U.S. inflation accelerated in June, ahead of expectations. Headline inflation rose 9.1% from a year earlier, the largest gain since 1981. This suggests the Federal Reserve has more work to do to achieve its price stability mandate. With the Federal Reserve likely to continue hiking interest rates to cool rampant U.S. inflation, the risk of the U.S. economy heading into recession has increased.

It is also worthwhile noting that although U.S. markets ended the week lower, June’s surprise inflation number elicited a contrasting response to May’s inflation surprise, with the S&P 500 strengthening post the announcement, indicating markets might already be looking past the inflation peak to the likelihood for slower economic growth ahead and easier monetary policy.

The bond market echoed this view with one of the U.S. bond market’s most widely watched indicators of potential recession risk reaching levels last seen in 2007. The so-called inversion of the yield curve – in which longer-term rates fall below those on shorter-dated maturities – is regarded as a potential leading indicator of an economic slowdown that could eventually result in rate cuts.

The U.S. housing market also saw a rise in the percentage of deals cancelled in June as rising mortgage rates made homes more expensive, pushing some buyers to walk away. Across the country, nearly 60,000 home sales fell through, according to Redfin. This equates to 15% of transactions that went into contract in June.

Mario Draghi offered his resignation as Italian Prime Minster this week, a move that was rejected by the President. Draghi will address parliament early next week, and that could be followed by a confidence vote.

The euro reached parity with the U.S. Dollar for the first time in two decades, after depreciating by over 12% against the greenback this year. The combination of the war in Ukraine and the resulting energy crisis which threatens to push the euro area into recession; and two central banks moving at vastly different speeds are some of the drivers behind the euro’s weakness. The European Commission lowered its economic forecasts. GDP expectations for 2022 remained unchanged at 2.7% but revised lower to 1.5% from 2.3% for 2023.

UK GDP expanded by 0.5% in May (month-on-month), compared with a fall of 0.3% in the previous month. Markets were anticipating GDP to ease 0.1%.

The Bank of Canada hiked rates by 100-basis points, to the central bank’s policy rate of 2.5%. The 100-basis point move is the largest increase since 1998. Markets and economists were anticipating a 75-basis point hike.

The Chinese economy grew at the slowest pace in more than two years, reflecting the impact of the nation’s Covid Zero approach. Second-quarter GDP increased 0.4% from a year earlier, far weaker than the 1.2% consensus. The economy contracted 2.6% versus the previous quarter. Chinese property prices also fell for a 10^th month in June. New home prices in 70 cities slipped 0.1% from May. Authorities are making 7.2 trillion yuan ($1.1 trillion) in funds available for infrastructure spending, a decisive shift away from a focus on controlling debt toward supporting a lockdown-impacted economy.

Speaking at a media conference, Gary Gensler, Chair of the U.S. Securities and Exchange Commission (SEC) said on Wednesday that there is doubt on the possibility of a deal being reached with China on access to Chinese companies’ audit reports. “I’m not particularly confident – it’s really up to our counterparties,” adding that “good-faith” negotiations continue “but there is a risk here.” U.S. and Chinese officials have been negotiating for more than two years to ensure access to the audit papers of Chinese companies traded in the U.S. via American Depositary Receipt (ADR) structures.

Corn and wheat futures fell the most in over a year in Chicago after a U.S. report saw bigger-than-expected world grain reserves. The U.S. Department of Agriculture raised its global wheat stockpiles estimate on Tuesday, bucking analyst expectations for a decline. Corn inventories were also up. The figures are of particular importance because of food inflation that’s swept across the globe this year, and more abundant reserves is a sign of possible relief. World food prices last month dropped from a near record.

Russia closed the Nord Stream 1 gas pipeline supplying Germany for scheduled maintenance work until the following Friday. The German government is concerned that Russia may not fully reopen it on that date in retaliation against European sanctions, which could force Germany to impose rationing on industries and households to preserve winter stockpiles.

India is expected to surpass China to become the world’s most-populous nation in 2023, four years ahead of an earlier estimate by the United Nations. The UN expects global population to hit 8 billion in November. More than half the projected rise between now and 2050 is expected to be in just eight countries: Congo, Egypt, Ethiopia, India, Nigeria, Pakistan, the Philippines, and Tanzania, according to a report titled World Population Prospects 2022. China is expected to experience an absolute decline in its population as early as next year.

Global equities were softer this week. In the U.S., the Dow Jones (-0.16%), S&P 500 (-0.93%) and Nasdaq (-1.57%) were all negative. Similarly, the Euro Stoxx 50 (-0.84%), FTSE 100 (-0.52%) and Shanghai Composite Index (-3.81%) were all weaker. The exception was the Nikkei 225 Index (+1.02%) ending the week stronger.

Market Moves of the Week:

Police have apprehended two former employees of Swiss industrial firm ABB Ltd. and their wives for corruption linked to more than half a billion rand of contracts with Eskom. At the same time, S&P Global Ratings believes that Eskom may need to borrow an extra 45 billion rand to purchase diesel and pay inflation-beating salaries to workers. A Daily Maverick article also highlighted that Koeberg has lost between 250 – 300 skilled professionals in the last year. The latest to leave was the 27-year veteran Riedewaan Bakardien, who was the Chief Nuclear Officer who is moving to a Canadian nuclear power plant.

South Africa’s labour minister said he’ll oppose any move to privatize Eskom as it struggles to generate power, avoid outages, and repay $23 billion of debt. According to the minister, privatizing the power utility will be detrimental to the poor and employment. In a contrasting view, S&P Global Ratings said privatization may be the best option to resolve the power crisis in Africa’s most-industrialised nation.

Short-term insurers have seen a significant increase in claims because of the severe power cuts across SA. According to Dialdirect Insurance, burglaries increased by 3.2% and vehicle accidents by 5.2% when there is no electricity. This is based on data analysed from July 2019 to May 2022.

The National Union of Metalworkers of SA (Numsa), the country’s largest trade union with more than 400,000 members, said on Wednesday that it is demanding wage increases of up to 20% in the multibillion-rand automotive industry.

