U.S. corporate earnings announcements were in the spotlight this week, as attention focused on the season’s busiest week of quarterly earnings reports. Tech heavyweights, Microsoft, Alphabet, Amazon, and Meta reported better-than-expected results, beating analyst estimates for revenue and profit, whilst cyclical sectors generally struggled.

With roughly half of S&P 500 companies having reported quarterly results, earnings for the period are down 1.7%, while revenues are up 4% versus the same quarter a year ago. In summary, this highlights that there is an encouraging level of ongoing demand, but profits remain under pressure from higher expenses.

However, concerns are growing about an economic slowdown in the coming months, as regional manufacturing activity measures fell well below expectations, signalling production cutbacks in April. The latest U.S. GDP report showed that the economy is losing momentum, with Q1 GDP slowing to 1.1% compared to 2.6% in the prior quarter, and below consensus expectations. The future of the U.S. economy depends on the strength of the job market, with historically low unemployment rates and consistent wage gains supporting consumer spending despite stubborn inflation.

The U.S. banking industry is also facing renewed turmoil, with California’s First Republic Bank reporting over USD 100 billion in deposit outflows in Q1, causing the stock to plummet. The Federal Deposit Insurance Corporation’s plan to take the bank into receivership further worsened the situation.

In the Eurozone, preliminary data showed that the economy grew by 0.1% on a quarterly basis in Q1 of 2023, missing the expected 0.2% growth estimate. The bloc’s annual GDP rate grew by 1.3% in Q1, falling short of the 1.4% expectation.

The Bank of Japan (BoJ) kept its benchmark interest rate unchanged at -0.1%, despite the Tokyo consumer price index increasing by 3.5% on a year-on-year basis in April, compared to expectations for a 2.6% increase. Unemployment increased to 2.8% in March, compared to 2.6% in the previous month.

In a landmark move, China has set up a nationwide real estate registration system, which paves the way for the implementation of a long-awaited property tax. This move is a critical component of President Xi Jinping’s Common Prosperity goals. According to state media reports, the integrated registration system, which took a decade to develop, has more than 1.5 billion real estate records across the country. This system provides the authorities with insight into who owns what and has long been regarded as a prerequisite for implementing a home ownership levy.

According to the World Bank, there is a likelihood of a decline in global commodity prices in 2023, the largest drop since the pandemic began. The bank has revised its projection for its commodity-price index and now expects a 21% reduction this year, which is more than what was anticipated in October.

India surpassed China as the world’s most populous country in April, this according to the UN. At the same time, India’s population is set to grow for several decades while the number of people in China shrinks.

Global equity markets were mixed this week. In the U.S., the Dow Jones (+0.86%), S&P 500 (+0.87%) and Nasdaq (+1.28%) all ended the week higher. In contrast, the Euro Stoxx 50 (-1.12%) and FTSE 100 (-0.55%) were negative, whilst Asian indices were mixed, including the Nikkei 225 (+1.02%), Hang Seng (-0.47%) and Shanghai Composite Index (+0.67%).

Market Moves of the Week:

In March, South Africa’s producer inflation dropped more than expected, reaching a 13-month low. This suggests that pricing pressures throughout the value chain may be easing. According to Stats SA, prices of final manufactured goods increased by 10.6% from the previous year, compared to 12.2% in February.

The U.S. Treasury Department has identified 52 entities and individuals, including some in South Africa, as part of a “vast international money-laundering and sanctions network” operating in several countries. The inclusion of South Africa in this network could potentially harm its efforts to be removed from the greylist of the Financial Action Task Force (FATF). The other countries involved in this network include Lebanon, United Arab Emirates, Angola, Ivory Coast, the Democratic Republic of the Congo, Belgium, UK, and Hong Kong.

Regarding the electricity crisis, top officials of South Africa’s ANC have endorsed a proposal to postpone the closure of Eskom’s coal-fired power plants. This is a political victory for electricity minister Ramokgopa but could hinder South Africa’s efforts to meet its climate change commitments. Eskom’s outgoing COO supports the idea of extending the life of the coal-fired power plants but believes that the power utility’s current target to improve their performance by the end of March next year is unrealistic.

The JSE All-Share Index (+0.39%) posted modest gains this week, driven by the financial (+1.51%) and industrial (+0.37%) sectors, whilst the resource sector (-0.52%) was negative. By Friday close, the rand was trading at R18.28 to the U.S. Dollar, depreciating by -1.16% for the week.

Chart of the Week:

In the U.S., there is a noteworthy phenomenon where money market funds are receiving significant inflows. This can be attributed to the U.S. yield curve being inverted. While the yield curve remains inverted (in other words, long bonds unusually carry a lower rate than short-dated bonds), then the disincentive to lend will continue, as will the appeal of moving to short-term money market accounts rather than deposits. Currently, two-year bonds offer significantly higher yields than the 10-year Treasury. Source: Bloomberg.

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China’s first quarter 2023 GDP growth beat estimates, rising 4.5% q/q vs 4% q/q est. Although retail sales outperformed expectations, surging by 10.6% y/y – the fastest pace in two years, industrial production fell short of consensus, recording a gain of 3.9% y/y in March. While the positive Q1 GDP print provided some relief, industrial output, fixed asset investment, and property data were below estimates. However, the overall surge in GDP growth is a sign that activity is returning to normal and puts the country on track to achieve its growth target of 5% or greater for the year. In related news, The People’s Bank of China kept its benchmark one-year lending rate on hold at 3.65% during its April meeting, as expected.

The relationship between China and the United States is deteriorating even further as recent reports suggest that U.S. President Joe Biden is preparing to sign an executive order aimed at limiting American businesses’ investment in China. This order is expected to be signed during the upcoming Group-of-Seven summit on May 19 in Japan, which will increase pressure on other members to support the action.

In the U.S., first-quarter earnings reporting is underway with about 17.5% of the constituents of the S&P 500 Index having reported for Q1 2023. FactSet Research data indicates that blended earnings per share (which combines reported data with estimates for companies that have not yet reported) decreased by 6.3% compared to the corresponding quarter a year ago. In contrast, sales saw an increase of approximately 2.3%.

The latest U.S. weekly jobless claims report, released on Thursday, revealed signs of increasing weakness in the labour market. However, investors seem to be divided on how to interpret this development. While some viewed it as good news, as it may prompt the Federal Reserve to reduce rate hikes, others considered it to be concerning evidence of an impending recession. In housing news, existing homes sales fell, and year-over-year home prices dropped -0.9%, the largest decrease in 11 years.

S&P Global’s gauges of current economic activity, released Friday, surprisingly suggested that multiple regions’ activity is recovering. According to S&P Global analysts, the S&P Global U.S. Composite Purchasing Managers’ Index (PMI), which measures both services and manufacturing activity, increased to its highest level in almost a year, reaching 53.5. The eurozone, UK, and Japan posted composite PMIs of 54.4, 53.9 and 52.5 respectively, topping estimates. The data indicates that developed economies are on track for robust growth in the second quarter. As a result, several central banks may decide to proceed with rate hikes next month, despite the recent turmoil in the banking sector.

