, reversing much of the depreciation witnessed earlier in the year and bringing it close to its January 2025 opening level.
“The Monetary Policy Committee (MPC) is scheduled to hold its 301st meeting on July 21 and 22, 2025. We expect the MPC to maintain the current interest rate, while possibly adjusting the asymmetric corridor to stimulate economic activity and support domestic demand”.
“Maintaining the current interest rate is crucial for keeping Nigeria attractive to foreign portfolio investors. A rate cut at this stage could lead to a decline in portfolio inflows, triggering capital flight, exchange rate instability, and a potential reversal of recent gains in the foreign exchange market. However, Nigeria’s recent credit rating upgrades from two major agencies have helped reduce its risk premium, making the country more appealing even to investors with a lower appetite for risk”, they said.
In another major milestone on Thursday, the Nigerian Exchange Limited (NGX) All Share Index (ASI) crossed 130,000 points as increased demand for equities continues to fuel NGX rally. The market rallied by 1.02 percent on Thursday.
Nigeria’s listed stocks value which had ahead of Tuesday’s public holiday surpassed N80trillion mark, an indication of broad-based investor participation and growing confidence in the local equity market, closed at N82.417trillion on Thursday.
“We maintain a cautiously optimistic outlook for the equities market this week, with expectations of sustained positive momentum in the absence of any significant negative macroeconomic or market shocks,” Futureview research analysts said in their July 16 note.
At the close of trading on Thursday the Nigerian Exchange Limited (NGX) All-Share Index (ASI) and equities market capitalisation increased further from preceding day’s lows of 128,967.08 points and N81.584 trillion respectively to 130,283.86 points and N82.417 trillion.
“Barring any FX or energy shocks, we anticipate sustained moderation in headline inflation. The knock-on effect of our inflation expectation is likely to translate to a cumulative 50-100bps reduction in policy rate in H2’25,” CardinalStone Research analysts said.