SA mining production decreased by 7.8% (year-on-year) in May, compared to market expectations of a 10.9% increase.

The JSE All-Share Index ended the week down -4.74%, with all three of the major sectors including resource (-11.30%), industrial (-3.11%) and financial (-1.32%) shares weaker. By Friday close, the rand was trading at R17.07 to the U.S. Dollar, continuing to be impacted by a strong U.S. Dollar.

Chart of the Week:

U.S. Treasury two-year yields, sensitive to imminent Federal Reserve moves, climbed further this week. The inversion between two-year and 10-year yields – a potential recession indicator – is the deepest since 2000. Source: Bloomberg

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.

After more than 50 ministers and several Cabinet members stepped down, U.K Prime Minister Boris Johnson announced his intention to resign. This comes weeks after Johnson narrowly survived a no confidence vote by the membership of the Conservative Party. Members stepped down in protest of his handling of multiple scandals that have shaken his administration. Johnson will remain as caretaker prime minister until a new party leader is chosen by the Conservative Party. The pound rallied on the news, rising above the $1.20 level as some of the political uncertainty that was priced into the pound was removed. 

In the U.S., non-farm payrolls increased 372 000 in June, well above consensus expectations of around 270 000, continuing what has been a strong year for job growth. The country’s unemployment rate was unchanged at 3.6%, although the labour force participation rate fell from 64.4% to 62.2%. The positive data keeps pressure on the Federal Reserve to continue with rate hikes as the U.S. labour market remains tight, giving room for the Fed to raise rates. After the release of the report, futures markets were pricing in a 98% probability of a 0.75% increase in the federal funds rate later this month. 

Minutes released Wednesday from the U.S. Federal Reserve’s Federal Open Market Committee (FOMC) June meeting revealed that policymakers are increasingly concerned that inflation expectations will become entrenched and that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist. Officials determined that a rate hike between 0.5% and 0.75% would likely be appropriate at the July FOMC meeting.

International Monetary Fund Managing Director Kristalina Georgieva this week warned that the risk of a global recession has risen on the back of a worsening global economic outlook. Georgieva said that the global spread of inflation, substantial interest rate hikes by central banks, wide-ranging sanctions against Russia and a slowdown in China’s economic growth are some of the factors impacting global markets.

Former Japanese Prime Minister Shinzo Abe was assassinated in Nara, Japan on Friday while speaking at a political campaign event days before upper house elections. Security officials at the scene apprehended a 41-year-old suspect. The suspect, named Tetsuya Yamagami, admitted shooting Abe with a homemade gun, and said he had a grudge against a “specific organisation”, police said.

Germany’s foreign trade balance fell into negative territory for the first time since 1991, showing a deficit of EUR 1 billion in May. Exports fell surprisingly, partly due to supply constraints, while imports spiked on higher prices for energy, materials and food. Robin Brooks, chief economist of the IIF, put it this way: “Germany’s growth model has been to import cheap energy from Russia, use that to assemble manufactured goods and export those goods to the rest of the world.” However, cheap energy is no longer cheap. 

U.S. stocks erased much of the previous week’s losses on optimism that the Federal Reserve will be able to curb inflation without tipping the economy into a recession. All three major U.S averages finished up for the week with the Nasdaq (+4.56%) higher for a fifth consecutive day for the first time this year. Mega-cap tech stocks realized gains ranging between 4% – 10% as risk appetite grew. The S&P 500 Index rose +1.94% while the Dow Jones edged +0.77% higher. The second-quarter earnings season begins next week, with reports due out from most major banks. Shares in Europe (Euro Stoxx 50) rose +1.69% while the FTSE 100 managed a +0.38% gain. Chinese stocks dipped with the Shanghai Composite down -0.93%. The Nikkei 225 ended the week up +2.24%. Brent oil fell by  -3.93% while Gold declined by -3.77%.

Market Moves of the Week:

South Africa’s state power utility, Eskom, remained in the spotlight this week. After a week of illegal strikes that deepened electricity outages, The National Union of Metalworkers of South Africa (Numsa) and the National Union of Mineworkers (NUM) finally agreed to Eskom’s wage offer. The new deal will be “a struggle for Eskom to afford,” the utility said, costing more than 1 billion rand ($60 million) over the year-long term. The agreement included a 400 rand increase in monthly housing allowances.

The National Treasury published final amendments to regulation 28 of the Pension Funds Act this week. The amendments make some adjustments to these regulations, specifically, introducing a definition of infrastructure, and setting a limit of 45% for exposure to infrastructure investment. The regulations also confirm the new 45% limit for exposure to foreign assets. Hedge funds are still limited to 10% (max 2.5% per hedge fund and 5.0% for a fund of funds hedge funds) while retirement funds will continue to be prohibited from investing in crypto assets.

South Africa’s private sector activity (as measured by the S&P Global South Africa Purchasing Managers’ Index (PMI)) expanded at a faster pace in June, aided by demand and employment growth. The PMI rose to 52.5 in June from 50.7 in May, recording its highest level in just over a year (>50 indicates growth in the sector). “Output and new orders increased at quicker rates, driving employment growth to the strongest in a year,” S&P Global economist David Owen said. 

The JSE (+4.06%) rebounded this week, ahead of global peers. Commodities partially recovered near week end boosting resources (+5.79%), while property also caught a bid (+5.93%). On a stock level, Naspers (+5.52%) and Prosus (+5.64%) continued to rally over the week. The rand weakened to end at R16.87/$. 

Chart of the Week:

South Africa’s crippling power cuts are approaching an annual record, and there are still six months to go. Eskom’s diesel expenditure for the year so far is more than double the amount the utility budgeted for. The company has spent about R4.14bn on diesel since January against a budget for the period of R2bn. – Bloomberg 

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.

With the first half of 2022 behind us, the market’s focus has shifted from inflation to economic growth concerns. Much of the week’s economic data missed consensus expectations, and some signals suggest that economic activity is slowing. Looking across equities, bonds, commodities, and currencies, all four of these markets may be starting to sniff out slower growth ahead. Most notably the bond market, with the 10-year U.S. Treasury Note as low as 2.79% on Friday, after trading as high as 3.50% in June, when inflation remained the central theme.

