After two years of holding borrowing costs near zero, the Federal Reserve took the first step towards normalising its policy, hiking interest rates by 0.25% this week. Despite geopolitical uncertainties, the Fed signalled that it intends to press on with a series of rate hikes to fight inflation, which last month hit a 40-year high.

The hike is likely the first in a series to come, signalling that rate hikes are possible at all its six remaining meetings this year. Fed officials expect to raise rates as high as 2.8% by the end of this tightening campaign, depending on the trajectory of economic growth and inflation which remains data dependent.

Besides the Fed’s announcement, U.S. economic data seemed to have a limited impact this week, with markets more focused on falling oil prices, Russia temporarily avoiding a debt default, reports of negotiations of a possible Russia-Ukraine ceasefire and China vowing that it is not interested in getting involved in Russia’s war.

It was a volatile week for Chinese shares as investors weighed-up attractive valuations against a persistent regulatory overhang and concerns over Beijing’s ties with Russia. After a sharp sell-off early in the week, Chinese technology shares stagged a sharp rebound after Chinese officials made a strong push to stabilise battered financial markets, promising to ease its regulatory crackdown, support property and technology companies and stimulate the economy.

On Friday, Chinese leader Xi Jinping assured U.S. President Joe Biden that he didn’t want war in Ukraine, but that he doesn’t approve of sanctions, either. During the highly anticipated call, Biden warned Xi of “implications and consequences” should China move to provide support for Putin’s war.

China reported better-than-expected activity in the January-February period with help from policy easing. Industrial output grew 7.5% (4.0% expected) in the two months through February, compared with 4.3% in December. Retail sales rose 6.7% (3.0% expected), accelerating from 1.7% in December. Investment climbed 12.2% during the two-month period, better than the 5% estimate. Morgan Stanley however cut China’s GDP growth forecast for Q1 2022 to zero due to Covid and predicts Beijing will miss its annual target this year. The Wall Street bank lowered its 2022 forecast to a 5.1% gain for gross domestic product, below the Chinese leadership’s target of about 5.5%.

The Bank of England (BoE) hiked interest rates by 0.25% to 0.75%, in line with the market’s expectations. The central bank now expects inflation to reach 8% by the end of June, in part due to Russia’s invasion of Ukraine but acknowledged “there were risks on both sides of that judgment depending on how medium-term prospects evolved.” Markets interpreted the language to be more dovish in tone. U.K. unemployment improved to 3.9% in January, ahead of expectations and the previous reading of 4.1%.

Europe’s economic sentiment index plunged to -38.70 in March, from 48.60 in February, with concerns of a recession becoming more likely as the war in Ukraine and the sanctions against Russia are significantly dampening the economic outlook for the region.

Russia appears to have sidestepped a historic debt default, after the Kremlin said it ordered the $117 million in interest payments it owes on two dollar-denominated Eurobonds to be sent to investors. Russia had until the end of business on Wednesday to pay interest on two sovereign Eurobonds, failing which could have paved the way for Russia’s first foreign currency debt default in more than a century. Moscow’s willingness and ability to repay its international debt are however likely to be tested in the coming weeks.

Global equity markets rebounded sharply this week. In the U.S., the Dow Jones (+5.50%), S&P 500 (+6.21%) and Nasdaq (+8.18%) ended the week stronger. European and Asian shares also made strong gains, with the Euro Stoxx 50 (+5.85%), FTSE 100 (+3.48%) and Nikkei 225 (+6.62%) all positive, whilst the Shanghai Composite Index (-1.77%) was the market’s outlier.

Market Moves of the Week:

South Africa’s consumer confidence index fell to a level of -13.00 in the first quarter of 2022. This compares to a reading of -9.00 in the previous quarter. The latest reading remains well below the long-run average reading of +2 since 1994, signalling an increased caution of South Africans to spend.  Russia’s military invasion of Ukraine and the economic ramifications have shaken consumer confidence levels around the globe.

Eskom sees about a third of its coal-fired capacity being unavailable at any one time under a most likely scenario. This will require it to spend R20.9 billion on fuelling its open-cycle gas turbines in the 13 months through April next year. Eskom has forecast that its debt will rise to R416 billion by the end of this month.

JSE listed financial and industrial companies posted strong returns for the week. The JSE All-Share Index ended the week up +1.58%, with the financial (+5.08%) and industrial (+4.09%) sectors strongly positive, against a weaker resource sector (-2.53%) performance. By Friday close, the rand was trading at R14.97 to the U.S. Dollar.

Chart of the Week:

The Federal Reserve raised the fed funds rate for the first time in four years, but the 25-basis-points hike wasn’t the surprise. Rather, the hawkish element came in the accompanying “dot plot”. The Federal Reserve’s so-called dot plot, which the U.S. central bank uses to signal its outlook for the path of interest rates, showed that officials expect to raise the fed funds rate six more times this year, based on median projections. Source: Bloomberg.

Whilst volatility is likely to continue amid current market uncertainty over the coronavirus disease, our message to all investors remains the same – stay calm in making decisions that are aligned with your long-term goals, not current market conditions. Maintain realistic expectations, stay properly diversified across a variety of asset classes and make sure your financial plan supports your long-term goals, time horizon and tolerance for risk.

The Russian invasion of Ukraine continued this week, causing Western countries and their companies to implement harsher sanctions and embargoes on the Eastern European country. The United States, European Union and United Kingdom made plans this week to swiftly phase out imports of Russian energy products, which sent the oil price to $132 a barrel – a 14 year high – before settling above $110 (+44.54% YTD). The United States was the first to move on their plans, banning the import of Russian crude and other energy products while European nations, which are much more reliant on Russian energy imports, implemented less stringent measures. These moves, coupled with Western countries’ plans to cancel normal trading relations with Russia should put additional pressure on an already damaged Russian economy. On Friday, Russian President Vladimir Putin said there had been some progress in Moscow’s talks with Ukraine, but provided no details.

U.S. inflation came back into the spotlight this week, with February’s U.S. Consumer Price Index coming in at a fresh 40-year high of 7.9% year over year. Although this most recent print came in line with market expectations, Americans remain pessimistic about their financial future, with the University of Michigan’s preliminary gauge of consumer sentiment dropping more than expected in March to 59.7, a new decade low. However, the U.S. Federal Reserve is still on track to raise rates next week for the first time since December 2018, as it attempts to rein in inflation and improve economic stability. Sticking to inflation, the European Central Bank (ECB) has expressed concerns over the Ukraine situation and its potential impact on Euro-area inflation expectations. Christine Lagarde has stressed that the ECB would be “data dependent” when addressing the timing of the first rate increase, however, given the Russian-Ukraine conflict and its ability to drive up Euro-area inflation expectations, she announced that the ECB could end its asset purchase program in the third quarter, rather than at the end of the year.

