Nigerian shares have hovered around 2021 highs, gaining over 4.4 per cent year-to-date, in spite of the December U.S. inflation report reinforcing Federal Reserve rate hike expectations.

Senior Research Analyst at FXTM, Mr Lukman Otunuga, said this in analysis in Lagos.

Otunuga said that the U.S. consumer price index (CPI) jumped seven per cent year-on-year, matching the median forecast from economists surveyed by Bloomberg and up from 6.8 per cent in November 2021.

He said core inflation, which strips out volatile items such as food and energy, rose 5.5 per cent, well above the 4.9 per cent reported in the previous month.

The analyst also explained that markets initially offered a calm reaction to the hot report with Wall Street closing modestly higher on Jan. 12.

“The most notable price action was seen in foreign exchange markets, with king dollar breaking down as treasury yields pulled back, while gold bugs were injected with renewed confidence.

“The December Consumer Price Index (CPI) report has presented further evidence of persistent price pressures, especially with inflation registering its biggest annual gain since 1982.

“For Nigeria, the key question remains whether the Central Bank of Nigeria joins the tightening bandwagon or focuses on the pandemic economic recovery this quarter.

“The Dollar Index (DXY) slams into 95.00. The dollar tumbled to a two-month low against a basket of currencies Jan. 12 after the inflation figures for December matched expectations.

“Investors may have seen this data as bearish for the world’s reserve currency as they were possibly expecting the figures to be even hotter. Nevertheless, the headline surged seven per cent in December.

“Its biggest year-on-year increase since June 1982 and seven of the last nine releases have now come in above consensus.

“Traders are currently pricing in an 84 per cent probability of at least one rate hike by mid-March.

“Looking at the technical picture, the Dollar Index remains under pressure on the daily charts. A breakdown below 95.00 could open the doors towards 94.56 and 94.00, respectively,” he said.

Otunuga added that gold after notching its sharpest weekly loss since November had returned with a vengeance this week.

According to him, the precious metal continues to draw strength from a weaker dollar and slight pullback in Treasury yields with prices trading around 1,826 dollars.

“Inflation risks could also be supporting upside gains for gold which has often been considered a hedge against rising prices,” Otunuga said.