The S&P 500 suffered its toughest first half since 1970, declining by 21%, with the index back to where it was in March 2021. Similarly, the Nasdaq 100 finished the first half down 30%, the most since 2002 and European stocks capped their biggest sell-off for the first half since 2008.

Data released on Wednesday showed that the U.S. economy decreased at an annualised pace of 1.6% in the first quarter, reflecting a deeper contraction than previously reported. At the same time, personal consumption expenditures (PCE), fell by -0.4% in May, the first decline in 2022. The silver lining for investors in the PCE data was a downside surprise in inflation signals. The Fed’s preferred inflation gauge, the core (less food and energy) PCE price index came in at 4.7% for the 12 months ended in May, below expectations and the lowest level since November.

In the U.K. business confidence fell to a 15-month low, with firms also reporting a moderation in hiring intentions. At the same time, The UK’s current account swung into a record deficit of GBP 51.7 billion (8.3% of GDP) in the first quarter, driven by the higher costs of fuel imports.

Eurozone inflation accelerated to another record high of 8.6% in June, driven by higher energy and food costs. Nevertheless, ECB President Christine Lagarde reiterated guidance for a 0.25% rate hike in July, followed by another hike in September, the size of which depends on incoming data. This despite more hawkish ECB policymakers continuing to bring up the possibility of a 50-basis-point interest rate hike in July.

In China, manufacturing and services data improved in June, both moving into expansionary territory (above a reading of 50). Manufacturing PMI reached 50.2 in June, up from 49.6 in May, while the non-manufacturing PMI rebounded to 54.7 in June from 47.8 in May. The latest PMI readings suggest that supply chain distortions may be declining in China

The country announced that its two largest cities have contained Covid-19 after a four-month lockdown that saw millions of residents confined to their homes including exhaustive testing and restrictions on daily life. Beijing also announced that it has reduced quarantine times for inbound travellers by half to 7 days.

Finland and Sweden are on a potentially clear path to NATO membership now that Turkey has agreed to relent on its objections. Turkey said it will support inviting the two Nordic countries into the military alliance, The accession of the two countries will radically expand the northern frontier between the alliance and Russia. On the financial front, Russia defaulted on its external sovereign bonds for the first time in a century, the culmination of ever-tougher sanctions that shut down payment routes to overseas creditors.

Global equities sold off again this week. In the U.S., the Dow Jones (-1.28%), S&P 500 (-2.21%) and Nasdaq (-4.13%) were all negative. Similarly, the Euro Stoxx 50 (-2.40%), FTSE 100 (-0.56%) and Nikkei 225 (-2.10%) were all weaker. The exception was the Shanghai Composite Index (+1.13%) ending the week stronger.

Market Moves of the Week:

South African consumer confidence tumbled to its lowest level in more than three decades according to the FNB/BER Consumer Confidence Index. The index recorded a -25.0 reading in the second quarter of 2022, compared to -13.0 in the prior quarter.

At the same time, data from BankServAfrica showed that SA’s average salary declined sharply in May. The country’s average take-home pay in May declined by -6.7% to R14,696 compared to the same period a year ago, marking one of the largest annual falls on record. Consumer spending which contributes approximately 63% to South Africa’s GDP, is likely to feel the strain in coming months, according to BankServAfrica.

Eskom has agreed to unions’ demands on the reinstatement of some conditions of employment in addition to the 7% salary increase. Unions have also demanded a one-off lump sum payment to employees and that the 7% offered should be on an across-the-board basis. Eskom wanted it to be implemented in a staggered manner where the low earners received the full 7% while those earning higher salaries would take less. Negotiations remain ongoing.

Despite South Africa reporting an increase to its trade surplus in May (R28.3bn compared to R15.5bn in April), the rand came under pressure this week as global economic growth concerns together with rolling blackouts weighed against the country’s growth prospects. By Friday close, the rand was trading at R16.37 to the U.S. Dollar, depreciating by -3.63% for the week.  

The JSE All-Share Index ended the week down -1.04%, dragged lower by the resource (-4.93%) and financial (-6.78%) sectors. Meanwhile, the industrial sector (+4.80%) posted a strong weekly gain on the back of moves higher from Naspers (+31.6%) and Prosus (+24.7%), driven by the announcement of an open-ended share repurchase programme of Prosus and Naspers shares. The repurchase program will be funded by a sell-down of Tencent shares, with the objective of narrowing the respective company’s discounts to their net asset values (NAV).

Chart of the Week:

Inflation concerns have pivoted to economic growth concerns in recent weeks. That’s not unreasonable, as the latest update shows U.S. gross domestic product (GDP) declined at an annualised rate of 1.6% in the first quarter. With the huge exceptions of the Covid-scarred first two quarters of 2020, this was the weakest U.S. growth since the spring of 2009. Source: Bloomberg

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.

Investors shifted their focus from inflation to the risk of recession this week, causing markets to rally. Weaker than expected global economic data and a broad selloff in commodity markets have caused the market to modestly lower central bank rate-hike expectations. A paper published this week by the Federal Reserve put the odds of a U.S. recession in the next 12 months at 50% and the probability of one over the next two years at 66%. 

U.S. Federal Reserve Chair Jerome Powell testified before Congress on Wednesday and Thursday that the Fed is not trying to incite a recession but that one is certainly possible as the central bank tightens policy to restrain rising inflation. He also stated that allowing inflation to become entrenched would be more painful for the economy than a recession. 

Bad news for the economy was interpreted as good news for stocks this week. Investors reacted favourably to softer flash purchasing managers’ indices (PMI) for both the U.S. and eurozone, which showed that the pace of economic growth in developed economies slowed markedly in June, a good sign for possible inflation moderation. The Eurozone manufacturing PMI decelerated to a 22-month low, falling from 54.8 in May to 51.9 in June, while U.S. PMI fell to a 23-month low of 52.4 (PMI readings greater than 50 signal expansion). The services readings in both regions dropped to levels last seen during the Omicron wave five months ago. 