China has been battling its biggest Covid-19 wave since the early days of the pandemic, for the first time in two years, China’s daily Covid cases are over 10,000. The spike in cases has forced China to lockdown Changchun, a northeastern city of nine million people. In other news, the U.S. Securities and Exchange Commission (SEC), on Thursday, identified five Chinese companies for potential delisting from U.S. exchanges for failing to meet audit requirements. The market reacted to the news, sending U.S.-listed Chinese stocks lower, however, on Friday, talks between Chinese and U.S. regulators over cooperation on audit and regulation were reportedly sounding more positive.

Major indices’ movements were mixed after another volatile week fuelled by the war in Eastern Europe. U.S. indices dropped this week as risk-off sentiment increased, consumer staples stocks underperformed as Coca-Cola, McDonalds, and other food and consumer products makers announced that they were suspending business in Russia. The S&P 500 index fell -2.92%, while the Dow (-1.99%) and Nasdaq (-3.53%) also ended the week in the red. Stocks in Europe rebounded after last week’s selloff, with the Euro Stoxx 50 up 3.68% and the FTSE 100 up 2.41%. Asian indexes fell, with the Nikkei 225 down -3.17% and Shanghai Composite down -4.00%. Brent crude managed a weekly decline, ending at $112.42 per barrel, while Gold (+0.91%) held up.   

Market Moves of the Week:

South African Gross Domestic Product (GDP) rebounded in Q4 of 2021 to +1.2% qoq, in line with consensus, up from -1.7% qoq in Q3 2021. Full-year (2021) GDP grew 4.9%, its fastest pace in 14 years, rebounding from a coronavirus-induced contraction the year before. This was the biggest increase since 2007, the annual expansion beat Bloomberg estimates, as well as the National Treasury’s forecast in its annual budget last month.

Cilo Cybin, South Africa’s first and only company with a license to grow, process, and pack cannabis, has just introduced its first oil-based cannabinoid product range, two months ahead of its listing on the JSE. Its products are said to be the country’s first CBD products to use a Self-Emulsifying Drug Delivery System (SEDDS), which increases efficacy by up to 10 times. 

On Tuesday, Eskom executives warned South Africans that Russia’s invasion of Ukraine will have a knock-on effect on Eskom and hit electricity supply in South Africa. The increase in oil and gas prices still needs to be accounted for by Eskom, but Chief financial officer Calib Cassim stated that the power utility cannot absorb these additional costs by itself. This comes at a time when Eskom is burning 9 million litres of diesel a day just to keep the lights on. The JSE ended the week lower (-1.40%) driven by a selloff in property and resources. Miners and energy underperformed, as the relentless rally in commodity prices showed signs of cooling. However, the Rand strengthened this week to end at USD/ZAR 15.05.

Chart of the Week:

The London Metal Exchange suspended trading in its nickel market after an unprecedented price spike, caused initially by investor concerns about supplies from Russia, left brokers struggling to pay margin calls against unprofitable short positions, in a massive squeeze that has embroiled the largest nickel producer as well as a major Chinese bank. 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.

Our thoughts and prayers are with the victims of this aggression. As always, we appreciate your support and value your trust in StrategiQ Capital.

Whilst volatility is likely to continue amid current market uncertainty over the coronavirus disease, our message to all investors remains the same – stay calm in making decisions that are aligned with your long-term goals, not current market conditions. Maintain realistic expectations, stay properly diversified across a variety of asset classes and make sure your financial plan supports your long-term goals, time horizon and tolerance for risk.

On Wednesday, the United Nations General Assembly overwhelmingly voted to reprimand Russia for invading Ukraine and demanded that Moscow stop fighting and withdraw its military forces. The resolution was supported by 141 of the assembly’s 193 members, passed in a rare emergency session called by the U.N. Security Council while Ukrainian forces battled to defend the Russian invasion.

Russia was joined by Belarus, Eritrea, North Korea and Syria in voting against the resolution. Thirty-five members, including China, abstained. U.S. Ambassador to the United Nations Linda Thomas-Greenfield told the assembly to “Vote yes if you believe UN member states – including your own – have a right to sovereignty and territorial integrity. Vote yes if you believe Russia should be held to account for its actions”. Russia’s U.N. envoy, Vassily Nebenzia, denied Moscow was targeting civilians and repeated Russia’s assertion its action was a special military operation aimed at ending purported attacks on civilians in the self-declared Moscow-backed republics of Donetsk (DLR) and Luhansk (LPR) in eastern Ukraine.

The Russian invasion is focussed on “demilitarising” and overthrowing Ukraine’s government, whilst forcing the recognition of Crimea as part of the Russian Federation, as well as DPR/LPR within their administrative borders. The military action is aimed at destroying Ukraine’s infrastructure and causing widespread desperation compelling the Ukrainian government to concede to Putin’s terms (ultimately leaving the Ukraine in a powerless state).

On Friday Russia’s reckless assault to capture Europe’s largest nuclear plant (Zaporizhzhia in south-eastern Ukraine) triggered global condemnation. The attack set fire to a building in the complex, heightening fears around Russian tactics. Fortunately, the fire did not spread, and no nuclear reactors were damaged according to the International Atomic Energy Agency. The plant continues to be run by Ukrainian staff but under Russian control.

It is estimated that more than 1,5 million refugees have fled Ukraine, with Ukraine’s urban centres facing heavy bombing and Ukrainian president Zelensky’s office warning of a humanitarian catastrophe. A planned mass evacuation of civilians from Mariupol and Volnovakha turned into chaos on Saturday, as Russian forces continued to shell the city of Mariupol despite a brokered temporary ceasefire a few hours earlier.

President Zelensky has appealed to NATO to set up a no-fly zone over Ukraine, but NATO refused, warning that to do so could provoke widespread war in Europe with nuclear-armed Russia.

The Russian stock market was closed during week as the Rouble plunged on international currency markets despite the Russian Central Bank’s move to raise the policy rate from 9.5% to 20%.

The west has severed trading relationships with Vladimir Putin’s Russia on a scale thought unimaginable with seven Russian banks, including VTB, the second-largest, excluded from Belgian-based Swift, the bank messaging system that underpins global trade. Sanctions include the freezing of Russia’s central bank access to its foreign currency reserves ($630bn) held in dollars, euros and sterling. Index providers MSCI and FTSE Russell announced that it would remove Russian securities from its indices while at least 30 countries have banned Russian planes from their airspace. The UK government moved swiftly to blacklist a handful of Russian business people with links to Putin, while U.S. President Joe Biden followed announcing new penalties targeting Russian oligarchs with close ties to Putin.

