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*Data as of 4pm WAT
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Nigeria Inflation Analysis: February 2024 Insights
The National Bureau of Statistics (NBS) reported a headline inflation rate of 31.70% year-on-year for February 2024, exceeding Bloomberg’s expectation of 31.30%.
Food inflation escalated to 37.92%, marking the highest rate since the 2009 CPI rebasing. This surge highlights significant inflationary pressures within the food sector, warranting close attention from investors and policymakers.
Conversely, core inflation recorded a decrease to 23.13% in February. This decline suggests varying inflationary trends across different economic sectors, offering a nuanced perspective for future policy considerations and investment strategies.
PH refinery gets 450,000 barrels crude, resumes operations April
CBN insists banks can’t pay dividends from FX revaluation gains
Global
US PPI comes in above expectations at 1.6% YoY; 1.1%.
US economy cooling in first quarter; inflation appears sticky
House Passes Bill to Ban TikTok or Force Sale of the Chinese Video App
Ghana, bondholders kick off formal talks on $13bn debt restructuring
Market Commentary:
Currencies/Macro:
The US dollar strengthened against all G10 currencies, with increases ranging between 0.3% and 1.1%. The EUR/USD declined by 65 pips or 0.6% to 1.0885. The GBP/USD, after touching 1.2820, dropped to 1.2750, showing a modest retreat of -0.3% and standing out as the most resilient currency of the day. The USD/JPY experienced a gain of 55 pips or 0.4%, reaching 148.30.
In the United States, the February Producer Price Index (PPI) came in stronger than anticipated. The headline PPI rose by 0.6% month-over-month and 1.6% year-over-year, exceeding the expected increases of 0.3% and 1.2%, respectively. The core PPI, which excludes food, energy, and trade services, increased by 0.4% month-over-month and 2.8% year-over-year, surpassing estimates of a 0.3% monthly increase and indicating higher inflationary pressures.
February's US retail sales data suggested a more cautious consumer behavior than predicted. Total sales increased by 0.6% month-over-month, below the expected 0.8% rise, with the core control group remaining flat, contrary to the anticipated 0.4% increase. This indicates a tempering of consumer spending.
US jobless claims for the week were encouraging, with initial claims at 209,000 compared to an expected 218,000, and continuing claims at 1.811 million, below the forecast of 1.905 million.
ECB Chief Economist Philip Lane emphasized the need for more data on wage dynamics and inflationary pressures in the eurozone. Despite acknowledging some progress, he suggested that more information is necessary before deciding on monetary policy adjustments, hinting at the possibility of a rate cut in June.
Interest Rates:
The US 2-year Treasury yield increased from 4.62% to 4.69%, and the 10-year yield climbed from 4.19% to 4.29%. Market expectations suggest that the Federal Reserve's funds rate, set at 5.375%, is likely to remain the same at the upcoming meeting on 20 March, but there is a 60% likelihood of a rate reduction by June.
Following the release of data, credit indices showed signs of weakness, with the Main index widening by 1.5 basis points to 52.5 and the CDX index widening by 2 basis points to 50. Cash spreads were less reactive, with European primary credit market activity continuing robustly, whereas in the US, there was a noticeable slowdown, which was anticipated due to significant data releases. In Europe, 13 issuers accessed the market, raising a total of EUR 9.75 billion, including a notable EUR 1.3 billion green bond deal by NBN. In contrast, the US market saw limited activity, with only three issuers coming forward, predominantly from the automotive sector.
Commodities:
Brent crude oil reached four-month closing highs, influenced by several factors Crude oil markets reached new highs not seen since November, bolstered by the International Energy Agency (IEA) raising its 2024 demand growth forecast from 1.2 million barrels per day (mbpd) to 1.3 mbpd. Additionally, the IEA anticipates that OPEC+ production cuts will extend throughout 2024, while global oil supply is projected to increase by just 800,000 barrels per day to 102.9 million barrels, shifting the annual balance from a surplus to a marginal deficit. The April West Texas Intermediate (WTI) contract surged by 1.68%, hitting a peak last observed in November of the previous year, and the May Brent contract advanced by 1.3% to $85.14, marking its highest point since October. HSBC predicted a persistent deficit in the oil market throughout most of 2024, expecting OPEC+ to maintain supply discipline possibly into 2025. Recent aerial attacks have targeted Rosneft's Ryazan and Lukoil's Norsi refineries as well as the smaller Novoshakhtinsk facility in Rostov, impacting roughly 12% of Russia's oil refining capacity. Additionally, reports indicate that China's independent 'teapot' refineries are reducing operations due to dwindling fuel demand and economic uncertainties, with Shandong region's refinery activity at a two-year nadir, excluding periods of lockdowns.
In the metals sector, some of the gains from the prior day were relinquished after the China Nonferrous Metals Industry Association vowed to manage capacity through maintenance adjustments, operational reductions, and project delays, though it refrained from mandating outright production cuts. Consequently, copper dipped by 0.17% to $8,912, aluminum decreased by 0.35% to $2,256, and nickel dropped by 1% to $18,160.
Iron ore experienced another sharp decline, with significant steel producers in Guangdong province, including a Baowu Steel-affiliated mill, planning to reduce production in response to falling local construction steel prices. These adjustments, ranging from 20% to 50% reductions, are scheduled over the next four weeks. The April Singapore Exchange (SGX) iron ore contract fell by $4.30 to $101.65, and the 62% Mysteel index decreased by $2.05 to $104.40. Additionally, the May Shanghai rebar contract reached its lowest level since the previous June, down 8% this month. Early March saw steel mill inventories rising to their highest since February 2023, and the May Dalian coke futures have dropped by 10% this month, reflecting anticipated reduced demand from steel mills.
Investment Tip of The Day
Explore alternative investments like art, wine, or collectibles, which can diversify your portfolio and potentially offer unique appreciation opportunities. While these investments carry their own risks and require specific market knowledge, they can provide a hedge against market volatility and add an interesting dimension to your wealth management strategy.