U.S. home sales fell to their lowest level in May since June 2020, with the National Association of Realtors’ chief economist predicting further declines ahead in the face of higher mortgage rates. In other U.S. economic news, the University of Michigan’s final reading of June’s consumer sentiment was revised down to 50.0, its lowest level in records dating back over four decades.

On Friday, a deeply divided U.S. Supreme Court overturned the 1973 Roe v Wade decision and erased the constitutional right to abortion, issuing a historic ruling likely to render the procedure largely illegal in half the country. Just hours after the ruling, Republican-controlled states including Texas and Missouri moved to severely limit or ban the procedure while some two dozen other states are expected to do so. President Joe Biden warned that women’s rights and health are at risk under the GOP-appointed majority’s ruling and pledged he would protect access to early-pregnancy abortion drugs.

Germany warned that Russia’s moves to slash Europe’s natural gas supplies risks sparking a collapse in energy markets. The country is now moving toward rationing natural gas as Russia throttles back supplies delivered via pipelines. In other euro area news, European Union leaders on Thursday formally agreed to making Ukraine, along with Moldova, a candidate for membership in the bloc. Ukraine will likely have to undergo a lengthy reform process to be granted full membership.

Inflation continues to soar in the United Kingdom, with its consumer price index rising 9.1% year over year in May. The annualized figure hit the highest since March 1982 and is also the highest rate out of the Group of Seven (G7) countries.

As the rest of the world “moves past” Covid-19, China can’t seem to escape the virus. The country’s latest outbreak is now shifting to its south coast, away from key cities Beijing and Shanghai. However, the technology hub Shenzhen and gambling enclave Macau are now racing to stop outbreaks as cases rise. China’s covid zero policy continues to hamper growth in the region, with Beijing and Shanghai’s retail sales slumping 26% and 37% in May following harsh lockdowns. 

U.S. stocks rallied this week with nearly every sector in the index recording strong gains. Energy stocks were the exception however, as oil continued to retreat from its recent highs over most of the week. Major U.S. indices’ ended the week higher with the S&P 500 Index rising out of bear market territory (+6.45%). The Nasdaq rose +7.49% and Dow Jones jumped +5.39%. Shares in Europe (Euro Stoxx 50) bounced +2.35% while the FTSE 100 rose by +2.74%. Chinese stocks gained, with the Shanghai Composite up 0.99 %. The Nikkei 225 ended the week up +2.04%. Brent oil dipped -0.37% while Gold fell -0.75%. 

Market Moves of the Week:

South Africa’s (SA) inflation rate hit a 5-year high in May, coming in at +6.5% yoy, breaching the South African Reserve Bank’s 6% ceiling. The spike in inflation topped April’s +5.9% and significantly surprised expectations of +6.1% yoy. The jump can be largely attributed to a rise in food (+6.3% yoy) and fuel (+32.5% yoy) inflation, driven by global rising prices. Core inflation (which excludes food, non-alcoholic beverages, petrol and energy) only increased from +3.9% yoy in April to +4.1% yoy in May.   

Joe Phaahla, SA’s Health Minister, abolished the country’s remaining coronavirus-related restrictions on Wednesday. Phaahla suggested that due to a decline in reported Covid-19 cases and hospitalizations, the controls around the wearing of masks, curbs on gathering sizes and border checks for Covid-19 can be dropped.

Tensions are high at Eskom Holdings SOC Ltd. The state power utility has confirmed protests at a number of power plants following a breakdown in wage negotiations. Unprotected strikes have been reported at nine operations, increasing the probability of loadshedding being escalated in the coming days as backup power reserves are currently being used to meet demands. 

The sixth and final report of the Zondo Commission’s State Capture Inquiry was handed to President Cyril Ramaphosa on Thursday. The National Prosecuting Authority has stated that now that the last section of the report has been published, they will be moving on with their criminal investigations of those suggested in the report.

The JSE (+1.46%) rebounded this week along with global peers but was held back by Resources (-4.54%) as prices for various commodities eased. The rand strengthened over the week to end at R15.80/$.

Chart of the Week:

As fixed-income yields have gone up, mangers have started to look at fixed-income a little bit more. The global bond selloff has pushed yields to attractive places relative to stocks. The S&P 500’s earnings yield is around 5.3% at the moment, just 55 basis points above the average US investment-grade (corporate debt) yield of 4.7%. That’s close to the narrowest gap since 2010.

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 Federal Reserve delivered its most aggressive rate hike since 1994 this week, hiking rates by 75 basis points. This follows last week’s U.S. inflation print of 8.6% from a year ago, which topped estimates. Federal Reserve Chair, Jerome Powell had previously signalled at his post-meeting press conference in early May that the Fed would move forward with 50 basis point rate hikes in June and July, providing economic data came in as expected.

Recession fears have increased considerably in recent weeks, with JPMorgan Chase & Co. strategists indicating that the S&P 500 now implies an 85% chance of a U.S. recession amid fears of a policy error by the Federal Reserve. The warning is based on the average 26% decline for the S&P 500 Index during the past 11 recessions and follows its recent decline of more than 20% into bear market territory, amid concerns about surging inflation and aggressive interest rate hikes.

The pinch of higher interest rates is starting to reflect in U.S. housing data. Housing starts declined by 14.4% in May, the biggest decrease since the pandemic began. At the same time, weekly jobless claims came in higher than expected (229,000 versus 215,000).

The Bank of England (BoE) raised rates by 25 basis points this week, to 1.25%, with three of its nine member policymakers calling for a 50-basis-point increase. The BoE revised its inflation outlook higher, projecting that the year-over-year change in consumer prices would be slightly above 11% in October and downgraded its economic outlook for an economic contraction of 0.3% in the second quarter, as opposed to the 0.1% expansion projected in the BoE’s May policy report.

In an unexpected move, the Swiss National Bank raised interest rates for the first time in 15 years, by 50 basis points to -0.25%. Japan meanwhile maintained its ultra-easy monetary stance, continuing its policy divergence with its global peers.