In the UK, March’s headline inflation came in under estimates, rising 10.1% y/y from 10.4% in February. Energy, food and other goods and services were the primary drivers. The UK remains having the highest inflation rate among G7 countries, which creates doubt over whether the Bank of England (BOE) will pause rate hikes soon, as they have been suggesting. The probability of a 25-basis point hike at the BOE’s May meeting rose following the inflation print. 

Eurozone inflation eased to 6.9% y/y in March from 8.5% y/y in February. The sizable drop can be attributed to declining energy costs, as natural gas prices continue their decline from their surge a year ago on Russia’s invasion of Ukraine. Core inflation, however, increased slightly from 7.4% y/y to 7.5% y/y, which has kept European Central Bank policymakers hawkish, with the group stating that interest rates will still need to keep rising.

On the market front, global indices ended the week mixed. The S&P 500 Index (-0.10%) was flat on the week, while the Dow Jones (-0.23%) and the Nasdaq index (-0.42%) also remained near last week’s close. Shares in Europe gained +0.41% (Euro Stoxx 50) over the week as positive inflation data and an improved economic outlook boosted investor sentiment.  The FTSE 100 managed a +0.54% rise, despite stubbornly high inflation. 

As a result of Biden’s planned executive order, Chinese equities fell on Friday, as investors assessed the impact of escalating geopolitical tensions with the U.S. and took profit accordingly. The Shanghai index ended the week down -1.11% as a result. In Japan, the Nikkei 225 gained +0.25%. Gold dipped -1.07% while Brent Oil tumbled -5.83% over the week. 

Market Moves of the Week:

Inflation in South Africa quickened faster than expected in March, with headline inflation rising 7.1% y/y (expectations: 6.9% y/y) from 7% y/y in February. Core inflation, however, remained unchanged at 5.2% y/y. Higher than expected food prices pushed the index higher, with food and non-alcoholic beverages rising by 14% y/y, contributing 2.4% to the total. This represents the largest annual increase since the 14.7% rise in March 2009. Outside of food, other supply-related categories within core inflation were more adverse than the market had expected (including regulated education, alcohol/tobacco and imported durable goods prices).

After inflation rose unexpectedly in March, traders increased their bets that South Africa’s Reserve Bank will continue its interest-rate hiking trend next month. By using forward-rate agreements to speculate on borrowing costs, traders are now fully pricing in a quarter-point increase in the repo rate. There is also a possibility of a larger 50-basis point move on May 25 when the monetary policy committee announces its next decision.

President Cyril Ramaphosa is under mounting pressure to delegate authority to his new electricity minister, who can take necessary measures to prevent more severe blackouts during the upcoming peak winter demand. Kgosientsho Ramokgopa was appointed to the position two months ago, but Ramaphosa has not yet specified which responsibilities he will transfer from the energy and public enterprises ministries to the new office. In other Eskom news, the state power utility has proposed a 3.75% raise to its employees, yet the National Union of Mineworkers is advocating for a 15% salary hike along with other incentives.

In political news, President Ramaphosa signed the Electoral Amendment Bill into law on Monday which will pave the way for independent candidates to contest national and provincial elections.

The JSE (-1.22%) fell over the week, as investors searched for conviction. Positive Chinese data sent Platinum Group Metals shares higher, however, a lower gold price sent heavy-weight gold mining stocks lower, forcing the Resources (-1.21%) sector into the red. The rand held up against the U.S. dollar over the week to end at R18.07/$. 

Chart of the Week:

In the last few days, crude has wiped out all its gains after the surprise OPEC+ oil cut at the beginning of April. The cut led to concerns of a widening deficit in global markets as the year goes on and raised fears of the benchmark price surpassing $100 once again. However, increasing perceived risks of a U.S. recession have recently overshadowed the move, sending oil lower. Source: Bloomberg

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Major US indices ended the week higher on the back of encouraging signs that inflation pressures are continuing to recede. The Labor Department’s Wednesday morning release of the consumer price index (CPI) showed that CPI rose 0.1% for the month of March against a Dow Jones estimate for 0.2%, bringing the year over year inflation rate to 5%. The slowest pace since May 2021. Excluding food and energy, the core CPI accelerated 0.4% and 5.6%, both as expected.

Minutes released on Wednesday of the Federal Reserve’s March 21-22 meeting revealed that the central bank is now forecasting a “mild recession” later this year bought on in part by the recent banking turmoil that saw the collapse of Silicon Valley Bank and Signature Bank. Officials indicated they will closely monitor the tightening of credit conditions. The expectation being that the more credit tightens, the less the Fed will need to hike rates. Projections following the meeting indicated that Fed officials expect gross domestic product growth of just 0.4% for all of 2023.

In other economic news, the Producer Price Index fell by 0.5% MoM in March, the biggest monthly decline since April 2020, and rose by 2.7% YoY after increasing by 4.9% YoY in February. US retail sales also came in softer, dropping 1% in March from February, a sharper decline than the 0.2% fall in the previous month. The downtrend in retail sales and slowing producer prices adds further evidence that the economy is slowing as consumers reduce spending as prices remain high.

The U.S. corporate earnings reporting season got off to a good start this week with large U.S. banks reporting robust first quarterly performance.  JPMorgan shares ended 7.6% higher on Friday after the U.S. largest bank by assets, said its first-quarter profit rose to $12.62 billion, or $4.10 a share, from $8.28 billion, or $2.63 a share, in the year-ago quarter. Wells Fargo and Citigroup also topped analyst estimates for revenue Friday. Still ahead are Goldman Sachs and Bank of America results on Tuesday, while Morgan Stanley discloses earnings Wednesday.

For the week, the Dow booked four consecutive weeks of gains, while the broad-market S&P 500 gained 0.79% and the Nasdaq advanced 0.29%. Stocks in Europe also rose for the week as recession fears waned. In local currency terms, the pan-European STOXX Europe 50 Index advanced 1.89% while the UK’s FTSE 100 Index climbed 1.68%.

In Asia, Japanese equities gained over the week, with the Nikkei 225 Index rising 3.54%. The market was buoyed by New Bank of Japan Governor Kazuo Ueda who said that it is appropriate to keep the central bank’s loose monetary policies in place for now. In China, stocks were mixed after a volatile week as softer-than-expected inflation dampened investor sentiment.

Market Moves of the Week:

The International Monetary Fund (IMF) has warned that South Africa’s fiscal metrics could deteriorate further in the medium term than initially forecast amid high inflation, rising borrowing costs, a weaker growth outlook and elevated financial risks, in its Fiscal Monitor Report released this week. Amidst an increase in rolling power cuts, the IMF cut its 2023 growth forecast to slight growth of 0.1%.