A growing number of global companies have responded to the Russian invasion through sanctions, disinvestments and a suspension of operations with the likes of Visa, Mastercard, Apple, Microsoft and Samsung pausing sales in Russia (to name a few), Nike preventing Russian customers from buying online, carmaker Ford suspending its joint venture in Russia, Adidas (Europe’s largest sportswear manufacturer) suspending its partnership with the Russian Football Union, while The Walt Disney Company, said it was pausing its release of films in Russia.

Russia’s largest foreign investor, BP, led the way with its announcement that it would exit its 20% stake in state controlled Rosneft, a move that could cut its global oil and gas production by a third, while Shell will end its joint ventures with Russian state energy firm Gazprom.

The sports world has also reacted to the invasion with Formula 1 cancelling September’s Russian Grand Prix, the relocation of the UEFA Champions League final which was planned to be held in St. Petersburg to Paris and numerous global sports teams standing in unison against Russia’s war on Ukraine.

Switching to U.S. interest rates Federal Reserve Chair Jerome Powell told Congress this week that the central bank is on track to raise interest rates this month, saying that he was inclined to stick with a quarter-point increase in the federal funds rate in March. But Russia’s invasion of Ukraine means the Fed will “move carefully,” he said.

On Friday the US Bureau of Labor Statistics reported that the US economy added 678,000 jobs last month, far ahead of expectations, as activity continued to rebound. The unemployment rate also edged down to 3.8%, indicating a robust labour market recovery.

Markets remained volatile for the week, with the U.S. benchmark S&P 500 off 1.3%, while the Nasdaq lost 2.8%. Shares in Europe also fell sharply, as investors weighed the possible implications of Russia’s invasion of Ukraine. In local currency terms, the pan-European STOXX Europe 50 Index gave back over 10% of its value, while the UK’s FTSE 100 Index also pulled back 6.7% for the week.

Japan’s stock markets also registered losses for the week, with the Nikkei 225 Index falling 1.85% with Prime Minister Fumio Kishida’s government imposing more sanctions on Russia in coordination with Western nations. In China, the Shanghai Composite Index dipped 0.1% as the War and weaker domestic economic data weighed on investor sentiment.

Market Moves of the Week:

The latest Zondo Commission report was released during the week, which found evidence against Minister of Mineral Resources and Energy Gwede Mantashe, raising serious ethical and legal questions for the ANC and its leaders. The report recommends that the Minister should be investigated further, adding that there was a reasonable prospect this would uncover a corruption case against him.

The JSE All-Share Index retreated the most in six weeks on Friday as stocks fell broadly, with Naspers and Prosus leading the losses on the local bourse. The JSE All-Share managed to end the week positively, gaining 0.71% led higher by the strong performance of the resource sector (+9.71%). By Friday close, the rand was trading weaker on the week at R15.33/$.

Chart of the Week:

Oil prices eased from their highs on Thursday amid reports that Western nations are close to a deal with Iran over its nuclear program but by Friday prices headed for their biggest weekly surge as sanctions continued to disrupt Russian oil supply, the world’s second-biggest exporter. Benchmark Brent Crude rose as high as $119.84 a barrel, its highest since 2012. Russia ships more than 7 million barrels per day (bpd), with about half going to Europe, accounting for 12% of the world’s total crude exports in 2020.

Whilst volatility is likely to continue amid current market uncertainty over the coronavirus disease, our message to all investors remains the same – stay calm in making decisions that are aligned with your long-term goals, not current market conditions. Maintain realistic expectations, stay properly diversified across a variety of asset classes and make sure your financial plan supports your long-term goals, time horizon and tolerance for risk.

Capping months of repeated denials, Russia launched a full-scale attack on Ukraine on Thursday, as predicted by U.S. intelligence.  Unsurprisingly, market volatility spiked with Western countries responding with sanctions. The combination of heightened geopolitical risk and ongoing inflation pressures saw European and Asian equity markets push lower this week, whilst commodities and traditional safe- haven assets such as bonds and the U.S. dollar strengthened.

The multi-pronged Russian invasion has been marked by indiscriminate attacks on civilian areas and strikes on protected facilities such as hospitals. Ukrainian authorities said about 140 people have been killed, whilst Russian officials contend, they have only targeted military installations in their bid to bring down the nation’s democratic government. United Nations agencies forecast as many as 4 million refugees will flee Ukraine to neighbouring countries if the Russian invasion continues.

U.S. and other Western countries have imposed sanctions, targeting Russia’s major banks and restricting exports of technology. The U.S., along with France, Germany, Italy, the United Kingdom and Canada, announced Saturday evening that they would expel certain Russian banks from SWIFT, the high-security network that connects thousands of financial institutions around the world.

Germany has also placed a freeze on issuing the Nord Stream 2 pipeline with an operating licence. The Nord Stream 2 is a 1,200km pipeline under the Baltic Sea, which will deliver gas from Russia to Germany. Understandably, oil prices momentarily surged above $105 a barrel for the first time since 2014 and natural gas prices in Europe jumped as much as 41%.

The week’s earnings reports and economic data generally seemed to take a back seat to the geopolitical tensions. However, the Fed’s preferred inflation gauge, the core personal consumption expenditures price index, rose 5.2% over the year ended in January, up from the prior month’s pace and in line with estimates.

U.S. Pending home sales tumbled to a nine-month low in January amid historically low inventory and eroding affordability in the housing market as mortgage rates rise. The number of mortgage applications registered a drop of 13.1% in the week ended 18 February 2022. U.S. Purchasing Managers’ Indices (PMIs) for February revealed that the U.S. manufacturing and service sectors were growing at a faster pace following an omicron-related lull in January. The house price purchase index advanced 3.3% in the U.S. on a quarterly basis, in 4Q21. In the previous quarter, the house price purchase index increased by 4.2%.

Eurozone and UK business activity rebounded in February after the previous month’s disruptions caused by the omicron variant. The preliminary services PMI in the eurozone climbed to 55.80, from a level of 51.10 in January, whilst PMI data from the UK showed that output increased to an eight-month high of 60.2, up from 54.2 in January.

Germany’s Bundesbank has however warned that Germany may have fallen into its second recession since the pandemic erupted as the omicron variant brought record infections that dragged down economic activity in the first quarter. Having already declined by 0.7% in the final three months of 2021, a further economic contraction in the first quarter of 2022 will signal that Germany has gone into a technical recession (defined as two consecutive quarters of negative growth).