Chinese economic data released during the week, showed some improvement. Industrial production, retail sales, fixed asset investments and property investments all came in ahead of market estimates.

The U.S.’s largest crypto exchange, Coinbase Global, announced that it will fire 18% of its workforce. In the past weeks, the crypto market has plunged into turmoil after the Terra stablecoin collapse and crypto lender Celsius Network freezing withdrawals amid what looks like the digital equivalent of a bank run. Bitcoin dropped below $21,000 this week, down -55.85% year-to-date.

Global equities were under pressure. In the U.S., the Dow Jones (-4.79%), S&P 500 (-5.79%) and Nasdaq (-4.78%) were all sharply negative. Similarly, the Euro Stoxx 50 (-4.47%), FTSE 100 (-4.12%) and Nikkei 225 (-6.69%) were all weaker. The exception was the Shanghai Composite Index (+0.97%) ending the week stronger. The price of brent crude oil decreased by -6.82% this week to USD 113.61 a barrel.

Market Moves of the Week:

South African news flow was limited, after the country celebrated Youth Day. Retail sales recorded an increase of 3.4% in April (year-on-year), ahead of the market’s expectations of a 1.6% increase.

The JSE All-Share Index ended the week down -3.56%, with all three of the major sectors selling off, including industrial (-2.57%), resource (-6.29%) and financial (-1.92%) shares all weaker. By Friday close, the rand was trading at R16.03 to the U.S. Dollar.

Chart of the Week:

The Federal Open Market Committee (FOMC) has profoundly changed its monetary policy outlook in the U.S. in recent months. The best illustration of this can be found in the Federal Reserve’s “dot plot” publications. On the left is the “dot plot” published by the FOMC at its December meeting. On the right is the latest revision released this week. Six months ago, only two FOMC members thought the fed funds rate would even top 1% this year. Now, there is unanimity that it will surpass 3%. Source: Bloomberg.

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.

World stocks ended the week lower as rate hike guidance from the European Central Bank and the release of hotter-than-expected U.S. consumer price index (CPI) data for May took its toll on financial markets.

U.S. inflation reaccelerated in May, with prices rising 8.6% from a year ago, topping consensus estimates of an 8.3% gain, the Bureau of Labor Statistics reported Friday. Surging food, gas and energy prices all contributed to the gain. The so-called core CPI, which strips out volatile food and energy prices, rose 6%, also above an estimate of 5.9%. Major U.S. indices’ ended the week sharply lower with the S&P 500 and Nasdaq Composite down 5.05% and 5.60%, respectively.

The European Central Bank’s (“ECB”) Governing Council said on Thursday that it intends to raise key interest rates by 25 basis points at its next meeting, in July, and also downgraded its economic growth forecasts. The ECB expects a further hike at the September meeting, but said the scale of that increment would depend on the evolving trajectory of the medium-term inflation outlook. Policymakers face the challenge of reining in inflation without compounding the economic slowdown resulting from the war in Ukraine and the associated sanctions. Annual consumer price inflation across the 19-member euro area hit a record high of 8.1% in May.

In local currency terms, the pan-European STOXX Europe 50 Index ended 4.88% lower, while the UK’s FTSE 100 Index slid 2.86%. British Prime Minister Boris Johnson saw off a challenge to his leadership, winning 59% of votes in a ballot held by the members of parliament of his Conservative party.

In the Ukraine, non-stop fighting rages on in Severodonetsk, the focal point of Russia’s advance in the East. Although still suffering tactical defeats, Russian forces continue to advance in their battle for control of the Donbas region.

Stocks in Japan registered moderate gains for the week, with the Nikkei 225 Index rising 0.23%. In China, cautious hopes of regulatory easing on tech firms amid hopes for looser monetary policy lifted stocks, despite news that the cities of Beijing and Shanghai were back on Covid-19 alert. The broad, capitalization-weighted Shanghai Composite Index gained 2.8% for the week.

Market Moves of the Week:

South African gross domestic product (GDP) expanded by 1,9% in the first quarter of 2022, representing a second consecutive quarter of upward growth. The size of the economy is now at pre-pandemic levels, with real GDP slightly higher than what it was before the COVID-19 pandemic.

Data released this week showed that South Africa’s total mining output fell by 14.9% year on year in April, while manufacturing output dropped 7.8%. A further data release from the central bank showed that SA’s current account surplus widened to 2.2% of gross domestic product (GDP) in the first quarter from 2.1% of GDP in the final quarter of 2021.

In company news, South Africa’s oldest private airline Comair will stop operations permanently after its bankruptcy protection lawyers on Thursday filed an application to liquidate the company which had failed to secure funding to stay airborne after being impacted severely by global pandemic-related travel restrictions. The airline operator accounted for 40% of airline capacity.

The JSE’s All Share Index was 4.39% weaker on the week, along with its global peers as investors digested European Central Bank’s (ECB) hawkish stance and the higher-than-expected US inflation print. The rand ended the week down over 2%, to trade at R15.87/$ at the close.

Chart of the Week:

May’s headline U.S. Consumer Price Index (CPI) reaccelerated to 8.6% year over year, back to a 40-year high. Prices surged, year on year, in essential spending areas: energy (+34.6%), gasoline (48.7%), and food (+10.1%).

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.

Friday marked 100 days since Russia’s invasion of Ukraine and still, no clear end is in sight. The sombre milestone comes at a time when Kremlin forces advance in the east and now control around 20 percent of Ukrainian territory, according to President Volodomyr Zelenskyy. Western allies have ramped up their aid via sanctions and military support, as Moscow’s forces slowly make progress against Ukrainian resistance. During the week, Europe embargoed Russian seaborne oil while U.S. President Joe Biden said that he’ll give Ukraine advanced rocket systems and other US weaponry to better hit Russian targets. 

In the U.S., Nonfarm payrolls, released Friday, rose more than expected in May (390 000 vs est. 328 000) while the unemployment rate held steady at 3.6%. Average hourly earnings increased 0.3%, less than expected but still up 5.2% from a year ago. The market expects these robust numbers to keep the Fed on track for raising rates by 50bps at each of its next two meetings. 

