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Global Economy & Markets - What do reeling global markets mean for Nigeria?

What do reeling global markets mean for Nigeria?                                                                        

Taking a cue from a bearish close to last week, global equity markets opened to a rout this week as investors were spooked by the possibility of aggressive monetary tightening in the United States (U.S.). In the U.S., the S&P 500 and Dow Jones Industrial Average shed 4% and 5% respectively on Monday, with the Dow losing 3% of its value in a manic 10-minute period, and all but two S&P 500 stocks closing in the red at the start of the week.                                                                       

U.S. labour data at the end of last week pointed to a buoyant labour market and economy; new jobs data beat market expectations, average wages rose by the highest since the 2009 recession, and unemployment remained floored at an 18-year low of 4.1%. These revelations stoked concerns that the U.S. Federal Reserve (Fed) would tighten monetary policy more aggressively than initially planned, causing a surge in bond yields and a corresponding decline in the value of riskier assets.                                              

Rising interest rates in the U.S. would likely trigger some capital to that region and Nigeria is unlikely to be fully spared, depending on the broader outlook for the country relative to other Emerging Markets. Nigeria’s Eurobond yields have inched up recently as investors reprice Emerging Market dollar-denominated assets on the back of more hawkish U.S. rate expectations.

Nevertheless, global crude oil prices remain the crucial variable for the Nigerian markets and economy, underpinned by the 16% rally in the Nigerian Stock Exchange All-Share Index on the back of strong oil prices in January. As such, we would continue to monitor global crude prices as a tool for inferring the health of Nigeria’s capital markets. With global oil prices likely to be propped by the OPEC output cut, growing global demand, and persistent geopolitical concerns in the Middle East, we maintain our relatively bullish view of the oil market in the first half of 2018 despite the mild moderation recorded in the last few sessions. Moreover, we note that Nigeria’s risk environment has improved, primarily as a result of stronger macroeconomic conditions – moderating inflation, stable currency, etc. – adding to the appeal of investing in the country.