China’s central bank increased liquidity by the most since 2020 amid the Ukrainian conflict, ramping up its short-term liquidity in the banking system. The People’s Bank of China injected a net $45.8 billion into the financial system via seven-day reverse repurchase agreements. Meanwhile, with support from Chinese officials, Hong Kong will test its entire 7.4 million population three times in March to curb a Covid-19 outbreak.

U.S. equities ended the week in positive territory as economic data and uncertainty due to Russia’s war in Ukraine saw investors tone down expectations that the Fed will aggressively hike interest rates. The S&P 500 (+0.82%) and Nasdaq (+1.08%) ended the week stronger, whilst the Dow Jones (-0.06%) was largely unchanged. European and Asian shares were negatively impacted, with the Euro Stoxx 50 (-2.54%), FTSE 100 (-0.32%), Nikkei 225 (-2.38%) and Shanghai Composite Index (-1.13%) all ending the week down.

Market Moves of the Week:

Locally, Minister of Finance Enoch Godongwana delivered his maiden South African budget. Presented with a range of possible choices for the R180 billion revenue overrun in 2021/22, he applied as much of the windfall as possible to reduce government debt – a positive signal to the market that the SA Government is determined to reinstate fiscal discipline. That said, low potential economic growth and high spending needs constrain the Treasury’s ability to show a decisive path to a lower debt ratio over the medium term.

Some takeaways from the budget include:

• The corporate income tax rate reduces to 27% with effect from our next financial year ending 31 March 2023.
• Personal income tax rates remain unchanged, but thresholds were increased by 4.5% in line with inflation.
• The income tax rate for trusts is unchanged at 45%.
• Capital gains tax inclusion rates are unchanged for all taxpayers.
• There are no changes to Estate Duty and Donations Tax.
• It is proposed that all provisional taxpayers with assets above R50 million be required to declare specified assets and liabilities at market values in their 2023 tax returns. The additional information will help in determining the levels and structure of wealth holdings as recommended by the Davis Tax Committee.
• Pension funds will soon be allowed to invest as much as 45% of their assets outside SA. Changes to regulation 28 of the Pension Funds Act, due to be published in March, will allow insurance, retirement, and savings funds to invest 35% of their assets offshore, up from the previous limit of 30%. If one includes the 10% allocation for investment in other African markets outside SA, that takes the total international investment allocation for local investors to 45%.

The JSE All-Share Index ended the week down -2.83%, led lower by industrial (-5.93%) and financial (-1.49%) shares, whilst resource shares (+0.14%) benefitted from higher commodity prices underpinned by Ukraine-Russian tensions. By Friday close, the rand was trading at R15.19 to the U.S. Dollar.

Chart of the Week:

The multiple rounds of Western sanctions imposed on Russia in response to its actions aren’t expected to act as a deterrent, especially as Russia’s economy is substantially more insulated from financial sanctions than was the case following the 2014 Crimea annexation. Russia has been preparing for this for some time. FX reserves of $430bn (and a further $200bn gold reserves) are enough to cover imports for around 16 months. That said, the implementation of the most severe sanctions in potential future rounds will be challenging given potential spill-over effects to Western economies. Source: Bloomberg, Goldman Sachs.

Whilst volatility is likely to continue amid current market uncertainty over the coronavirus disease, our message to all investors remains the same – stay calm in making decisions that are aligned with your long-term goals, not current market conditions. Maintain realistic expectations, stay properly diversified across a variety of asset classes and make sure your financial plan supports your long-term goals, time horizon and tolerance for risk.

The risk of conflict on the Ukrainian border continues to dominate headlines and drive investor sentiment. On Tuesday, Moscow claimed it had begun withdrawing some of its military units, however, a day later NATO accused Russia of increasing the number of troops it has amassed at the Ukrainian border. U.S. President Joe Biden recently stated that he believes, after receiving information from U.S. intelligence, that Vladimir Putin has decided to attack Ukraine and that an invasion on Kyiv could come within days. Putin, who continues to flex Russian military strength, has also ordered drills of Russia’s strategic nuclear forces along Ukraine’s northern border this weekend. All eyes will be on next week’s meeting between the U.S. Secretary of state Antony Blinken and Russian Foreign Minister Sergey Lavrov as a solution to the standoff may transpire. 

The minutes of the Federal Reserve’s January meeting were released this week, providing little new information. The minutes echoed previous statements from the Fed, indicating that interest rate hikes are likely on their way soon. St. Louis Federal Reserve President James Bullard reiterated that the Fed’s “credibility was on the line” and that they needed to act fast. Analysts are now pricing at least six rate hikes this year but are becoming increasingly concerned that the central bank may not be able to slow inflation without inflicting damage to the economy. In other inflation-related news, U.S. producer prices jumped 9.7% year on year and 1% month on month in January, exceeding forecasts.

China continues to be one of the only countries increasing liquidity rather than reeling it in, as the Peoples Bank of China boosted support for its slowing economy by injecting in cash through policy loans for a second straight month. China’s central bank pumped in 100 billion yuan ($15.7 billion) into the banking system while leaving the borrowing rate unchanged. In other economic news, China’s inflation eased in January as energy and food prices softened, which provided Beijing with more leeway to help the slowing economy. 

Inflation in the United Kingdom reached a 30-year high in January coming in at an annual 5.5%, ahead of forecasts. This print contributed to increased expectations for the Bank of England (BOE) to announce a third consecutive interest rate increase in March. The BOE now expects inflation to peak at 7.25% in April, having previously projected a 6% maximum in its December report.

Data from FactSet Research reveals about 84% of the constituents of the S&P 500 Index have reported for Q4 2021, while blended earnings per share (which combines reported data with estimates for those that have yet to report) shows that earnings growth is running at 31% and sales rose about 15.5% compared with the same quarter a year ago.

The large-cap indexes suffered their second consecutive week of declines amid continuing geopolitical tensions over Ukraine and negative economic data points. The S&P 500 index fell -1.58%, while the Dow (-1.90%) and Nasdaq (-1.76%) also ended the week in the red. Stocks in Europe additionally felt the pain with the Euro Stoxx 50 down -1.95% and the FTSE 100 down -1.92%. Asian indexes were mixed, with the Nikkei 225 down -2.07% and Shanghai Composite up 0.80%. Brent crude dipped -1.32% while Gold caught a bid and ended up 2.17% for the week. 

Market Moves of the Week:

Positive economic data prints came out of South Africa (SA) this week amid an otherwise barren economic landscape. South African headline inflation fell in January to 5.7% from 5.9% in December, while core inflation rose from 3.4% to 3.5%, both in line with consensus. Headline inflation remains to linger near the peak of the 3-6% target range of the SA Reserve Bank. However, some analysts are marking December’s figure as the peak in inflation and projecting a gradual decline in the coming months.

