March 2022 economic update

The financial sector was the best performer, advancing 11.58% in March.
  • After a very difficult start to the year, global stock markets found some relief in March. Investors were slightly more upbeat due to the clarity provided by the Federal Reserve (Fed) with regard to the monetary policy path which has helped reduce some of the uncertainty in the market. Ongoing talks between Russia and Ukraine and hopes of a resolution to the war also increased market sentiment. As a result, the Morgan Stanley Capital International (MSCI) All Country World Index gained 1.94%. Developed markets outperformed their emerging counterparts with the MSCI World Index gaining 2.52% as compared with a loss of 2.52% for the MSCI Emerging Markets Index.
  • The slowdown in Covid-19 infections helped lift production in the US as the Institute of Supply Management’s Manufacturing Purchasing Managers Index (ISM Manufacturing PMI) rose to 58.6 in February as compared with 57.6 the month before. Whilst this marks the 21st consecutive month of expansion in the overall economy, hiring at factories is still slow and will likely continue to contribute to supply chain issues and high input prices.
  • There has been no slowdown in inflation as rising commodities send energy prices through the roof, whilst the ongoing Russia-Ukraine conflict adds to this upward pressure. As such the US consumer price index (CPI) advanced 7.9% year-on-year (y/y) in February as compared with 7.5% in January. The rising inflation has sapped the purchasing power of US consumers and as a result, retail sales edged up a meagre 0.3% month-on-month (m/m) in February, down from 4.9% in January.
  • Due to the sticky inflation, it came as no surprise that the Fed raised the repo rate by 25 basis points at their meeting in March. Of more importance were comments from Fed Chair Jerome Powell stating that the central bank could hike rates even more aggressively to put an end to inflation which subsequently caused the yield curve to narrow and briefly invert – a sign that a recession may follow.
  • In China, the economic outlook has worsened due to the escalating Covid outbreak in Shanghai. This comes after the International Monetary Fund revised down its growth for the Chinese economy last month. As a result of the spread, Shanghai has imposed heavy lockdowns and, considering that it is the financial hub of China, will likely only add to the economic woes of the world’s second-largest economy.
  • The UK’s economy expanded by 0.8% (m/m) in January, after a 0.2% fall in December, as the omicron variant subsided, and restrictions were relieved. This beat market forecasts of 0.2% growth and marks the strongest growth in seven months.
  • The UK inflation rate rose to 6.2% in February, up from 5.5% in January and marking the fifth consecutive rise. As expected, this caused the Bank of England to raise rates by 25 basis points at their meeting in March. They also warned that inflation could breach 8% which has raised the likelihood of further rate hikes to come.
  • Locally, manufacturing production jumped 2.9% (y/y) in January after declining for three consecutive months. This marks the strongest factory activity since June 2021 and can mostly be attributed to the production of food and beverages.
  • The inflation rate was unchanged at 5.7% for February, however, is still at the upper end of the 4-6% target band. As such, the South African Reserve Bank (Sarb) raised the repo rate by 25 basis points to 4.25% at their March meeting, bringing the prime rate to 7.75%. Whilst in line with market expectations, it was surprising that two of the five policymakers voted for an increase of 50 basis points. Sarb Governor Lesetja Kganyago also stated that inflation is expected to rise above the upper end of the target band in the coming months which added to expectations of more aggressive rate hikes to come.
  • The rand continues to benefit from the surge in commodity prices and the recent hawkish tone by the Sarb has only helped extend gains. As such, the rand ended March up 4.93% against the greenback and is currently trading at R14.62. The rand also gained 6.92% and 6.21% against the pound and euro respectively.
  • South African equities remained resilient despite the selloff in other emerging markets. The FTSE/JSE All Share Index ended the month relatively flat with a -0.78% return. The best performer was the financial sector which advanced 11.58%, however, it was dragged down by both the resource and industrial sectors which returned -3.25% and -5.24% respectively. South African listed property rebounded by 4.32% after two consecutive months of declines.
  • One month index movements:
    • JSE All Share Index: -0.78%
    • S&P 500 (US): 3.58%
    • FTSE 100 (UK): 0.77%

Source: and Trading Economics

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Michael Haldane

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