South African Finance Minister Enoch Godongwana who is attending the IMF and World Bank spring meetings in Washington ruled out a recession for South Africa this year despite the gloomy IMF forecast.

On the Johannesburg Stock Exchange, the JSE All Share index ended the week firmer on Friday, the benchmark index gained 2,28% over the week, with strong gains across the major sectors.

Meanwhile, the rand also ended the week firmer at R18.08 to the US dollar, after trading above the R18.50/$1 level earlier in the week, dragged weaker by the International Monetary Fund (IMF) lowering South Africa’s growth forecasts and heightened load shedding.

Chart of the Week:

The consumer price index, a widely followed measure of the costs for goods and services in the U.S. economy, rose 5% from a year ago versus the estimate of 5.1%. The data showed that while inflation is still well above the Fed target rate, it is showing continuing signs of decelerating.

Investor anxiety has been heightened recently by the war in Ukraine and impending rate rises by the Federal Reserve. As such, we advise investors to maintain a calm stance during the crisis, diversify, and maintain exposure to long-term themes. Investors need to look beyond near-term news and gain exposure to industries benefiting from longer-term growth trends.

For the month of February, the United States (U.S.) saw a drop in job openings to under 10 million, marking the first time this has happened in nearly two years. The Job Openings and Labour Turnover Survey (JOLTS) report showed that job openings, which are an indicator of labour demand, decreased by 632,000 to 9.9 million – the lowest level since May 2021. This figure was below the 10.4 million job openings forecasted by economists surveyed by Reuters. Despite the larger-than-expected decline, the labour market remains tight, with 1.7 job openings available for every unemployed person in February, down from 1.9 in January. Moreover, the JOLTS report showed a slight decrease in both hires and separations with quits increasing by 146,000 to just over 4 million, indicating confidence in the labour market’s ability to switch jobs.

Payroll processing firm ADP reported that private sector hiring slowed down in March.  Company payrolls increased by 145,000, which was lower than the Dow Jones estimate of 210,000 and down from 261,000 in February. The average monthly hiring rate for the first quarter was 175,000 jobs, lower than the 216,000 in the previous quarter and a significant reduction from the average of 397,000 in the first quarter of 2022. Similarly, the Labour Department’s Nonfarm payrolls report also showed signs of an early-stage slowdown in the jobs market, with payrolls growing by 236,000 in March, below the upwardly revised 326,000 in February and the Dow Jones estimate of 238,000. The Labour Department also reported that the unemployment rate ticked lower to 3.5%, against expectations that it would hold at 3.6%.

For the week, the benchmark S&P 500 fell by -0.10% while the tech-heavy Nasdaq dropped by -1.10%. In contrast, the Dow Jones ended the week on a positive note, with a weekly gain of +0.63%. Oil prices experienced a third consecutive weekly gain of +6.27% as market participants evaluated the impact of OPEC+’s planned production cuts and declining U.S. oil inventories, while also factoring in concerns about the global economic outlook.

According to the Bank of England’s (BOE) Chief Economist, Huw Pill, officials might need to increase interest rates to prevent a rebound in prices caused by households and companies trying to recover their lost income, even as inflation decreases. This view differs from that of colleague Silvana Tenreyro, who suggested at a separate event on Tuesday that the BOE may have to reduce rates “earlier and faster” due to the rapid pace of tightening. The Chief Economist, Pill, did not provide any guidance on how he would vote at the BOE’s next rate decision on May 11. Financial markets currently predict a 70% chance of another quarter-point rate increase at the BOE’s next meeting.

Like their British counterparts, ECB officials, including President Christine Lagarde, Vice President Luis de Guindos, and Chief Economist Philip Lane, have indicated that another interest rate hike is imminent. Lane has stated that if inflation follows the projected path outlined in the ECB’s March economic projections, the bank will need to raise rates in May. Although the ECB has already raised rates by a total of 350 basis points since July 2022, it has not given any specific guidance for its upcoming May 4 meeting, citing turbulence in the financial sector as a reason for caution. While several other policymakers echoed the view that rates might rise, they also said they believed rates were nearing a peak.

For the week, the FTSE 100 ended positively, gaining +1.44%, while the Euro Stoxx 50 declined by -0.13%

On Tuesday, Finland officially joined the North Atlantic Treaty Organization (NATO) as its 31st member. This marks the end of Finland’s seven-decade-long military non-alignment and abandonment of their neutrality. Finland’s decision to join NATO has doubled the length of the border that NATO shares with Russia and strengthened its eastern flank, which is crucial as the war in Ukraine continues with no signs of resolution. By becoming a member of NATO, Finland can access the resources of the entire alliance in case of an attack, providing a guarantee of protection to the northern European nation.

In China, the private Caixin/S&P Global survey showed that services activity increased to 57.8 in March, up from 55.0 in February. This marks the third consecutive month of expansion since Beijing lifted pandemic restrictions in December. However, the survey’s manufacturing gauge slowed to 50.0 in March from an eight-month high in February due to sluggish global demand. The weaker-than-expected Caixin/S&P manufacturing data corresponds with the official manufacturing Purchasing Managers’ Index released the prior week, which also declined from February’s level but remained in expansion. Index readings above 50 indicate growth compared to the previous month.

Chinese stocks rose during the holiday-shortened week, driven by a rebound in services activity which boosted investor confidence. The Shanghai Stock Exchange Index gained 1.67%. In contrast, Japanese stocks fell, with the Nikkei 225 Index dropping by -1.87%, stocks also fell in Hong Kong, with the Hang Seng declining by -0.85%.

Market Moves of the Week:

In local news, the Absa Purchasing Manager Index (PMI) reported that factory activity in South Africa shrank once again in March. The seasonally-adjusted PMI fell to 48.1 in March, down from 48.8 points in February, which marked the second straight month of remaining below the threshold of 50 points that separates expansion from contraction. This decline was influenced by rotational power cuts (loadshedding) that resulted in the deterioration of local business conditions. Despite this setback, Absa stated that survey participants were more optimistic about business conditions in the future.

According to data released by Statistics South Africa (Stats SA) on Thursday, electricity production in February 2023 decreased by 9.7% year-on-year, following an 8.8% decrease in January. Meanwhile, electricity consumption in February 2023 also declined by 8.7% year-on-year. According to loadshedding data, visualised by The Outlier, South Africa has experienced some form of loadshedding for all 97 days in 2023 thus far.

This week, the JSE all-share index fell by -2.40%, with the industrial sector leading the losses at -3.04%, followed by financials at -2.77%, and resources at -0.87%. The property sector also contributed to the week’s losses, ending with a weekly loss of -0.27%. The rand also depreciated over the week, ending at R18.19 to the dollar.

Chart of the Week:

Although employers in the U.S. maintained a steady hiring pace last month, there were indications of a cooling labour market. The Labour Department reported that payrolls grew by 236,000 for the month and that the unemployment rate ticked lower to 3.5%, while average hourly earnings rose 0.3%, pushing the 12-month increase to 4.2%, the lowest level since June 2021. Market pricing shifted following Friday’s report, with traders now expecting the Fed to implement one last quarter percentage point hike in May.