Retail trade sales rose 3.1% y.o.y in December, up from November’s 2.7% growth. For the 2021 year, retail trade sales grew 6.4%, making up most of the ground lost in 2020 when the sector shrunk by almost 7%. “All seven types of retailers showed positive year-on-year growth rates over this period [2021],” Stats SA said. Textiles, clothing and footwear led the group with strong growth of 19.2%.  

In other news, Eskom’s financial position has come under the spotlight, as South Africa’s government considers taking over part or all of its R392 billion debt in an effort to restructure the utility’s loan obligations. The International Monetary Fund stated that Eskom’s debt is at “unsustainable” levels and expressed concern towards the State-owned enterprise’s financial position. Another challenge the government faces is its sustainability to support the unemployed and poor, as South Africa’s extension of the monthly grant for the jobless means that there are still twice as many welfare beneficiaries as registered taxpayers in the nation. 

The JSE continues to fare better than its international counterparts, closing the week down a mere -0.02%. Resources caught a strong bid as good guidance and a favourable economic backdrop played in favour of the industry’s companies. The Rand strengthened this week to end at USD/ZAR 15.12.

Chart of the Week:

Amidst the uncertain situation between Russia and Ukraine, there cannot be any exact parallel for what is about to transpire in the markets, but the above table put together by Keith Lerner at Truist is useful. There is a need for caution, however, stocks tend to favour the green, with 75% of events resulting in a positive index 12 months later. Source: Bloomberg.

Whilst volatility is likely to continue amid current market uncertainty over the coronavirus disease, our message to all investors remains the same – stay calm in making decisions that are aligned with your long-term goals, not current market conditions. Maintain realistic expectations, stay properly diversified across a variety of asset classes and make sure your financial plan supports your long-term goals, time horizon and tolerance for risk.

The three major U.S. indexes slid sharply on Friday after U.S. and U.K. officials warned again of a potential military action by Russia against Ukraine. The news sent oil prices surging, while stocks and bond yields fell.

US officials are concerned that Russia could launch an invasion at any time, even before the end of the Winter Olympics in Beijing. Over the weekend more than a dozen countries have urged their citizens to leave Ukraine as soon as possible. The current tensions come eight years after Russia annexed Ukraine’s southern Crimea peninsula. Since then, Ukraine’s military has been locked in a war with Russian-backed rebels in eastern areas near Russia’s borders. The Kremlin says it wants to enforce “red lines” to make sure that its former Soviet neighbour does not join Nato.

January’s headline U.S. consumer price index (CPI) surged to 7.5% year-over-year, more than consensus expectations and its highest annual gain since February 1982, the Labor Department reported Thursday. Excluding the volatile food and energy components, prices increased 6% from a year ago and 0.6% from a month earlier. The higher than expected inflation reading showed services inflation picking up, but that goods inflation is starting to ease with pandemic related supply disruptions starting to improve.

Some market commentators are now expecting an accelerated rate hike schedule by the Fed—including the probability of a 50-basis-point rate increase at the central bank’s March policy meeting.

U.S. 4^th quarter corporate earnings continue to exceed estimates with about 70% of the S&P 500 companies having reported results, earnings growth is running at around 30%. However nearly 75% S&P 500 companies have commented on rising inflation during their earnings conference calls for the fourth quarter.

In the U.S. the tech-heavy Nasdaq Composite ended the week 2.18% weaker, while the S&P 500 was 1.82% weaker and the Dow Jones Industrial Average ended 1% weaker.

Shares in Europe ended the week stronger, buoyed by strong corporate earnings. In local currency terms, the pan-European STOXX Europe 50 Index ended 1.68% higher. While the UK’s FTSE 100 Index climbed 1.92%, helped by news that the British economy grew 7.5% in 2021, rebounding from its historic 9.4% plunge in 2020. The Bank of England now expects inflation to peak at 7.2% in April and has imposed back-to-back interest rate hikes for the first time since 2004, taking the main Bank Rate from 0.1% to 0.5%.

In Asia, Japan’s stock markets ended positive for the week, with the benchmark Nikkei 225 Index rising 0.93% supported by solid corporate earnings. Chinese stocks also rose amid supportive official comments suggesting that regulatory curbs on the internet sector would become more rules-based, raising the prospect that the government’s crackdown on the tech sector would ease. The Shanghai Composite Index gained 3% for the week.

Market Moves of the Week:

The International Monetary Fund (“IMF”) warned in a statement on Friday that South Africa’s economic recovery remains fragile and that growth is expected to hold below 2% in the medium term because of policy uncertainty, high public debt and constraints to investment. The IMF forecasts South Africa’s economic growth at 1.9% in 2022 after an estimated 4.6% rebound in 2021.

President Cyril Ramaphosa delivered his State of the Nation Address (Sona) on Thursday, focusing on the economy, regulatory reform, measures to assist small business, the improvement of water management and to secure a stable electricity supply. The Basic Income Grant (BIG) of R350 was extended for another 12 months to March 2023. The president also intimated that the end of the national State of Disaster was being finalised. Focus now shifts to the looming budget speech on 23^rd February.

The FTSE/JSE All-Share Index (Alsi) had a strong week overall, closing 1.56% higher at 76 383 points on Friday. Financial (+3.08%) and resource counters (+2.55%) were well supported over the week. The rand strengthened against the U.S. dollar over the week briefly trading at the R15 per dollar level on Thursday, but by Friday close, the rand was trading at R15.21 to the greenback.

Chart of the Week:

US consumer prices rose 7.5% in January compared with a year ago, the biggest jump in 40 years, the US Department of Labor reported on Thursday. Economists had expected the annual figure of 7.3%. Excluding the volatile food and energy components, core prices increased 6% from a year ago. The data reinforces the Fed’s intentions to begin raising rates at the bank’s March meeting.

Whilst volatility is likely to continue amid current market uncertainty over the coronavirus disease, our message to all investors remains the same – stay calm in making decisions that are aligned with your long-term goals, not current market conditions. Maintain realistic expectations, stay properly diversified across a variety of asset classes and make sure your financial plan supports your long-term goals, time horizon and tolerance for risk.

Stock market volatility continued this week despite recording positive gains. Shifting expectations around interest rates and economic growth remain central to this theme. Announcements from the European Central Bank (ECB), the Bank of England (BoE), U.S. labour market data and one of the busiest weeks of companies reporting fourth-quarter earnings were all contributing factors.

The ECB kept its interest rate unchanged at a record low of -0.5% and reiterated its plans to reduce asset purchases this year. The surprise however came at the press conference following its meeting where ECB President, Christine Lagarde pivoted away from her December statement that it was “very unlikely” that the ECB would raise interest rates in 2022, to opening the door to possible rate hikes in the eurozone this year, as inflation continues to surprise.

