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December 2021 economic report

The FTSE/JSE All Share Index advanced 4.6% in December.
  • Global stocks ended 2021 near their all-time highs, as the month of December reversed losses made in November due to the spread of the new Omicron variant. Early data suggests that the Omicron variant is not as harmful as originally suspected and economic data has also pointed to a slight return to normality. As such stocks advanced in December, with the MSCI All Country World Index returning 3.90%. Developed markets slightly outperformed their emerging counterparts with the MSCI World Index advancing 4.19% against 1.62% from the MSCI Emerging Markets Index.
  • Factory activity in the United States ticked up after contracting in October due to supply disruptions. The ISM Manufacturing PMI printed 61.1 in November as compared with 60.8 the month before and beat forecasts of 61.0. While this shows signs of a strong recovery, further supply side disruptions pose a threat and should continue to be monitored.
  • Inflation in the US increased yet again in November, with CPI coming in at 6.8% (y/y). According to Trading Economics, The rise in prices marks the ninth consecutive month that it has stayed above the Federal Reserve’s 2% target as well as the highest reading since June of 1982. The rise is due to the global rally in commodity prices, supply disruptions, wage pressures as well as the low base effect from [2020].
  • At its December meeting, the Federal Reserve decided to double the pace of its bond taper to $30 billion a month. At this rate it will have concluded tapering by March and thus have raised expectations for three potential rate hikes by the end of the year. Policymakers have, however, voiced concerns over the sustained rise in price levels against the backdrop of a steady recovery in the labour market, stating that rates will remain low until maximum employment is reached, according to Trading Economics.
  • Over in the United Kingdom, prices are also running hot, with the CPI inflation rate coming in at 5.1% (y/y) for November. This not only marks the third consecutive rise but also the highest reading since September 2011. The increase is predominantly due to the rising cost of transport as well as housing and household services.
  • With inflation continuing to soar, it comes as no surprise that the Bank of England hiked interest rates at its December meeting, making the UK the first G7 country to hike. The committee stated that although risks remain within the economy the tightening was needed in order to meet its 2% inflation target.
  • Locally, the South African economy contracted 1.5% (q/q) in the third quarter on the back of some of the worst unrest seen since the apartheid era. The biggest loser was the agriculture sector which shrank 13.6%, followed by trade down 5.5%, manufacturing down 4.2%, mining down 0.9% and construction down 0.5%. The finance sector and personal services were the outliers, growing 1.2% and 0.5% respectively.
  • Adding to the negative woes was the release of South Africa’s unemployment rate, which now stands at 34.9% and officially brands South Africa as the country with the highest official unemployment rate in the world. This is a reminder of the many structural challenges we still face.
  • Inflation also continues to rise, with the CPI figure coming in at 5.5% for November, up from 5% the month before and marking the seventh consecutive reading above Reserve Bank’s 4.5% midpoint. This is the highest reading in just under five years and is predominantly underpinned by rises in the prices of transport and fuel.
  • Despite the negative local news, South African equities followed their developed market peers higher with the FTSE/JSE All Share Index advancing 4.6% in December. The financial sector was the standout performer advancing 8.9%, followed by listed property by 6%, resources by 5.5%, and industrials by 2.5%.
  • One-month index movements:
    • JSE All Share Index: 4.59%
    • S&P 500 (US): 4.36%
    • FTSE (UK): 4.61%

ADVISOR PROFILE

Michael Haldane

Global & Local Investment Advisors

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