Recent mixed comments from Fed officials as well as difficult to decipher inflation signals have made it difficult to say whether or not inflation has peaked following a slight decline in the Consumer Price Index (CPI) in April. Speculation grew over the week that the Fed might pause rate hikes in September, however, the market’s aware that the Fed remains extremely data dependent and will therefore be focused on May’s CPI print which is set to be released next Friday.

Eurozone inflation soared to a fresh record high in May, accelerating more than expected to 8.1% y/y, up from April’s high of 7.4%. Price pressures spread more broadly across the economy, with the core inflation rising by 3.8%. Producer price data, released Thursday, also showed a spike in prices as the index jumped 37.2% in April from a year ago. These sharp price increases are placing pressure on the European Central Bank to make a move and tighten monetary policy to bring inflation under control.

In other European news, Gazprom, Russia’s state-owned energy company, cut off gas supply to the Netherlands following the country’s refusal to pay the Soviet Union in rubles rather than dollars. Earlier this month, Russia halted supplies to Poland, Finland and Bulgaria.

On a more positive note, signs that global supply chains are untangling have begun to emerge with the global manufacturing sector showing strength in May, shrinking in only five of the approximately 50 countries in which purchasing managers’ index surveys are compiled.

China doubled down on its Covid Zero strategy this week, just as Shanghai and Beijing emerge from harsh lockdowns. A network of tens of thousands of lab testing booths is being built in the region’s most economically crucial cities. Negative results will be needed to get into public facilities (subways etc.) and even stores. In an attempt to avoid a Covid-fuelled economic contraction this quarter, Chinese officials have vowed to implement a bundle of government policies to stimulate growth, while the People’s Bank of China has promised to accelerate its plans to employ expansionary monetary policies. 

U.S. stocks surrendered a portion of the previous week’s strong gains as investors continued to question the Fed’s path and ability safely rein in inflation. Major U.S. indices’ ended the week down with the S&P 500 Index taking the biggest hit (-1.20%), followed by the Nasdaq (-0.98%) and Dow Jones (-0.94%). Shares in Europe (Euro Stoxx 50) dipped by -0.66%, while the FTSE 100 fell by -0.69%. Chinese stocks rallied after support measures to help strengthen the economy were announced, with the Shanghai Composite up 2.08%. Japanese stocks rebounded strongly, ending the week up 3.66% (Nikkei 225). Brent crude jumped 4.99%, while Gold (+0.12%) held steady.

Market Moves of the Week:

South Africa’s trade surplus shrank in April to R15.49 billion, down from R47 billion in March. The decline was unsurprising, given the logistical and production disruptions caused by the devastating floods in KwaZulu-Natal, volatile commodity prices, an unstable ZAR, and increased loadshedding in April. 

The Quarterly Labour Force Survey (Q1 of 2022) was released on Tuesday, revealing that the official unemployment rate remained at elevated levels but dropped slightly to 34.5% in Q1 of 2022, from 35.3% in 4Q21. The government’s temporary employment program helped boost employment over the period, however, unemployment remains higher than it was a year ago.

On a positive note, Local Purchasing Managers’ Index (PMI) data for May showed a significant recovery in domestic activity after KwaZulu-Natal’s devastating floods and intense load-shedding hurt output and demand in April. Absa PMI rose to 54.8 in May from 50.7 in Aril, pointing to the 10th straight month of expansion in manufacturing activity. “Despite the solid rebound in demand, business activity was stuck just below the neutral 50-point mark in May,” Absa said. 

South Africans will be pleased to hear that the temporary reduction in the general fuel levy, which was set to expire at midnight on Tuesday, has been extended by two months. The ministers of Finance and Mineral Resources said that “the relief will take the form of a continuation of the relief of R1.50 per litre for the first month, from June 1 to July 6, and then 75c per litre from July 7 to August 2.” The aid is set to cost roughly R4.5 billion, which will be funded by the liquidation of a portion of the strategic crude oil reserves. 

The JSE (+0.62%) had a choppy week but managed to end in the green, unlike most major markets. Industrials (+1.88%) caught a bid due to a bounce in Chinese stocks which helped the likes of Naspers and Prosus, while financials (+1.31%) remained a favourite as positive updates boosted sentiment towards the sector. The rand strengthened over the week to end at R15.54/$.

Chart of the Week:

The chart above plots the best return from a range of 11 different global indexes of stocks and bonds every quarter. The chances that at least one of the 11 will have gained in any quarter are overwhelmingly high. The first quarter of this year, however, was the first time in more than three decades that none of them gained. Source: Ruffer LLP.

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.

All three major U.S. indices closed the week higher, with each rising higher than 6% to close their best week since November 2020. The S&P 500 and Nasdaq Composite both ended seven consecutive weeks of losses, with both retail earnings and tech counters continuing to drive market action.

Minutes from the early-May meeting of the Federal Open Market Committee (FOMC) were released on Wednesday, with all members voicing support for 50-basis-point rate increases in June and July. The FOMC minutes did not offer any surprises but did allay some investor fears that the Fed may have felt it necessary to increase interest rates at an even greater pace.

The core personal consumption expenditures price index (the Federal Reserve’s preferred inflation measure), which excludes food and energy, edged down to 4.9% year over year in April from 5.2% in March, it was reported on Friday.

The benchmark 10-year U.S. Treasury yield ended the week below 2.75%, falling from a high earlier in the year of above 3%, as the market appeared to focus on signs of slowing growth in the U.S. economy that could lead to a slower pace of rate hikes. US mortgage rates posted their biggest drop in more than two years, offering homebuyers a slight reprieve from this year’s massive surge in borrowing costs. The average for a 30-year loan declined to 5.10% from 5.25% last week, but rates are still well above the 3.11% level at the end of last year.

Shares in Europe and the United Kingdom (UK) rose over the week as confidence grew that inflation may be peaking and as central banks signalled that interest rate increases are likely to be gradual. The pan-European STOXX Europe 50 Index ended the week 4.15% higher, while the UK’s FTSE 100 Index rose 2.65%.