Investor anxiety has been heightened recently by the war in Ukraine and impending rate rises by the Federal Reserve. As such, we advise investors to maintain a calm stance during the crisis, diversify, and maintain exposure to long-term themes. Investors need to look beyond near-term news and gain exposure to industries benefiting from longer-term growth trends.

Following a relatively uneventful week in terms of economic data and financial news, the leading U.S. equity indices recorded robust gains. Energy stocks were buoyed by the upsurge in oil prices, with Brent Crude oil rising by over 7% to reach the $79 per barrel mark. This week marked the end of the first quarter of 2023, during which the tech-heavy Nasdaq Composite surged by over 16%, while the broader S&P 500 index recorded a gain of approximately 7%. The narrowly focused large-cap Dow Jones Industrial Average also posted a modest increase for the quarter.

The U.S. core (excluding food and energy) personal consumption expenditure price index for February exceeded expectations, coming in at 4.6% compared to the consensus forecast of 4.7%. The market responded positively to this news. The core PCE index is considered the Federal Reserve’s preferred measure of inflation, and while this is a promising development, the figure still exceeds the Fed’s long-term inflation target of 2%. In addition, The Commerce Department released revised 4th quarter GDP estimates, which were slightly lower at 2.6% quarter-over-quarter.

In U.S. political news, former President Donald Trump has been indicted by a Manhattan grand jury on Thursday in a probe regarding hush money payments made to Stormy Daniels during his 2016 campaign. The indictment is a historic event in American law and politics, Trump becomes the first ex-US president to face criminal charges. This event is certain to divide an already polarised society and electorate.

In February, the inflation data for the U.K. saw an unexpected rise, primarily due to an increase in food and beverage prices, following four consecutive monthly decreases. This indicates that the cost-of-living crisis is far from over, with prices in stores reaching an all-time high. On the other hand, revised official data showed that the U.K. was able to steer clear of a recession last year, thanks to government subsidies on energy bills. In the fourth quarter, the GDP saw a sequential growth of 0.1%, contrary to initial estimates of no growth. Meanwhile, the U.K. housing market continues to be weak, with house prices falling at the fastest annual rate since the GFC, according to mortgage lender Nationwide. Furthermore, Bank of England (BoE) data indicated a sharp decline in net mortgage lending in February.

In the Eurozone, shares rallied, on the back of easing concerns about financial instability. Major stock indexes across the region witnessed strong gains, with France’s CAC 40 index increasing by 4.38%, Germany’s DAX adding 4.49%, Italy’s FTSE MIB surging by 4.72%, and the Swiss Market Index (SMI) also gaining strongly by 4.41%. Preliminary estimates indicate that Eurozone inflation slowed more than anticipated, with annual consumer price growth dropping to 6.9% in March from 8.5% in February, as energy costs declined. Additionally, the unemployment rate for February remained stable at 6.6%.

Russian President Vladimir Putin has once again issued a warning regarding the possibility of deploying tactical nuclear weapons to Belarus, with the intent of placing them in closer proximity to the frontlines of the ongoing conflict in Ukraine. Belarus, in turn, has expressed its willingness to permit the hosting of such weapons on its territory, citing the need to bolster its defence capabilities in response to what it perceives as security threats posed by Western nations. The Ministry of Foreign Affairs of Belarus has reiterated this stance. Furthermore, President Putin has signed a decree on Thursday calling for the conscription of an additional 147,000 personnel between the months of April and July.

Chinese equities saw an uptick, fuelled by robust economic data and supportive remarks from Beijing, which have bolstered confidence in the country’s growth prospects. The International Monetary Fund (IMF) has projected that China’s recovery will contribute to around one-third of global growth in 2023, given the increased risks to economic stability following the banking sector’s recent turmoil. The IMF further predicts that China’s economy will expand by 5.2% this year, whereas global growth will slow to below 3.0%. The country’s manufacturing sector demonstrated continued expansion in March, with the official Purchasing Managers’ Index (PMI) climbing to 57 from 56.4 in February.

In other developments, Chinese e-commerce behemoth Alibaba Group has announced its intentions to divide itself into six units that can independently raise capital or pursue initial public offerings. Many market analysts believe that this restructuring may appease regulators and could mark the end of China’s long-standing crackdown on private enterprises.

US stocks ended the week higher, with the S&P 500 gaining 3.48%, the Dow Jones Industrial Average up 3.22%, and the Nasdaq Composite rising 3.37%. The Euro Stoxx 50, 4.46% and FTSE 100, 3.06% also closed the week in the green.  The positive trend extended to Asian equity markets all closing the week higher, Japan’s Nikkei 225 index gaining 2.40%, and Hong Kong’s Hang Seng index rose 2.36%. While China’s Shanghai Composite index posted a modest gain of 0.22% for the week.

Market Moves of the Week:

On Thursday afternoon the SARB hiked its policy rate by 50bp from 7.25% to 7.75%. The vote was split 3-2 among MPC members, two of which voted in favour of a 25bp increase.  The announcement came as a hawkish surprise to market participants, unanimous market consensus was for a 25bp rate hike. On the back of this announcement, the MPC lowered its 2023 growth forecast marginally from +0.3% to +0.2% but raised its 2024 forecast from +0.7% to +1.0%. The surprise hike was ZAR positive and resulted in ZAR/$ trading below R18/$ by the end of the day.

The global risk on environment filtered through to the local market, JSE ALSI posting decent gains for the week, positive contributions for all the sectors, most notably Resources up 3.02% on the back of a stronger China growth outlook. The index closed the week up 1.88%. The rand strengthened materially this week, trading at R17.78/$ by Friday close, appreciating 2.10% against the dollar. Financials gained 2.09% as well as Industrials up 1.31%. The SA listed property sector also posted positive returns for the week 0.89%, closing out robust sector performance for the week.  

Chart of the Week:

In light of the recent uncertainty in the banking sector due to the collapse of SVB, American investors are exploring alternative options to bank deposits. As a result, money market funds have emerged as a popular choice, garnering a remarkable $286 billion in inflows in March. This represents the highest allocation to money market funds since April 2020.  Source: FT & EPFR Global.

Investor anxiety has been heightened recently by the war in Ukraine and impending rate rises by the Federal Reserve. As such, we advise investors to maintain a calm stance during the crisis, diversify, and maintain exposure to long-term themes. Investors need to look beyond near-term news and gain exposure to industries benefiting from longer-term growth trends.

The most closely watched event of the week was the conclusion of the Federal Open Market Committee’s (FOMC) meeting on Wednesday. As expected, the FOMC raised interest rates by 0.25% to a range of 4.75% to 5.00%. Fed Chair, Jerome Powell signalled that the battle against inflation must go on, despite acknowledging tensions in the banking system, emphasizing his belief that the banking system remains resilient. In response to questions, Powell also added that Fed officials “don’t see rate cuts this year”.