Eurozone consumer prices increased to 5.1% from a year ago in January, up from 5% in December. The median estimate in a Bloomberg poll of 44 economists saw a reading of only 4.4% and none predicted inflation gaining pace. Meanwhile fourth quarter GDP advanced by 0.3% (quarter-on-quarter) in line with market expectations.

The Bank of England (BoE) raised rates by a further 0.25% this week, after its surprise hike of 0.25% in December last year. The Monetary Policy Committee voted 5 to 4 to increase the bank rate by a quarter point. The minority of the committee wanted a 0.5% hike, after the central bank forecasts that U.K. inflation could peak at 7.25% in April.

The U.S. Labor Department jobs report released on Friday, showed that the U.S. added 467,000 jobs in January, despite a record spike in Covid-19 infections and related business closures. This was nearly three times consensus expectations, reinforcing Fed Chair Jerome Powell’s description last week of the U.S. labour market being “strong”. Despite the uptick in jobs added, U.S. Unemployment increased to 4.0% in January due to an increase in the labour force participation rate, which rose to its highest level (62.2%) since the start of the pandemic.

It was another big week of companies reporting fourth quarter earnings, with 112 companies reporting this week including big names like Meta (Facebook) and Amazon. Meta Platforms reported a decline in Facebook’s average daily users and guidance for slower revenue growth resulted in a sharp decline in its share price whilst Amazon reported better-than-expected earnings.

According to FactSet, 56% of the companies in the S&P 500 have reported results for Q4 2021 to date. Of these companies, 76% have reported actual earnings per share (EPS) above estimates, which is equal to the five-year average of 76%. In terms of revenues, 77% of S&P 500 companies have reported actual revenues above estimates, which is above the five-year average of 68%. During the upcoming week, 83 S&P 500 companies are scheduled to report results for the fourth quarter.

After a tough January month, global equities were stronger this week. In the U.S., the Dow Jones (+1.05%), S&P 500 (+1.55%) and Nasdaq (+2.38%) were all stronger. Similarly, the FTSE 100 (+0.67%) and Nikkei 225 (+2.70%) ended the week in positive territory, with the Euro Stoxx 50 Index (-1.22%) being the outlier. The Shanghai Composite Index was closed for the Chinese New Year.

Market Moves of the Week:

Locally, South Africa’s trade surplus (exports outweighing imports) fell to R30.1bn in December, following a trade surplus of R35.8bn in the prior month. Despite a slightly weaker December print, high commodity prices are currently benefitting South Africa’s terms of trade, supporting the rand.

In other news, British Prime Minister Boris Johnson announced that the UK Cabinet Office will probe “issues surrounding” consultancy Bain & Company’s work in South Africa after the State Capture Inquiry found that Bain had colluded with former president Jacob Zuma, and others, to “capture” the SA Revenue Service.

The Johannesburg Stock Exchange (JSE) suspended South African state-owned defence company Denel’s bonds on Wednesday, after delaying interest payments on two notes and a capital redemption on one of them due Jan. 31. The cash-strapped company is in talks with the South African government, to finalise “the necessary approvals for the payments which will be made as soon as the approvals are in place,” it said in an announcement.

JSE listed companies posted strong returns for the week. The JSE All-Share Index ended the week up +2.38%, with all three of the major sectors including financials (+1.72%), resources (+2.18%) and industrial shares (+2.86%) well supported. By Friday close, the rand was trading at R15.43 to the U.S. Dollar.

Chart of the Week:

After announcing that rate hikes in 2022 are unlikely for the eurozone at its December meeting, ECB President, Christine Lagarde delivered a far more hawkish message on inflation this week, leaving the door open for interest rate hikes in Europe this year. At the beginning of the year, the market was prepared to believe Lagarde when she said that even one 2022 rate hike was unlikely, now they are braced for four by year end. Whether the market is correct to pencil quite so many rate hikes is another matter. Unlike the U.S., the eurozone have a problem with persistent slower growth. Source: Bloomberg.

Whilst volatility is likely to continue amid current market uncertainty over the coronavirus disease, our message to all investors remains the same – stay calm in making decisions that are aligned with your long-term goals, not current market conditions. Maintain realistic expectations, stay properly diversified across a variety of asset classes and make sure your financial plan supports your long-term goals, time horizon and tolerance for risk.

All eyes were on the U.S. this week as the Fed’s monetary policy committee held their January meeting. The Fed left rates unchanged, as expected, but hinted that interest rate hikes were coming “soon”. Chairman Jerome Powell emphasized that the labor market and economy were both in a strong position and that high levels of inflation would likely persist. He therefore didn’t rule out that an interest rate increase could come at every meeting in 2022, starting in March. The overall tone of the meeting was more hawkish than the market expected, causing a market selloff on the day and stock volatility throughout the week. Powell promised again and again to be “humble” and “nimble” and said that the central bank would start to shrink its balance sheet after rate increases begin. 

On Friday, the Fed’s preferred inflation measure, the core personal consumption expenditures index, rose 4.9% year over year, the largest increase since September 1983. In other U.S. news, the economy expanded at its fastest pace since 1984, growing at a 6.9% annual rate in the final quarter of 2021. This surprised consensus estimates (5.5%) and tripled Q3’s growth of 2.3%, which was held back by Covid-19 restrictions in response to the Delta variant and supply chain disruptions.

It’s earnings season in the U.S. and roughly 33% of the constituents of the S&P 500 Index have reported for Q4 2021. According to data from Refinitiv, 79% of those reporting have beaten expectations, though forward guidance has generally been cautious. Tech titans Microsoft (MSFT) and Apple (AAPL) reported strong figures and rose on earnings and guidance, though they were little changed for the week. Companies also stated that supply constraints were to continue due to chip shortages, but can foresee easing. 

Geopolitical issues continued this week, with the situation between Russia and Ukraine intensifying. Russia continues to mass troops, blood supplies and weapons next to the Ukrainian border. However, Russia vowed that it would continue diplomacy. This hasn’t stopped the US Department of State from urging American citizens to leave Ukraine. A big factor at play is whether Russia decides to limit or halt energy supplies to Europe in response to possible sanctions issued if they move against Ukraine.

The IMF negatively revised its global GDP growth forecast for 2022 and hiked its inflation estimate. They stated that the global economy would expand 4.4% this year, down from October’s 4.9% estimate. However, the 2023 forecast was raised to 3.8%. Inflation in advanced economies is now estimated to average around 3.9% for the year, up from a prior 2.3% estimate.