The UK announced a 25 percent windfall tax on oil and gas producers’ profits (an Energy Profit Levy), alongside a 15-billion-pound ($18.9bn) package of support for households struggling to pay soaring energy bills. The move, which will give each United Kingdom household a 400-pound ($500) discount on energy bills and provide more for the lowest-income households.

Ukrainian President Volodymyr Zelensky said the situation in Donbas is “indescribably difficult” as Russia ramps up its firepower. Russian troops are making steady progress in Ukraine’s east on the back of more-concentrated artillery and air power, now controlling almost all of the Luhansk region. China’s capital Beijing will loosen mobility curbs in several districts from Sunday. The number of new infections has fallen for six straight days in Beijing with no cases outside of quarantine reported on Friday. Other cities like Shanghai, which has been under lockdown since late March, is gradually easing restrictions as officials have started allowing more people out of their homes and businesses to reopen. Under China’s Covid Zero strategy, authorities have taken drastic measures to quarantine all those infected and isolate people exposed to them. Chinese equity markets ended the week weaker with the broad, capitalization-weighted Shanghai Composite Index down 0.5%.

Market Moves of the Week:

Transitioning South Africa’s coal-dominated economy onto a greener footing will require at least $250 billion over the next three decades, a report released at the World Economic Forum said on Thursday. Around half of the total investment, $125 billion, is needed to ramp up wind and solar power projects as the country mothballs coal-fired plants that currently supply the bulk of its energy needs, said the consultation document. South Africa is the world’s 12th biggest emitter of climate-warming gases and the biggest in Africa.

The JSE firmed along with global markets, ending the week up 4.31%, with all three of the major sectors including financials (+3.24%), resources (+6.09%) and industrial shares (+4.34%) well supported. By Friday close, the rand was almost one and a half percent stronger for the week at R15.61/$, from around R15.82 at the start of the week. The ZAR has capitalised on broader USD weakness amid signs that the Federal Reserve may slow its monetary policy tightening in the second half of the year.

Chart of the Week:

The breakeven inflation rate (comparing the yield of an inflation-based bond (like TIPS) with a nominal bond of the same maturity period) is a measurement that aims to predict the effects of inflation on certain investments. As per the chart above, there has been a sharp drop in forecasts over the last few weeks, both for the next 10 years and for the five years starting five years hence.

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.

Global equity markets continued to face downward pressure this week with Wednesday marking the biggest one-day decline for the S&P 500 since June 2020. Recession fears and earnings releases from U.S. retail giants including Walmart and Target which both reported lower-than-expected operating margins because of higher inflation, drove markets lower. At its low point on Friday, the S&P 500 Index was down roughly 20.9% from its January intraday high, exceeding the 20% threshold for a bear market and placing it back at levels last seen in February 2021.

Comments from Federal Reserve officials also did little to calm inflation and interest rate fears. On Wednesday, Fed Chair Jerome Powell said the Fed won’t hesitate to raise rates above neutral if need be and warned that tightening could bring discomfort. He called price stability the bedrock of the economy and told the WSJ the Fed will push until inflation falls “in a clear and convincing way.” He repeated guidance projecting 50-bp hikes in June and July and added, “there could be some pain involved.” Chicago Fed chief Charles Evans added to the hawkish tone, saying front-loading hikes is needed for tightening of financial conditions “as well as for demonstrating our commitment to restrain inflation.”

Economic data releases throughout the week provided mixed signals regarding a slowdown in the U.S. economy. Despite the highest inflation in decades, retail sales indicate U.S. consumers are still spending as unemployment remains at record low levels. Monthly retail sales rose 0.9%, higher than market expectations of an increase of 0.8%. Industrial production, and capacity utilisation figures also surprised to the upside.

At the same time, higher interest rate expectations are filtering through to the housing market, with U.S. housing starts and existing home sales data coming in below expectations, whilst mortgage applications fell 11.0% on a weekly basis. The NY Empire State manufacturing index recorded a drop to -11.60 in May, more than market expectations for a decrease to a level of 15.50. Initial jobless claims also rose more than expected.

China lowered its 5-year loan prime rate by 15 bps to 4.45%, a record cut and bigger than expected after home prices fell in April for an eight straight month. The rate is a reference for home mortgages and other long-term loans. Meanwhile, other economic data releases also indicate that the Chinese economy is slowing. Retail sales and industrial output data for April lagged estimates amid continued pandemic lockdowns reflecting China’s zero-COVID approach. Goldman Sachs cut its forecast for China’s GDP growth this year to 4% from 4.5%, citing worse-than-expected economic data in April.

The European Commission (EC) cut its forecast for 2022 Eurozone GDP growth to 2.7% from 4.0% and raised its estimate for inflation to 6.1% from 3.5% to reflect higher energy prices. First quarter GDP growth was however revised higher to 0.3% from the previous estimate of 0.2%. It also announced a EUR 300 billion plan called REPowerEU that aims to end the European Union’s dependence on Russian energy imports before 2030. It is based on four pillars: saving energy, substituting Russian energy with other fossil fuels, boosting green energy, and financing new pipelines and liquefied natural gas terminals. Unused loans from the pandemic recovery program will provide most of the cash for the plan.

UK inflation accelerated in April to the highest level since 1982, hitting 9.0% on higher electricity and gas prices. Consumer confidence has also plummeted to its lowest level in 50 years, whilst retail sales unexpectedly advanced by 1.4% in April and unemployment declined to 3.7%, its strongest reading since 1974.

Late selling in the U.S. on Friday saw the Dow Jones (-2.90%), S&P 500 (-3.05%) and Nasdaq (-3.82%) all ending the week sharply down. European markets also ended the week in negative territory with the Euro Stoxx 50 (-1.24%) and FTSE 100 (-0.38%) softer, whilst Asian markets including the Nikkei 225 (+1.18%) and Shanghai Composite (+2.02%) were positive.  

Market Moves of the Week:

The South African Reserve Bank raised its repo rate by 0.50% to 4.75%, in line with the market’s expectations. This follows April’s inflation print of 5.9% (annualised) earlier in the week, which is unchanged from the prior month, also in line with market expectations.