Nevertheless, the Fed’s updated March “dot plot” (showing individual policymakers’ rate expectations), indicates a growing disparity in outlooks, suggesting that officials are expected to stop raising rates after one more hike in May. In summary, the Fed appears closer to a pause in its rate-hiking cycle.

Economic data released this week, showed that momentum in the U.S. economy remains resilient, with weekly jobless claims remaining near 5-decade lows (coming in at 191,000 in the week ended 17 March). The S&P Global Composite Index (measuring both services and manufacturing activity), increased from 50.1 to 53.3 (above 50 implies an expansion), indicating the fastest pace of private sector growth since May 2021.

The big news out of Europe this week, was the announcement that Swiss Bank, UBS agreed to take over its long-time rival Credit Suisse as authorities stepped in to halt a dangerous decline in confidence in the global banking system, stemming financial market panic unleashed by the failure of two American banks earlier this month. UBS agreed to buy Credit Suisse in an emergency rescue deal, paying $3.25 billion for Credit Suisse, about 60% less than the bank was worth when markets closed last Friday. More recently, uncertainty has emerged around Deutsche Bank, whose share price fell, and its cost of insurance rose sharply late last week.

In other European news, consumer confidence unexpectedly dropped to a level of -19.20 in March, compared to market expectations for an improvement from February’s -19.10 reading. Economic sentiment deteriorated more than expected to a reading of 10.00 (expectations: 23.20) compared to February’s 29.70 reading.

On a positive note, Swiss watch exports rose 12.2% in February as orders from China grew for the first time in four months following the end of Covid-Zero policies.

In the UK, inflation unexpectedly accelerated for the first time in four months as food and drink prices increased at the fastest pace in 45 years. Headline inflation increased by 10.4% (year-on-year) in February after a 10.1% gain the month before. Economists had expected the reading to fall back into single digits.

Unsurprisingly, the Bank of England (BoE) increased its key interest rate by 25 basis point to 4.25%, in line with market expectations. The cost of higher interest rates continues to weigh on UK property prices, which fell at the fastest pace in 12 years in January (excluding the pandemic).

Japanese consumer prices rose by 3.3% (year-on-year) in February, less than the market’s expectation for a 4.1% increase (compared to a 4.3% increase in January).

Global equity markets were stronger this week. In the U.S., the Dow Jones (+1.18%), S&P 500 (+1.39%) and Nasdaq (+1.66%) all ended the week higher. Similarly, the Euro Stoxx 50 (+1.61%) and FTSE 100 (+0.95%) were positive. In Asia, the Nikkei 225 (+0.19%), Hang Seng (+1.95%) and Shanghai Composite Index (+0.46%) also ended the week higher.

Market Moves of the Week:

South Africa’s headline consumer inflation edged higher in February to 7.0% year-on-year from 6.9% in January. Core inflation rose more considerably from 4.9% year-on-year to 5.2%, surprising consensus. The main surprise came from medical aid contributions, where inflation rose from 4.8% in January to 7.5% in February.

At the same time, consumer confidence plunged in the first quarter, as South Africa continues to be plagued by severe power shortages. The consumer confidence index, compiled by the Bureau for Economic Research, slumped to a reading of -23.0, from -8.0 in the fourth quarter of 2022.

The IMF cut South Africa’s GDP growth for FY23 down to 0.1% (from 1.2% in January), stating that SA’s near-term growth outlook has deteriorated.

The JSE All-Share Index (+2.99%) posted strong gains this week. Strong performances came from the resources (+2.23%) and industrial (+4.71%) sectors, whilst financials (+0.47%) posted modest gains. By Friday close, the rand was trading at R18.16 to the U.S. Dollar, appreciating by +1.68% for the week.

Chart of the Week:

The so-called “dot plot” graph represents a summary of each Federal Open Market Committee (FOMC) Member’s projection for the fed funds rate (shown as a dot). The FOMC now thinks that rates will end 2023 at about 5.1%, unchanged from their median estimate when the dot plot was last published in December. As it stands, the Fed has found middle ground by coupling its rate hike with language that doesn’t pre-commit to more hikes in future. Source: Bloomberg.

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The failure of Silicon Valley Bank (SVB) last Friday set off a wave of investor fears that further collapses in banks would follow. Another large regional bank, New York’s Signature Bank, which had heavy exposure to cryptocurrency markets, then also collapsed last weekend. However, on Sunday, March 12, the Federal Reserve (the Fed), the Federal Deposit Insurance Corporation (FDIC), and the Treasury Department made an announcement that all depositors of SVB would be granted complete access to their funds on Monday morning. Additionally, the Fed made more funding available to banks to protect deposits and prepared for addressing any potential liquidity issues. Nearly $143 billion in additional funds were loaned to the FDIC to backstop the failed SVB and Signature Bank.

The Fed’s additional funding proposed last Sunday came in the form of the Bank Term Funding Program, which was created to support American businesses and households by making additional funding available to eligible depository institutions to help assure banks have the ability to meet the needs of all their depositors. Since last Sunday, U.S. banks have borrowed $11.9 billion from the Bank Term Funding Program. Through this program, banks are able to obtain one-year loans with favourable conditions in return for providing collateral of high quality. All the emergency lending resulted in a total of $303 billion being added to the Fed’s balance sheet, which counteracted a significant portion of the quantitative tightening that the Fed had initiated since June.

Later in the week, U.S. bank First Republic, which had a focus on the tech sector similar to SVB, came under pressure after investors saw similarities between First Republic and the failed Silicon Valley Bank. A rescue plan was coordinated and on Thursday morning, First Republic, the 14th-largest bank in the country, received a cash infusion from 11 rivals, including America’s largest lenders. The rescue plan detailed that the group of banks would deposit $30 billion with First Republic for an initial period of 120 days, in an effort to calm fears about its balance sheet. In recent days, regional banks have experienced significant outflows of deposits, as customers have been transferring their funds to the large banks that are involved in the rescue efforts.

Hopes that the Fed might adjust its monetary policy in response to the banking sector events seemed to drive a rally during the week. By the end of the week, futures markets were pricing in zero likelihood of a 50 basis point hike by the Fed in March compared with a 40% chance of one the week before. Markets were also placing a nearly 99% probability that the federal funds target rate would end the year lower than its current range of 4.50% to 4.75%. In other news, U.S. inflation moderated in February, rising 6% y/y, in line with expectations, down from 6.4% y/y in January, while core inflation declined to 5.5% from 5.6% in the month before.

Shares of Credit Suisse, the Switzerland-based financial giant, sold off after the chair of Saudi National Bank, its largest shareholder, announced that it would not invest further capital in the company. This event occurred shortly after Credit Suisse postponed the publication of its annual report due to the presence of “material weaknesses” in its controls for financial reporting. Following a steep drop in the value of Credit Suisse’s shares, the Swiss National Bank (SNB) offered a credit line of CHF 50 billion ($54 billion) to the bank on Wednesday evening, which provided temporary support to the stock price. Multiple sources have reported that UBS is currently in talks to acquire either all or a portion of Credit Suisse. The boards of the two largest banks in Switzerland are expected to convene separately over the weekend to examine what could potentially be the most significant banking merger in Europe since the financial crisis.

