Smart Money Moves
4 May 2023
5 min read

All JSE sectors posted positive gains to the end of the first quarter of 2023. For the year to date, property and resources are lagging with losses over the first quarter, while large caps outperformed small caps. However, property and resources sectors reported losses in the first quarter. The US markets ended the first quarter with gains, the Nasdaq being the standout performer, after sustaining a Banking Crisis toward the end of the first quarter. The Eurozone banking fears were alleviated after UBS appointed its former CEO, Sergio Ermotti, to lead the company through its integration with Credit Suisse. OPEC announced additional production cuts, which has caused concerns for policy makers and central banks looking to control inflationary pressures.

The South African Reserve Bank (SARB) surprised the market by raising interest rates by 50 basis points to 7.75%, higher than the expected 25 bps hike, and bringing the prime lending rate to 11.25%, the highest it has been since 2009.

This move was aimed at protecting against potential capital flows that could impact the rand and to address inflation risks, which had worsened to 6% for 2023. The decision was not unanimous among the five MPC (Monetary Policy Committee) members, with two members preferring a 25-bps hike instead.

On the economic front, South Africa’s trade balance improved in February, swinging into a surprise surplus of R16.1bn, while manufacturing and mining production declined due to load-shedding and infrastructure failure at Eskom. The IMF has predicted a meager growth rate of 0.1% for 2023, reflecting the SARBs negative outlook.

In company news, Northam Platinum withdrew its takeover offer for Royal Bafokeng Holdings, citing the decline in platinum group metals’ basket price. Meanwhile, Industrials REIT received a potential offer from Blackstone, causing its stock to surge by 41%. However, Murray and Roberts struggled with its balance sheet, while Aveng faced pressure after delays in the liquified natural gas project.

The JSE’s resources sector outperformed other sectors, with gold bullion prices stabilising and platinum prices surging, leading to strong performance by platinum mining. The property sector also had a strong week, while the construction industry continues to face challenges. Sibanye Stillwater saw both gains and losses over the first quarter, with its Burnstone Project impacting its stock negatively.

Namibia’s inflation for March was higher than expected, with a year-on-year increase of 7.2%, mainly driven by increases in food and fuel prices. The country’s GDP for Q4 2022 grew by 1.9% year-on-year, which was a slowdown from 3.9% in Q3. However, the full-year growth rate for 2022 was 4.6%, the highest since 2014, driven by primary activities, mainly mining and agriculture.

During the first quarter in the US, banking concerns eased as First Citizens Bank purchased Silicon Valley Bank’s deposits and loans. The S&P, Dow, and Nasdaq all had strong weekly gains which brought positivity to the market. The Nasdaq was the top performer for the quarter, while the Dow Jones remained almost unchanged, and the S&P had modest gains for the period.

In an effort to stabilise energy markets, OPEC announced an additional 1.15 million barrels per day production cut, adding to the 2 million barrels already agreed upon in October of last year. This may cause concern for policy makers and central banks who are trying to manage inflationary pressures. The unexpected hawkish stance taken by the South African Reserve Bank may be further justified by such developments.

Globally, the US Personal Consumption Expenditure (PCE) price index, which is the preferred inflation measure of the FED, was released. PCE showed a 5% year-on-year increase (down from 5.3% previously), with a month-on-month increase falling from 0.5% to 0.3% in February. While service inflation remains high at 5.7%, goods inflation has decreased to 3.6%.  Personal income improved, but spending remained subdued. These factors, along with a slowing housing market and a slight downward revision of Q4 US GDP data, sparked a renewed appetite for risk, leading to expectations of a pause or reversal in policy tightening.

The US also released its nonfarm payrolls data for March, which showed the addition of 236 000 jobs, slightly below the expected 239 000. Although the data indicated a slowdown in job gains, the unemployment rate fell to 3.5% from the prior 3.6%, and earnings saw a marginalised rise in March.

Manufacturing PMIs remained in contraction territory, and US factory orders were weaker than anticipated, reflecting the sluggish global GDP as per the IMF outlook. The IMF trimmed its 2023 global growth forecast to 2.8% from 3.4% last year on the back of tighter monetary policy and only see long-term growth around 3%. Similarly, they see a pause in the rate hiking cycle materialising later this year with a slow reversal during 2024.

The recent US inflation data and retail sales figures have been the primary market movers, as inflation has slowed for the ninth consecutive month to 5% in March from 6% in February, below initial expectations of 5.2%. Although food inflation remains high, energy costs fell into deflation due to the prior year’s surge in oil prices. However, housing and shelter has seen a rise in inflation to 8.2%. Core inflation, which excludes both fuel and food prices, increased to 5.6%, suggesting that underlying inflation remains sticky. The Fed’s FOMC minutes reflected a willingness to continue hiking rates as long as inflation remained high and the fallout from the banking crisis was contained.

Another development that had a positive impact on the market was the appointment of Sergio Ermotti, a banking veteran, and former CEO of UBS, as the new CEO to lead the company during the integration of Credit Suisse. This move helped calm fears about the Eurozone banking sector. In addition, Alibaba, the Chinese e-commerce giant, made headlines by announcing plans to split into six parts.

Chinese inflation slowed, but the country’s policy makers provided more stimulus, resulting in a surge in total financing and a boost to exports, which contributed to China’s trade surplus. The divergence in policy decision between New Zealand and Australia’s central banks has also been particularly interesting, with the former opting for a more hawkish hike of 50bps and the latter pausing rate hikes. These divergent views reflect the global economy’s uncertain state, as indicated by the IMF’s World Economic Outlook.

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