Public Enterprises Minister Pravin Gordhan announced a shake-up of state-owned companies (SOEs) on Friday, that will set them on a stronger commercial footing by creating a “centralised shareholder model” under a state-owned holding company. The holding company will embrace government’s commercial entities that engage in business activities, such as Eskom and Transnet. Gordhan said much progress had already been made and that a Shareholder Bill would be introduced after approval by Cabinet.

The ANC has also drafted a proposal ahead of its ANC policy conference this year, for an overhaul of SA’s social housing policy. The draft proposal is aimed at shifting the focus from the provision of free mass housing to encouraging citizens to build their own homes via special interest rate and tax incentives.

The JSE All-Share Index ended the week down -1.57%, dragged lower by the industrial sector (-5.32%), after heavy-weight Compagnie Richemont reported results that disappointed the market, sending its share price down -12.87% on Friday. Meanwhile, resource (+2.49%) and financial (+0.07%) shares were stronger. By Friday close, the rand was trading at R15.83 to the U.S. Dollar, strengthening over the week after the SARB hiked rates by 50 basis points.

Chart of the Week:

2022 has got off to a tough start for investors. In times like these, it is an important reminder of the benefits of staying invested and not attempting to time your exit and re-entry into the market. Staying out for only a few days can be disastrous to long-term wealth creation. This chart shows what would have happened by late 2019 to $1,000 invested in U.S. stocks in 1970. Missing out on only a few of the best-performing days would have a drastic effect on compounded returns, with daily price moves being unpredictable. Source: Dimensional Fund Advisors.

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.

U.S. stocks recorded another week of losses as investors are becoming increasingly doubtful that the Federal Reserve will be able to achieve a “soft landing” for the economy by raising rates enough to reel in inflation without causing a recession. Federal Reserve Chair Jerome Powell warned, in a recent interview on US monetary policy, that tightening will include ‘some pain’. The central bank aims to achieve a soft landing, but is aware that it will be quite challenging, Powell pronounced. This comes after Jerome Powell was successfully voted in for a second four-year term as Fed Chair this week.

The U.S. inflation rate slowed in April after seven months of relentless gains but it is still too early to say whether inflation has peaked. Consumer prices rose 8.3% y.o.y in April, slightly higher than economists’ expectations of 8.1%, but below the 8.5% y.o.y surge in March. Shelter, food, airline fares and new vehicles were the largest contributors to the jump last month, leaving many Americans struggling to afford necessitates.  

In Europe, Central Bank officials are signalling for an early rate move, and the market now expects the policy rate to rise from -0.5% to above 0% before year-end. European Central Bank (ECB) President Christine Lagarde indicated this week that the ECB may raise rates as early as July.

Signs that the ongoing cost-of-living crisis is impacting growth emerged from the U.K this week. The gross domestic product of the U.K unexpectedly contracted 0.1% in March, mainly due to a drop in service sector activity. Consequently, the economy expanded 0.8% in the first quarter, lower than the 1% expected by economists.

Investment sentiment in China shifted positively as coronavirus cases fell and the securities regulator reassured investors. Although, inflation in the region surprised to the upside with the April rate coming in at 2.1% y.o.y, rising from March’s 1.5% pace. In other economic news, China’s property loan growth declined to the slowest pace in over two decades due to the continued slump in the real-estate market brought on by developer defaults, virus lockdowns and weak consumer confidence.

Crypto-currency markets were rocked this week following the crash of a popular token which wiped out 99% of its value, taking down a “stablecoin” with it. Terra Luna fell from $118 to $0.09 on Thursday, which had a knock-on effect on a linked token, TerraUSD, which is typically stable. As a result, a massive sell-off ensued across the crypto market, wiping out $270 billion of wealth. Major central banks have previously issued warnings on the risk of stablecoins and their links to the traditional financial system.

Major U.S. indices’ ended the week in the red with the S&P 500 Index (-2.41%), Nasdaq (-2.80%) and Dow Jones (-2.14%) all down. Shares in Europe (Euro Stoxx 50) rebounded 2.03% as investors shrugged off inflation and tightening monetary policy concerns, while the FTSE 100 rose 0.41%. Asian indexes were mixed, with the Nikkei 225 down -2.13% and Shanghai Composite up 2.76%. Brent crude dipped -1.77%, while Gold dropped by -3.85%.

Market Moves of the Week:

South Africans were hit with gloomy news this week as Eskom’s woes continued and the mining sector, which was one of the few bright spots for the economy last year, showed signs of weakening. 

Eskom had to ration electricity again this week after various generation units were closed for repairs or didn’t return to service as expected. South Africa is currently headed for a record year of power cuts if the rate of coal-fuelled plant breakdowns fails to improve. 

The government’s General Fuel Levy intervention is expected to come to an end late this month. As a result, economists are warning South African motorists to brace for a massive increase in fuel prices in June. The expected increase could be as much as R3. 

In economic news, a recent Reuters poll revealed that economists (16 out of 24) are expecting the South African Reserve Bank to make its first 50 basis point repo rate hike in more than six years next week, moving it to 4.75%.

Mining and manufacturing data for March was released this week, which showed that South African mining production slid 9.3% y.o.y, following a 5.8% decline in February. The explanations for the drop include the Sibanye Stillwater miners’ strike which started on the 9th of March as well as Transnet’s ongoing woes. The decline doesn’t bode well for the country as the wider economy needs the mining industry to retain its traction. 

The JSE All-Share Index (+0.99%) outperformed the majority of its global peers this week. Resources dropped (-2.85%) while the remaining indices ended in the green. The rand remained volatile and depreciated over the week to end at R16.16 to the U.S. Dollar.

Chart of the Week:

Bloomberg’s estimates of returns that can be attributed to different investment factors within the universe of all U.S. stocks show that value has dramatically led the field. The wait for the value factor (buying stocks because they’re cheap) to start outperforming the growth factor (buying stocks because their earnings are growing) is finally over. Source: Bloomberg.

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.