On Thursday, the European Central Bank (ECB) raised its benchmark rate by 50 basis points, to 3% from 2.5%. The ECB reiterated that future decisions would be data dependent but offered no forward guidance, while stating that “the euro area banking sector is resilient, with strong capital and liquidity positions.”

In an effort to enhance liquidity and stimulate the economy, the People’s Bank of China (PBOC) announced its decision to lower the reserve requirement ratio (RRR) for most banks by 25 basis points. This was the first such reduction made by the central bank this year.

On the market front, U.S. stocks closed mixed for the week on the back of turmoil in the banking sector, concerns over a steeper slowdown in the economy and hopes that the Fed would now be forced to pause its rate-hiking cycle. The S&P 500 gained +1.34% over the week, with cash-flush, mega-cap tech stocks recording robust gains while energy and financial shares slumped. As a result, the Nasdaq rallied +4.41% while the Dow Jones ended the week -0.15% lower.

Shares in Europe (Euro Stoxx 50) declined -3.89%, while the FTSE 100 sunk -5.33%. Chinese stocks (Shanghai +0.63%) managed a slight gain while, in Japan, the Nikkei 225 fell -2.88%. Gold (+6.50%) rallied, benefiting from risk-off sentiment, while Brent Oil fell -12.29% over the week. 

Market Moves of the Week:

In South Africa (SA) this week, fresh economic data prints surprised to the upside, although still painted a gloomy picture for the SA economy. Data released on Thursday showed that SA retail sales dropped by -0.8% y/y in January, compared to a -0.5% y/y decline in December. A look into the data shows that households cut their spending on essential food and beverages (-7.3% y/y) due to heightened living costs, but increased spending on clothing and footwear (+2.3% y/y).

Mining and manufacturing production was also released for January. Mining production shrank by -1.9% y/y , following December’s -3.6% y/y drop. The print was however stronger than the market expected (-2.8% y/y). On the manufacturing front, January’s production slipped -3.7% y/y (consensus -5.2% y/y) from -4.5% y/y in December. Persistent, heightened load shedding continues to remain a key downside risk to the energy intensive manufacturing sector. In January, there was an -8.0% y/y decrease in electricity production and a -7.3% y/y decrease in electricity consumption, with Eskom’s Energy Availability Factor (EAF) below 55.

Shares of Transaction Capital tumbled this week (-59.86% w/w) following a gloomy trading update that was released on Monday. The company posted a trading update reporting it expects core earnings per share from continuing operations in the half-year to end-March to fall between 20% and 50%. The group said on Monday that some of its operations were being badly impacted by macroeconomic headwinds.

On the mining front, Gold Fields (+23.46% w/w) and AngloGold Ashanti (17.90% w/w) announced on Thursday that they have agreed on the key terms of a proposed joint venture in Ghana, which would create the largest gold mine in Africa. 

The JSE All-Share index fell -5.14% over the week, with Financials taking the biggest hit, down -6.91% w/w. The rand depreciated against the U.S. dollar this week to end at $/R 18.47. 

Chart of the Week:

Last week Jerome Powell signalled the central bank might accelerate its interest-rate-hike campaign in the face of persistent inflation. Traders moved to price in a half-point hike in the benchmark interest rate at the Fed’s March meeting, and further rate hikes beyond. Traders now see next week’s Fed meeting as a tossup between a smaller quarter-point hike and a pause, with rate cuts seen likely in following months. Source: Reuters

Investor anxiety has been heightened recently by the war in Ukraine and rate rises by the Federal Reserve. As such, we advise investors to maintain a calm stance during the crisis, diversify, and maintain exposure to long-term themes. Investors need to look beyond near-term news and gain exposure to industries benefiting from longer-term growth trends.

Hawkish testimony from US Federal Reserve Chair Jerome Powell earlier in the week and strong job openings in the U.S. saw major global indices retreat over the week.

Federal Reserve Chair Jerome Powell testified before a House Financial Services hearing indicating that interest rates may need to go higher and remain in a restrictive territory for an extended period. The higher for longer approach saw expectations of the feds fund rate increase with the peak or terminal rate now close to 5,75%.  

Friday’s job report which showed an increase of 311,000 nonfarm jobs in February, well above consensus expectations of around 200,000, added to the Fed’s higher for longer interest rate path. The unemployment rate rose unexpectedly, however, from a January five-decade low of 3.4% to 3.6%. There also was some good news on the inflation side, as average hourly earnings rose 4.6% from a year ago, below the estimate for 4.8%. Leisure and hospitality, retail and government led job creation by sector. January’s nonfarm payrolls gain of 517,000 was revised down to 504,000, while December’s total was also revised down to 239,000, a decrease of 21,000 from the previous estimate. All eyes will now be on next Tuesdays U.S. consumer price data, ahead of the Fed’s 22 March rate-setting meeting, to see whether there is enough evidence of easing inflation pressures to convince the Fed to raise rates by 0.25% rather than 0.5%.

Financials led the declines within the S&P 500 with concerns growing throughout the week about the health of SVB Financial, or Silicon Valley Bank, with customers withdrawing $42 billion of deposits by the end of Thursday. The banks collapse started on Wednesday when the technology-oriented regional bank was forced to sell and realize losses in securities held on its balance sheet in order to meet capital requirements. Within 48 hours a run-on deposits caused SVB to be shuttered by regulators, with trading in SVB stock halted on Friday. SVB is the largest banking failure in U.S. since the 2008 financial crisis and the second largest ever.

The U.S. banking system, following a prolonged period of stringent oversight in the aftermath of the Global Financial Crisis, appears to be significantly better capitalized than it was in past crises, including 2008, but nevertheless the failure sent ripples through the global financial system on growing concerns that the aggressive Fed tightening cycle may be beginning to have undesirable economic side effects.

Major U.S. indices ended the week sharply lower with the benchmark S&P 500 Index down 4.5%, the Dow Jones off 4.4% and the Nasdaq off 4.7%, as risk off sentiment took hold.

In the U.K. the economy grew by 0.3% in January, official figures showed on Friday, exceeding expectations as it continues to fend off an inevitable recession. The U.K. remains the only country in the G-7 (Group of Seven) major economies that has yet to fully recover its lost output during the Covid-19 pandemic. On the inflation front, U.K. inflation slowed to an annual 10.1% in January, continuing to shrink after hitting a 41-year high of 11.1% in October but staying well above the Bank of England’s 2% target. The UK’s FTSE 100 Index lost 2.50% for the week.

In Europe, shares tracked global markets lower amid concerns of risks in the banking system, the pan-European STOXX Europe 50 Index ended the week 1.5% lower.