Late gains helped the U.S. large-cap benchmarks move higher for the week, after a turbulent couple of days. Expectations for faster monetary tightening weighed on investor sentiment while Energy stocks rallied as international oil prices pushed above USD 90 per barrel. The S&P 500 index edged up 0.77%, while the Dow gained 1.34%, and the Nasdaq managed a 0.01% move. Stocks in Europe felt the pressure with the Euro Stoxx 50 down 2.20% and the FTSE 100 down 0.37%. Asian indexes ended the week in the red, with the Nikkei 225 down 2.92% and Shanghai Composite Index slumping 4.59%. Brent crude rose 1.44%, while Gold dipped 2.50%. 

Market Moves of the Week:

On Thursday, the South African Reserve Bank hiked its repo rate by 25bp to 4.0% from 3.75%, which was largely in line with consensus. Four members of the Monetary Policy Committee (MPC) voted for a rate hike while one member voted to keep rates unchanged. This came across as surprisingly dovish as the market was expecting a unanimous decision. Nevertheless, given a 3-2 split in favour of a hike in November, the median voter has become more hawkish since. The MPC sees upside risks to its upward-revised inflation forecast of 4.9% for 2022. “In this uncertain environment, policy decisions will continue to be data-dependent and sensitive to the balance of risks to the outlook. The MPC will seek to look through temporary price shocks and focus on potential second-round effects,” Reserve Bank governor Lesetja Kganyago said.

Cyril Ramaphosa’s proposed basic income grant came under fire this week as a panel of economic advisors appointed by the President warned against its implementation, due to the multibillion-dollar cost that would deepen debt and hinder economic growth. In September, Rhamaphosa spoke of a possible basic income grant – which would be the biggest of its kind globally if implemented – to alleviate poverty in South Africa. However, South Africa’s finance minister and various business organizations have stated that the proposal is unaffordable – backing up what was recently expressed by the panel of economic advisors.

The IMF has cut its 2022 growth forecasts for South Africa on the back of a softer-than-expected second half in 2021 and a weaker outlook for investment, as business sentiment remains subdued. Its global outlook report, which was published on Tuesday, revealed that the group now expects South Africa’s economy to grow by 1.9% in 2022. This is down from its October forecast of 2.2%. The group also expects growth to further slow to 1.4% in 2023.

The JSE had a tough week, as risk off sentiment weighed on the emerging market. The All-Share Index ended 1.84% lower, after being dragged down by Resources and Industrials. The Rand weakened this week to end at $/R 15.57. 

Chart of the Week:

The trend for U.S. outperformance over the rest of the world’s stock markets has gone on a while. This can be seen by the white line, formed by dividing the S&P 500 Index by the MSCI ACWI (Ex-U.S.) Index. History suggests that protracted periods of U.S. underperformance can and do happen. After 13 years of persistent U.S. dominance, it would be no surprise if it occurred again. Source: Bloomberg.

Whilst volatility is likely to continue amid current market uncertainty over the coronavirus disease, our message to all investors remains the same – stay calm in making decisions that are aligned with your long-term goals, not current market conditions. Maintain realistic expectations, stay properly diversified across a variety of asset classes and make sure your financial plan supports your long-term goals, time horizon and tolerance for risk.

Wall Street’s main indexes ended sharply lower for the week, the technology-focused Nasdaq posted its worst week since 2020, after dropping nearly 7.5% in the holiday-shortened week as government bond yields surged with the benchmark 10-year Treasury yield trading above 1.9% during the week. The Dow Jones Industrial Average slipped roughly 4.6%, while the S&P 500 is down about 5.7% for the week.

Bitcoin fell to its lowest point since August on Friday, while ether prices also dived, wiping off nearly $150 billion from the crypto market. Bitcoin fell about 15% and was trading around $36,000 late Friday, while Ether, the second-largest cryptocurrency by market cap, dived about 20% to trade at around $2,500.

Markets are on edge ahead of next week’s Fed policy meeting in the U.S. with policymakers likely to start preparing for an interest rate lift-off in March and the prospects that the Fed will need to act more aggressively to battle persistent inflation impacting investor sentiment. This fear of rising rates as well as the Federal Reserve’s indication that it plans to begin reducing its balance sheet has prompted investors to shed positions in riskier assets.

With earnings season well underway in the U.S. worse-than-expected earnings in financial giants JPMorgan Chase and Goldman Sachs took a toll on financial services shares over the week, while a disappointing earnings report from global streaming giant Netflix, showing slowing subscriber growth, led to a more than 20% decline in Netflix shares further contributing to the indexes’ losses.

Continued Ukraine-related tensions between the U.S. and Russia also weighed on investor sentiment. The Kremlin denies it is planning to attack the Ukraine and argues that NATO support for Ukraine (including increased weapons supplies and military training) constitutes a growing threat on its western flank. As many as 100,000 Russian troops have remained amassed at the Ukrainian border, despite warnings from US President Biden and European leaders of serious consequences should Putin move ahead with an invasion.

Shares in Europe also ended lower, as expectations grew that the European Central Bank (ECB) may need to raise interest rates this year and that the Bank of England (BoE) would also need to further tighten its monetary policy. In local currency terms, the pan-European STOXX Europe 50 Index fell 1.00%, while the UK’s FTSE 100 Index slipped 0.65%.

Despite increasing numbers of COVID-19 cases in Europe, a stabilization in the number of hospitalizations has prompted some countries to ease restrictions. In France most controls will no longer apply from early February, although citizens will be required to show vaccine passes and wear masks indoors, while the UK is in the process of scrapping most measures.

Japan’s stock market was negative for the week, with the Nikkei 225 Index falling 2.14%. As expected, the Bank of Japan (BoJ) maintained its dovish stance at its January monetary policy meeting, saying it was in no rush to change its ultra-loose monetary policy.

In contrast, Chinese markets posted a weekly gain as the government stepped up monetary easing measures and signalled additional support for the beleaguered property sector. During the week China’s Central Bank cut its benchmark lending rates again, reducing the one-year loan prime rate by 10 basis points from 3,8% to 3,7%. Following the rate cut, the People’s Bank of China (“PBOC”) Vice Governor Liu Guoqiang said that China will roll out additional policy measures to stabilize the economy and pre-empt downward pressures. The Shanghai Composite Index edged up 0.1% over the week.

Market Moves of the Week:

South Africa’s consumer inflation spiked up to 5.9% in December, its highest level in almost five years, from 5.5% in November. The CPI data was unveiled on Wednesday by Stats SA, which also said that consumer inflation in 2021 averaged 4.5% compared with 3.3% in 2020. Fuel prices are presently the main driver and will likely remain so for some time, with global oil prices around seven-year highs.

