The focus areas during the week included

• The S&P 500 declined by another -3%, taking the decline since the beginning of April to a substantial 5.5%. Year-to-date the S&P 500 is still up 4.1%, but this is well below the 10.2% year-to-date gain recorded at the end of Q1 2024. The US (and other) equity markets have become more concerned about an escalation of the conflict in the Middle East as well as the possibility of US interest rates remaining “high for longer”.

• In contrast, Chinese equities rose after the better-than-expected GDP growth performance for Q1 2024. The Shanghai Composite Index gained 1.5% in the week and is up 3.5% year-to-date.

• Stronger-than-expected US retail sales data for March 2024 contributed to the continued weakness in the US bond market. The yield of the US 10-year government ended the week at 4.62%, up from 4.5% at the end of the previous week. (On Thursday the 10-year yield reached its highest intraday level since early November 2023.)

• The rand and other commodity-exporting emerging market currencies lost 1% against the US dollar in the week. Year-to-date, the rand is down by -4.4% against a stronger dollar, which is similar to the performance of its emerging market peers. Emerging market currencies have come under renewed pressure from the increased geopolitical tensions in the Middle East following Iran’s attack on Israel.  In addition, strong US data has reinforced the delay in the US interest rate cutting cycle, providing further support for the dollar.

• US retail sales rose more than expected in March, by 0.7% m/m vs market expectations for a gain of 0.4%. Data for the prior month was revised higher, indicating that consumer spending remained resilient throughout Q1 2024. The control group of retail sales, which excludes vehicles, gasoline, building materials and food services, rose by an impressive 1.1% m/m, its largest monthly increase during the past 12 months. The latest retail data, together with the strong employment data for March and the higher-than-expected inflation readings, suggests the Fed will be in no rush to cut interest rates.

• US housing starts fell nearly 15% in March 2024 to a seasonally-adjusted annualised rate of 1.321 million units. The decline more than offset February’s gain and was well below market expectations. Existing home sales also declined in March 2024, although largely in line with expectations, as the average 30-year mortgage rate climbed above 7% for the first time since December 2023. Although housing affordability remains a hurdle for many households, builders are benefiting from an extremely tight supply of existing homes for sale. Unlike homeowners, homebuilders also have a bit more flexibility to offer incentives, including interest rate buy downs.

• The US National Association of Home Builders (NAHB) confidence index remained unchanged at 51 in April 2024, in line with market expectations. The index has improved noticeably in recent months from a low of 37 at the end of 2023. The NAHB housing market index is a good indication of the trend in construction, but not the level of activity, while the improvement in builder sentiment signals that builders may sustain higher levels of construction over the coming months.

• US initial jobless claims were 212 000 for the prior week, which was below market expectations of 215 000. The 212 000 is only marginally higher than the 20-year low set in September 2022 of 187 000, and well below the 20-year median of 318 000, highlighting the continued strength in the labour market.

• US Federal Reserve officials continued to express their concern about recent economic data. On Tuesday, Fed Chair Jerome Powell stated at an economic conference that “recent data have clearly not given us greater confidence and instead indicate that it’s likely to take longer than expected to achieve that confidence”. On Thursday, New York Fed President John Williams warned that a rate hike is not the baseline, but that one is possible if the data warrants. Atlanta Fed President Raphael Bostic said that policymakers would not be in a position to cut rates until the end of the year. The market is now pricing only 40 bps of US rate reductions this year.

• During the IMF meetings in the US, several European Central Bank (ECB) policymakers reiterated that June was the likely target date for lowering interest rates – assuming no unexpected economic shocks. In an interview with CNBC, ECB President Christine Lagarde highlighted that the ECB will monitor oil prices “very closely” amid worries about the conflict in the Middle East. Governing Council member Martins Kazaks (in an interview with Bloomberg) also highlighted the uncertainty about the oil price but added that the three to four rate cuts this year, priced in by markets, were in line with the bank’s economic outlook.

• In March 2024, SA’s headline CPI inflation rate rose by a significant 0.8% m/m, although this was below market expectations for an increase of 0.9% m/m. Encouragingly, core inflation rose by 0.7% in the month, also below expectations for a rise of 0.8%. While the higher fuel price was partly to blame for the relatively large monthly increase, there were also significant increases in the cost of alcoholic beverages and tobacco (reflecting the increase in excise duty announced in the February 2024 National Budget), a large increase in the cost of both school and tertiary education as well as a meaningful rise in the rental component of housing. Despite these increases, the annual rate of inflation moderated from 5.6% to 5.3%, which is encouraging from a monetary policy perspective.

• In the first quarter of 2024, Chinese GDP growth accelerated to 5.3% y/y, putting the Chinese economy on track to achieving its 5% growth target for 2024. It is important to note, however, that the improvement in economic activity was driven by strong activity in the first two months of the year, with the economic activity data for March suggesting that headwinds remain. The Q1 2024 GDP outcome was above market expectations for a deceleration in growth to 4.8% y/y. On a quarterly basis, the economy grew by 1.6% in Q1 2024, up from growth of 1.4% in the prior quarter.

• China’s new home prices fell by 0.3% m/m in March, matching February’s decline of 0.3% and extending losses for the ninth consecutive month. This is despite the government introducing support measures to revive the housing market.

• Consumer prices in the UK rose by an annual rate of 3.2% in March 2024, down from 3.4% in February. Although the inflation rate fell to its lowest level in two and a half years, the decline was slightly less than expected due to the price of fuel as well as communication goods. Although services inflation remained elevated, it slowed from 6.1% to 6%.