Earlier in the week Beijing set an economic growth target of around 5% this year at the National People Congress (NPC). On Friday Chinese leader Xi Jinping gained an unprecedented third term as president as was widely expected, delegates also formally reappointed Xi as chairman of the Central Military Commission. Signs of weakening demand and a lower than expected growth outlook saw the Shanghai Stock Exchange Index decline by 2.95%, the worst weekly loss in more than two months.

Japan’s stock markets registered modest gains for the week, with the Nikkei 225 Index rising 0.78%, as the Bank of Japan made no changes to its monetary policy at the final meeting chaired by outgoing Governor Haruhiko Kuroda.

Bitcoin fell below $20,000 on Friday hitting a near-two month low after a sell-off in risk assets and the collapse of Silvergate, a crypto-focused bank, which announced it would wind down operations due to the fallout from the implosion of FTX, also weighing on crypto prices.

Market Moves of the Week:

On Monday night South African (“SA”) President Cyril Ramaphosa announced his much anticipated cabinet reshuffle. Paul Mashatile, newly elected deputy president of the ANC was installed as deputy president of South Africa, as was widely expected. A new minister of electricity was announced, Kgosientso Ramokgopa, the former mayor of Tshwane. Ramokgopa has been tasked with ending rolling blackouts by overseeing the fix on Eskom and bringing new energy to the grid. South Africa suffered its worst power cuts in 2022, and 2023 is so far looking even darker.

The SA economy contracted more than expected in the last quarter of 2022, as an escalation in rolling power cuts contributed to most sectors from agriculture to mining shrinking. Figures from Statistics SA showed gross domestic product contracted 1.3% in the fourth quarter compared to the previous three months in seasonally-adjusted terms. Analysts had predicted a 0.4% contraction in the October-December period. GDP growth increased by 2.0% in 2022.

Rating agency, S&P Global on Wednesday downgraded its outlook on South Africa to “stable” from “positive”, citing infrastructure constraints and the severe power crisis. It also revised down its real GDP growth forecast for 2023 to 1% from 1,5% previously.

The JSE All-Share Index tracked global markets lower for the week. Resources (-4.05%) were sharply lower, followed by financials (-1.89%) and industrials (-1.57%). The rand gained the most in more than a month on Friday after the US dollar weakened as US jobs data came in stronger-than-expected but lower than in January, ending the week approximately 1% stronger at R18.33/$.

Chart of the Week:

Following testimony from Fed Chair Jerome Powell the predicted feds fund rate moved higher, pointing to a higher terminal rate (using the Bloomberg World Interest Rate Probabilities function). This implied policy rate contrasts sharply with Powell’s last press conference on Feb. 1^st .

Investor anxiety has been heightened recently by the war in Ukraine and impending rate rises by the Federal Reserve. As such, we advise investors to maintain a calm stance during the crisis, diversify, and maintain exposure to long-term themes. Investors need to look beyond near-term news and gain exposure to industries benefiting from longer-term growth trends.

China’s National Bureau of Statistics (NBS) reported that the manufacturing purchasing managers’ index (PMI) rose to 52.6 in February from 50.1 in January, above the 50-point mark that separates expansion and contraction in domestic activity. Furthermore, the NBS emphasized that the non-manufacturing sector’s purchasing managers’ index (PMI) reached 56.3 in February, up from 54.4 in January. After lifting Covid restrictions, China’s economy is showing signs of a more robust recovery, with manufacturing seeing its most substantial progress in over ten years, services activity rising and the housing market stabilizing.

In the U.S. market sentiment received a boost this week after Atlanta Fed President Raphael Bostic published his written essay on Wednesday, commenting that he believes the Federal Reserve (Fed) should increase its policy rate by 50 basis points, to a range of 5%-5.25%, and maintain it at that level until well into 2024. As of now, rates are within a range of 4.5%-4.75%. Elsewhere, Fed Governor Chris Waller expressed doubt about whether the Fed is making the necessary headway to curb economic growth and decrease inflation. Citing robust inflation rates, as well as strong retail sales and the January jobs report, Waller indicated that if this trend persists, the Federal Reserve may have to increase rates beyond initial expectations. Officials next meet March 21-22, and by then they will have seen fresh reports on employment and inflation.

In Europe, official data indicated that the annual rate of inflation decreased slightly from 8.6% in January to 8.5% in February, and this was primarily driven by declining energy costs. On the other hand, core inflation, which provides a more accurate representation of underlying pricing pressures by excluding volatile food and energy expenses, increased from 5.3% to 5.6%. All combined, these factors contribute to the view that the European Central Bank (ECB) may maintain its hawkish stance for an extended period. It was suggested by the ECB President Christine Lagarde that a probable half-point increase in interest rates would occur during the March 16 meeting. European government bond yields increased over the week due to concerns about the aggressive tightening of monetary policy by the ECB as a result of persistent inflation data.

Following their sharpest weekly decline in two months, U.S. stocks rose Friday ending the week strongly, regaining some of their recent losses. The tech-heavy Nasdaq gained +2.58% for the week, while the S&P 500 and the Dow Jones were also both strongly up on the week, with gains of 1.90% and 1.75%, respectively. PMI’s in both Europe and the UK picked up in February with the Eurozone PMI rising to 52 from 50.2 in January and the UK composite rising to 53.1 versus 48.5 in January. Both the Euro Stoxx 50 and FTSE 100 ended the week positively, gaining 2.78% and 0.87% respectively.

For the second consecutive week, Chinese equities rose in anticipation of the National People’s Congress (NPC) meeting, as promising economic data raised expectations for a recovery that could surpass previous projections. The Shanghai Composite climbed by 1.87%. After four consecutive weeks of losses, the benchmark Hang Seng Index rebounded, increasing by 2.79%. The Nikkei 225 also secured positive gains of 1.73% this week.

Market Moves of the Week:

In local news, the Absa Purchasing Manager Index (PMI) indicated that factory activity in South Africa (SA) experienced a significant contraction in February. The seasonally-adjusted PMI dropped to 48.8 in February, down from 53 points in January, falling below the threshold of 50 points that distinguish between expansion and contraction. This is the first time it has fallen below this level since September 2022. This decline was likely due to the unprecedented seven days of Stage 6 loadshedding that occurred during the survey period. According to Absa, the business activity, new sales orders, employment, and inventories, sub-indices were all in contractionary terrain. Export sales, however, rose to the best level in a year, suggesting that manufacturers who solely supply the domestic market may have faced a challenging month.

Statistics South Africa (Stats SA) released their quarterly labour force survey during the week, and it highlighted that the official unemployment rate recorded a slight decline of 0.2 percentage points, reaching 32.7% in the final quarter of 2022 — marking its fourth consecutive decrease. During the quarter, the financial services sector was responsible for the largest share of job creation, hiring an additional 103,000 workers. The other sectors that contributed to the quarter’s job gains were private households, trade, and transport. The community and social services industry, however, saw a significant reduction in employment, shedding 122,000 jobs. Agriculture and construction were also among the sectors that made a negative contribution to the employment figures for the quarter. Although the unemployment rate has decreased in recent times, it remains higher than its pre-pandemic level of 30.1%.

