From a news flow and market activity perspective, April was a quieter month than March. Lower energy prices resulted in falling inflation globally, although perhaps not as much as expected. There were indications that inflation may continue to be a bit ‘stickier’ at these elevated levels for some time. Economic data pointed to underlying strength globally, although this masked an emerging divergence between the power in the services sectors and weakness in the manufacturing sectors. Earnings in the US were down, but better than expected. Markets generally drifted upwards over the month. Follow the link below for more detail on events that transpired in the month.
Monthly Market Commentary – April 2023
LOCAL DRIVERS
SA Inflation
The annual rate of inflation increased to 7.1% in March and rose a full 1% month on month. The contributors to inflation were broad-based but of concern was food inflation at 14.4%, the highest level since early 2009. Core inflation remained unchanged at 5.2% in line with market expectations.
Retailer woes
Recent results from retailers are showing the extent of the damage directly attributable to loadshedding. Pick n Pays share price tumbled after releasing their results as the market was left disappointed. The group spent just over half a billion rand on diesel, only slightly less than its competitor, Shoprite, that spent R560 million.
SA Retail Sales
Retail sales contracted 0.8% in January year-on-year following a revised fall of 0.5% in December. The number demonstrates the pressures consumers are under in a likely scenario of bleak economic growth for the year.
SA Manufacturing Output
Manufacturing output declined 5.2% year-on-year in February. The reasons for the decline are broad-based and include power outages, disruptions to rail and port infrastructure, a general lack of fixed investment activity, rising import intensity, higher interest rates and weak business confidence. Shockingly, output remains 13% less than what it was pre-Covid and 13.5% less than that recorded at the end of 2018.
ASSET CLASS TOTAL RETURNS – ZAR
GLOBAL DRIVERS
US Inflation and Jobs
Falling energy and food prices pulled down headline inflation, which fell to 5% in March from 6% the previous month (below expectations of 5.2%). Somewhat concerningly, the cost of shelter (housing) continued to rise as it makes-up over 30% of the inflation basket. But what helped consumers was the labour markets maintaining their relative strength as 236,000 new jobs were created in March (in-line with expectations). Unemployment edged down to 3.5%.
Europe Inflation and Rates
Falling inflation was also the central talking point in mainland Europe. March inflation was 6.9%, a sharp fall from 8.5% in February, driven by falling energy prices – the first time in 2 years that energy prices declined. Unfortunately, core inflation nudged up again from 5.6% in February to 5.7% in March, perhaps a sign that further headline inflation falls may be more muted in the near term – indeed there are expectations of an additional 0.75% of rate rise by the European Central Bank over the next 6 months or so.
China Data
In Emerging Markets, China’s economic activity is still eagerly watched. Year-on-year growth for Q1 2023 was recorded at 4.5%, above estimates of 4%. Composite PMI also remained strong at 54.5 for March as services rose and just about offset a disappointing fall in manufacturing to 50.0 in March, below expectations of 51.7. Inflation continues to fall in the second-biggest economy to 0.7% for March, the lowest since September 2021.
First Republic Failure
First Republic Bank was taken over by JPMorgan Chase as depositors fled the bank following the collapse of SVB in March. The bank started the year with a deposit base of $176bn which sunk to $104bn by the end of March. First Republic’s share price tanked 89% between March 8th and 20th, however, the share price continued to sink deeply after releasing a dismal set of quarterly earnings on April 24th.
US Debt Ceiling
House Republicans narrowly passed sweeping legislation that would raise the government’s legal debt ceiling by $1.5 trillion in exchange for steep spending restrictions. Biden has threatened to veto the Republican package, which has almost no chance of passing the Democratic Senate anyway. The Republicans want Democrats to negotiate and prevent a catastrophic federal default which may come as soon as June this year.
ASSET CLASS TOTAL RETURNS – USD
All information provided courtesy of Portfolio Metrix – adapted and published with permission. No copyright infringement intended.
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