The South African Reserve Bank (“SARB”) is now expected to raise interest rates to 4,00% when they meet on January 27, this according to 18 of 23 economists polled from January 12-18, saying the central bank would add 25 basis points (bps) to the repo rate at its first meeting of 2022, while five said the central bank would leave rates on hold.

South Africa’s inflation remains reasonably benign, but inflation is edging higher and the SARB’s is expected to continue its hiking cycle amid a pick-up in consumer price inflation. Inflation (CPI) is expected to average 4.8% this year, slowing to 4.5% next year and 4.4% the following year, the poll showed. The central bank tries to keep inflation within a range of 3%-6%.

The JSE All-Share Index was down 0.43% over the week, with the financial (-3.14%) and listed property sectors (-2.64%) leading the benchmark index lower, while the resource (+0.66%) sector proved more resilient against the global sell-off. By Friday close, the rand was trading at R15.10 to the U.S. Dollar.

Chart of the Week:

Meanwhile, expectations for the Federal Reserve have been turned on their heads. As per the chart above, markets have effectively added one extra 25 basis-points hike for this year, just since Jan. 1. As recently as the beginning of the fourth quarter of 2021, it was thought to be on a knife-edge whether there would be any hikes in 2022.

Whilst volatility is likely to continue amid current market uncertainty over the coronavirus disease, our message to all investors remains the same – stay calm in making decisions that are aligned with your long-term goals, not current market conditions. Maintain realistic expectations, stay properly diversified across a variety of asset classes and make sure your financial plan supports your long-term goals, time horizon and tolerance for risk.

The information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell or an indication of trading intent on behalf of any LNKD product. LNKD Investment Managers is an authorised financial services provider (FSP 51257).

Market volatility continued into the second week of 2022, with inflation concerns at the forefront. A multi-decade increase in U.S. consumer prices was a reminder that inflation is a key risk for the year ahead, impacting central bank policy. U.S. consumer prices increased by 7.0% in December on a year-on-year basis, the largest 12-month increase since June 1982. Core inflation excluding food and energy rose 5.5%, the most since February 1991. Despite this, numbers were largely in line with market expectations.

Fed Chair, Jerome Powell responded at his renomination hearing before Congress, assuring lawmakers that high inflation is a “severe threat” to the U.S. economic recovery, and the Fed will do what’s needed to rein it in. He stopped short of telegraphing a March hike and said in the longer term he’s optimistic the disruption between supply and demand will abate. Following December’s inflation print, an increased number of analysts now expect four interest rate hikes in the U.S. for 2022.

Fourth quarter earnings also kicked off this week, with financial majors JPMorgan Chase and Citigroup amongst the first to report. Both companies disappointed markets, reporting lower profits.

In Europe, Germany reported that its economy grew by 2.7% in 2021, below pre-pandemic growth levels, in part due to coronavirus restrictions and supply bottlenecks. Eurozone unemployment dropped to 7.2% in November, compared to October’s 7.3% reading.

The U.K. surprised to the upside reporting that its economy grew by 0.9% in November 2021, compared to expectations of 0.4% growth. It also reported that its economy is 0.7% bigger than it was in February 2020, when the U.K. first went into lockdown.

China’s trade surplus rose to a record USD 676.43 billion in 2021, the highest since 1950, when the country began recording data. Both exports and imports slowed in December, suggesting that the world’s second-largest economy is showing signs of slowing. Nevertheless, exports came in just above expectations, buoyed by ongoing solid global demand.

China has vowed to accelerate investment in more than 100 key national projects and boost domestic consumption to help stabilise growth, as pressure on the economy rises amid worsening domestic Covid outbreaks. “The economy is at a crucial juncture of overcoming difficulties,” according to a statement on the government’s website released after a Monday cabinet meeting chaired by Premier Li Keqiang. “We must make stabilising growth a higher priority and firmly implement the strategy of expanding domestic demand.”

China’s consumer price index (CPI) and producer price index (PPI) both came in below expectations in December. CPI was recorded at 1.5% compared to expectations for a 1.8% increase and PPI advanced 10.3%, lower than market expectations of a 11.1% increase. This gives China’s central bank scope to cut its key policy rate, a first such move since April 2020.

Global equities were mostly softer this week. In the U.S., the Dow Jones (-0.88%), S&P 500 (-0.30%) and Nasdaq (-0.28%) were all in negative territory. Similarly, the Euro Stoxx 50 (-0.78%), Nikkei 225 (-1.24%), and Shanghai Composite Index (-1.63%) were all negative. The exception was the FTSE 100 (+0.77%) ending the week stronger. Brent crude oil advanced to USD 86.36 a barrel, up +11.03% year-to-date.

Market Moves of the Week:

The South African press is running with a statement that a campaign to oust South African President Cyril Ramaphosa as head of the ruling party is underway. Ahead of a December conference where party members will vote on senior leadership positions, Tourism Minister Lindiwe Sisulu criticised the nation’s top judges as “mentally colonised” and said not enough has been done to address the legacies of apartheid including poverty and land inequality.

South African vehicle sales fell by 3.5% on a year-on-year basis in December and is expected to decline by about 8% in 2022. This follows the strong 22.1% year-on-year rebound in sales in 2021, after the massive 29.2% Covid-19 pandemic-related decline in sales in 2020. Mikel Mabasa, CEO of automotive business council Naamsa, said that the improvement in the new vehicle market is expected to continue at a slower pace in 2022, in line with the lower projected GDP growth rate for the country.

JSE listed companies posted strong returns for the week. The JSE All-Share Index was up +1.65%, led higher by the resource (+3.29%) and financial (+1.66%) sectors, whilst industrial shares (+0.59%) were also well supported. By Friday close, the rand was trading at R15.39 to the U.S. Dollar.

Chart of the Week:

A lot of questions have been asked about America’s so-called Great Resignation and what’s causing it (other than the pandemic). There has however been another related phenomenon transpiring in the U.S., one that’s equally significant. It’s called the “Great Retirement,” with a remarkable increase in the rate of “Baby Boomers” (people aged 57 – 75) choosing to retire. Whilst this is to be partially expected due to this age group starting to reach retirement age, the pandemic has accelerated matters. A shrinking working-class is expected to put pressure on the state and wages.  Source: Bloomberg.

Whilst volatility is likely to continue amid current market uncertainty over the coronavirus disease, our message to all investors remains the same – stay calm in making decisions that are aligned with your long-term goals, not current market conditions. Maintain realistic expectations, stay properly diversified across a variety of asset classes and make sure your financial plan supports your long-term goals, time horizon and tolerance for risk.

The information included above as well as individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell or an indication of trading intent on behalf of any LNKD product. LNKD Investment Managers is an authorised financial services provider (FSP 51257).