This week, the JSE all-share index recorded a gain of +1.76%, fueled by gains in the resource sector (+3.73%), followed by industrials (+1.36%), and the financial sector (+1.18%). However, the gains were offset by a slight decrease in the property sector (-0.04%). The rand appreciated marginally to end the week at R18.15 to the dollar.

Chart of the Week:

The manufacturing sector in China saw significant growth in February 2023, expanding at its fastest pace in over a decade. This unexpected surge in production was attributed to the lifting of COVID-19 restrictions towards the end of last year.

Investor anxiety has been heightened recently by the war in Ukraine and impending rate rises by the Federal Reserve. As such, we advise investors to maintain a calm stance during the crisis, diversify, and maintain exposure to long-term themes. Investors need to look beyond near-term news and gain exposure to industries benefiting from longer-term growth trends.

The market is now expecting that the U.S. Federal Reserve (“the Fed”) will hike the federal funds rate by 0.25% at each of its next three meetings. Minutes released this week from February’s Federal Open Market Committee meeting revealed that participants were displeased with the equity and bond market rallies that took place at the start of this year, indicating that a tighter monetary policy may be needed to counteract an unjustified loosening of conditions. Participants felt it was “important that overall financial conditions be consistent with the degree of policy restraint that the committee is putting in place in order to bring inflation back to the two percent goal.”

Upside inflation and growth surprises also came out of the U.S. this week. On Friday, January’s core personal consumption expenditures price index (the Fed’s preferred price gauge) was released, with the index jumping 0.6% m/m vs an expected 0.4% m/m over the month – its biggest gain since August 2022. The surprise sent stocks lower on the notion that slower progress is being made on inflation, which could turn the Fed even more hawkish. On the growth front, U.S. personal spending rose a solid 1.8% in January, the biggest increase in nearly two years and also well above expectations.

According to the flash Purchasing Managers’ Indices published this week by S&P Global, concerns about an immediate global recession are decreasing as demand increases, supply chain blockages ease, and confidence improves. On Wednesday, data was released indicating that the services sector is experiencing a stronger recovery compared to manufacturing in most developed economies. In the U.S., the composite PMI, which considers both manufacturing and services, increased from 46.8 in January to 50.2 in February. In the eurozone, the composite rose from 50.3 to 52.3, while in the United Kingdom it climbed from 48.5 to 53. These positive trends suggest that central banks may face greater challenges in controlling inflation than they would have if the data was weaker.

Friday marked the sombre one-year anniversary of the Russian invasion that upended Ukrainians’ lives and Europe’s security. One year after Russia launched its full-scale invasion of Ukraine, the conflict continues to take a terrible toll. According to statistics from the United Nations, more than 7,199 Ukrainian civilians have been killed and 11,756 have been injured since the start of the war, with most casualties caused by explosive weapons.

Russian President, Vladimir Putin, declared this week that Russia will halt its involvement in the Strategic Arms Reduction Treaty, which places a cap on the quantity of nuclear warheads that the United States and Russia can have. Putin stated that Russia will recommence nuclear testing if the US chooses to do so and confirmed that his country has deployed new land-based nuclear weapons in combat-ready positions.

The annual inflation rate in the eurozone fell to 8.6% in January from 9.2% the month before, slightly higher than expectations. The decline occurred despite consumer price growth remaining elevated in Germany, the largest economy in the bloc.

The growth and inflation data released this week sparked a sell-off in U.S. Treasuries, with the yield on the benchmark 10-year U.S. Treasury note nearing 4.00% for the first time since mid-November. On the equity front, the S&P 500 Index (-2.67%) had its worst weekly loss since early December, but still remains up 3.4% YTD. The Dow Jones (-2.99%) and Nasdaq index (-3.33%) also fell as risk off sentiment took hold.

For the week, shares in Europe (Euro Stoxx 50) declined -2.25%, while the FTSE 100 dropped by -1.67%. Chinese stocks (Shanghai +1.34%) advanced after three weeks of losses as hopes for stepped-up regulatory support offset concerns about elevated U.S. tensions. In Japan, the Nikkei 225 fell -0.22%. Gold dipped -1.73% while Brent Oil fell -0.19% over the week.

Market Moves of the Week:

Notable events transpired in South Africa during the week, the outcomes of which, have clouded the outlook of the beleaguered country. On Thursday, Finance minister Enoch Godongwana announced his Budget speech. On balance, while macroeconomic risks persist, the 2023 Budget was in line with market expectations, reiterating government’s commitment to stabilising debt. Investors will draw some comfort from the continuity of fiscal discipline and more clarity around the support for Eskom. Fiscal risks however remain. Investors will continue to be concerned about the downside risks to economic growth and the recent surge in loadshedding as well as the upside risks to spending on social grants, wages and SOE support. 

The Financial Action Task Force (FATF), an inter-governmental organisation that underpins the fight against money laundering and terrorism financing, added South Africa and Nigeria to its ‘grey list’ on Friday. The country was greylisted for failing to comply with anti-money laundering and terrorist financing standards. When the global FATF places a country under increased monitoring (ie the grey list), it means that a country is automatically considered a high-risk jurisdiction and is actively working with the organisation to address apparent strategic deficiencies in its regimes designed to tackle financial crimes. Greylisting is expected to hike the cost of doing business in South Africa, discouraging foreign investment and increasing the amount of due diligence companies have to carry out. The watchdog said in a statement that both South Africa and Nigeria have pledged to work with the FATF to address the concerns.

Eskom CEO Andre de Ruyter left the power utility with immediate effect, following a special Board meeting on 22 February 2023. The announcement followed an explosive interview in which De Ruyter exposed widespread crime and corruption at Eskom. De Ruyter has since said that he plans to spend time abroad after leaving Eskom. The embattled national power utility announced the appointment of Calib Cassim as the interim group CEO with immediate effect.

The JSE (-2.94%) followed global peers lower over the week. Resources (-8.10%) tumbled, while Financials (0.66%) managed to stay afloat. Over the week, the rand weakened against the U.S. dollar to end at R18.39/$. 

Chart of the Week:

The U.S. dollar has managed to regain all of its 2023 losses. The greenback fell against global currencies at the start of the year as a result of the risk on rally which saw funds flow to emerging and other developed market assets. However, recent sentiment has changed, with investors now once again seeking the safe haven currency. Source: Bloomberg.

Investor anxiety has been heightened recently by the war in Ukraine and rate rises by the Federal Reserve. As such, we advise investors to maintain a calm stance during the crisis, diversify, and maintain exposure to long-term themes. Investors need to look beyond near-term news and gain exposure to industries benefiting from longer-term growth trends.