Last week, the Nigerian National Petroleum Company Limited (NNPCL) announced the end of the country’s age-long pump price subsidies for Premium Motor Spirit (PMS) or petrol. This followed the Nigerian President’s announcement in his inauguration speech.
As a result, PMS prices increased significantly, which is expected to fuel inflationary pressures, depress consumer spending, and weigh on economic activities in the near term. However, the subsidy removal frees up government resources for more productive uses.
In the capital markets, the local bourse experienced a bullish trend as investors reacted positively to the President’s inaugural speech. The All-Share Index recorded its biggest single-day gain since November 2020 and closed the week higher.
Domestic investors were the primary drivers of the increase, while foreign transactions declined to a new record low. In the money market, the overnight rate contracted, but system liquidity is expected to be pressured in the coming week.
In the fixed income market, activities in the Treasury bills and Treasury bonds secondary markets were bullish, with average yields contracting. However, yields in the NTB secondary market are expected to trend upward due to depressed system liquidity, while bond yields may increase due to elevated supply from significant government borrowings.
Meanwhile, Nigeria’s FX reserves declined while the naira remained flat against the USD at the I & E window. FX liquidity issues are expected to persist in the short to medium term, and FPIs will be needed to sustain FX liquidity levels in the medium to long term.
Global Economy
The United Kingdom’s Manufacturing PMI decreased to a four-month low of 47.1 points in May, down from 47.8 points in April according to flash estimates from S&P Global/CIPS,
This decline was attributed to weak domestic market sentiment and subdued new orders, which offset the benefits from improved supply chains. The Services PMI also weakened to 55.1 points in May, reflecting the effects of a cost-of-living crisis, elevated borrowing costs, and rising economic uncertainties on corporate clients. Despite the slowdown, the Composite PMI remained above the 50-point threshold at 53.9 points, indicating sustained positive private-sector activity.
In response to stubbornly high inflationary pressures, influenced by business activities, it is expected that the Bank of England (BOE) will maintain a hawkish stance in their June policy meeting.
In China, private sector activity remained weak as demand continued to moderate. According to the Chinese National Bureau of Statistics (NBS), China’s Manufacturing PMI slowed for the second consecutive month to 48.8 points in May, the lowest level in five months.
This was below market expectations and was attributed to subdued demand, weaker output, and record-low new orders. The Non-Manufacturing PMI also eased to its weakest level since January, reflecting weak external demand, new orders, and employment. The lower-than-expected private sector activity raises doubts about the sustainability of China’s post-COVID recovery, particularly in the factory, property, and export-oriented sectors. Structural reforms, along with proactive fiscal and monetary policies, are seen as crucial to supporting the real economy in the short to medium term.
In global markets, equities were mixed during the week. US equities showed mixed sentiments as investors assessed the strength of the labor market and the Federal Reserve’s policy path. European equities were set to close lower due to concerns about a global economic slowdown. Asian markets, on the other hand, were broadly positive, driven by positive reactions to China stimulus bets. The emerging market index declined, while the frontier market index closed higher.
