Central banks across major economies adopted a measured approach last week, with divergent paths emerging as policymakers balance growth concerns against persistent inflation and geopolitical uncertainties.
The US Federal Reserve delivered an expected decision at its June meeting, maintaining the federal funds rate within the 4.25% to 4.50% range for the fifth consecutive session. The Federal Open Market Committee acknowledged the continued moderate expansion of US economic activity, underpinned by resilient consumer spending and robust labour market conditions.
However, policymakers remain vigilant regarding lingering inflationary pressures and elevated geopolitical risks that continue to cloud medium-term economic prospects. Despite these challenges, the Fed maintained its projection for two rate cuts during 2025, signalling a data-dependent approach that seeks to balance inflation control with the potential downside risks of prolonged elevated interest rates.
Market expectations align with this cautious stance, with the CME FedWatch Tool indicating a 91.7% probability of rates remaining unchanged at the July meeting.
Across the Atlantic, the United Kingdom experienced a modest easing in inflationary pressures during May, with headline inflation settling at 3.4% year-on-year, down from April’s 3.5% reading. The Office for National Statistics attributed this moderation to cooling transport costs and a deceleration in services inflation. Transport prices grew at a markedly slower pace of 0.7% year-on-year compared to April’s 3.3%, driven by post-Easter airfare reductions and declining petrol prices. Services inflation also cooled to 4.7% from the previous month’s 5.4%, though this was partially offset by renewed pressure from rising food costs, which jumped to 4.4% from 3.4% in April. The softer inflation data, combined with signs of moderating domestic demand, has strengthened market expectations for monetary policy easing, with investors increasingly anticipating a 25 basis point rate cut by the Bank of England at its August meeting.
Global Equity Markets React to Geopolitical Tensions
Last week, equity markets worldwide traded with notable caution as investors grappled with escalating geopolitical instability in the Middle East and digested key policy decisions from major central banks.
US markets concluded a holiday-shortened week on a subdued note, with the Dow Jones Industrial Average declining 0.1% whilst the S&P 500 managed a marginal 0.1% gain.
Market sentiment was dampened by concerns over potential direct US involvement in the escalating Israel-Iran conflict, compounded by the Federal Reserve’s revised economic outlook featuring lower growth projections and higher inflation expectations.
Weaker-than-expected retail sales data, showing a 0.9% decline in May, further signalled a potential slowdown in consumer spending patterns.
European equities faced headwinds, with the STOXX Europe 600 declining 1.1% and the FTSE 100 falling 0.2%. Markets were weighed down by fears of Middle East conflict escalation and investor reaction to central bank policy decisions.
Asian markets presented a mixed picture, with Chinese equities declining 0.5% on the Shanghai Composite due to persistent geopolitical uncertainties and the absence of concrete policy support measures.
In contrast, Japanese equities advanced 1.5% on the Nikkei 225 as investors responded positively to the Bank of Japan’s decision to maintain its key short-term interest rate unchanged at 0.5%.
Emerging and frontier markets faced pressure, with the MSCI Emerging Markets index declining 1.1% and the MSCI Frontier Markets index falling 0.4%, reflecting losses across key markets including China and Morocco, which declined 3.3%.
Nigeria Shows Encouraging Economic Trends
Nigeria’s domestic economy continued to demonstrate positive momentum last week, with key indicators suggesting a stabilising macroeconomic environment.
According to the National Bureau of Statistics, headline inflation eased by 74 basis points to 22.97% year-on-year in May, down from April’s 23.71%, marking the second consecutive month of moderation.
This improvement was driven by a 12-basis point decline in food inflation to 21.14%, largely attributed to slower imported food price growth amid the relative stability of the naira.
Similarly, core inflation delivered an even more pronounced improvement, falling sharply by 110 basis points to 22.38% year-on-year from April’s 23.39%.
This decline reflected reduced costs across multiple sectors including education services, utilities, healthcare, clothing and footwear, transport, information and communication technology, and miscellaneous goods and services. On a month-on-month basis, headline inflation moderated by 33 basis points to 1.53%.
Looking ahead, consumer price inflation is expected to ease further in June, supported by the naira’s recent stability, which should help moderate imported food prices.
However, upward pressure on overall food inflation may persist due to the ongoing planting season and resultant shortage of farm output, according to economic analysts.
Core inflation is likely to continue its downward trajectory, supported by stable energy prices and limited exchange rate pass-through effects.
government’s revenue Meanwhile, the Federation Accounts Allocation Committee (FAAC) disbursements to Nigeria’s three tiers of government declined modestly by 1.3% month-on-month to NGN1.66 trillion in June, reflecting reduced receipts from Petroleum Profit Tax, Customs External Tariff levies, Oil and Gas Royalty, and Electronic Money Transfer Levy.
This decline occurred despite improvements in Companies Income Tax, Value Added Tax, Import Duty, and Excise Duty collections. The disbursed amount represents approximately 56.4% of total gross revenue generated during the period.
Outlook
The global economic landscape remains characterised by cautious optimism and exacerbating tendencies at the same time, tempered by persistent uncertainties, especially with the latest direct involvement of the United States in the ongoing Isreal-Iran war.
Central banks continue to navigate the delicate balance between supporting economic growth and containing inflationary pressures, with geopolitical tensions adding an additional layer of complexity to policy decisions.
The divergent paths emerging between major economies suggest that monetary policy normalisation will likely proceed at varying paces, influenced by domestic economic conditions and regional risk factors.
For emerging markets, including Nigeria, the relative stability in commodity prices and currency markets provides a supportive backdrop for continued economic stabilisation.
However, global geopolitical tensions and potential changes in commodity demand patterns warrant continued vigilance from policymakers and market participants alike.
