The focus areas during the week included

• The S&P 500 gained a solid 2.7%, helping to offset the 5.5% decline recorded during the first three weeks of the month. The S&P 500 is still down -2.9% month-to-date, although year-to-date the market is up 6.9%. Investors responded positively to a wide range of corporate earnings, which mostly beat market expectations, including from Alphabet and Microsoft. About 45% of S&P 500 companies have reported first-quarter earnings, with around 80% of these companies reporting a positive earnings surprise. Core PCE monthly inflation data for March, which was largely in line with market expectations, also boosted equity market sentiment at the end of the week.
  
  
• SA’s All-Share Index also had a positive week, gaining 2.7%. It is now up 1.1% month-to-date. The market was helped by a more positive outlook for commodity prices, including gold, as well as better-than-expected Chinese economic data and attractive valuations. Year-to-date the South African equity market is still down 2%, but this is a significant improvement on a year-to-date decline of 6.5% on 19 March.
  
  
• The yield on the benchmark US 10-year government bond also benefited from the March PCE inflation data, but still ended the week near its highest level in almost six months, at a yield of 4.67%, up from 4.62% at the end of the prior week.
  
  
• The rand and emerging market currencies have generally been under pressure in April as the outlook for US inflation and interest rates evolves. Year-to-date, the basket of emerging market currencies is down -4.5%, while the rand has weakened by a more modest -2.7%, although most of this outperformance occurred on Friday, when the rand gained 1.4%. At this stage, it is difficult to determine what pushed the rand stronger, given that most other emerging market currencies were largely unchanged, except for the Brazilian real, which gained 1% against the dollar. It is, however, possible that the rand benefited from the results of the IPSOS opinion survey (released on Friday) which increased the possibility of a market-friendly national election outcome on 29 May.
  
  
• US GDP grew by 1.6% q/q (annualised) in Q1 2024, below market expectations for growth of 2.5%, and down from growth of 3.4% in the final quarter of 2023. This was the US economy’s slowest pace of growth in nearly two years. Most of the damage was caused by a large increase in imports and a contraction in inventories, which together subtracted 1.3 percentage points from the quarterly growth rate. In contrast, household consumption held up well, growing by 2.5%, although this was largely driven by robust spending on services. Fixed investment spending also provided a boost, especially residential and non-residential property.
  
  
• The US Commerce Department reported that its core (less food and energy) personal consumption expenditures (PCE) price index rose at an annualised rate of 3.7% in the first quarter of 2024. This was well above market expectations for an increase of 3.4% and above the Q4 2023 estimate of 2.2%.
  
  
• US PCE inflation for March 2024 was largely in line with market expectations, providing some relief to markets. Headline PCE inflation rose by 0.3% in the month, although the annual rate of PCE inflation was recorded at 2.7%, a little higher than market expectations for a rise of 2.6%, and last month’s outcome of 2.5%. Core PCE inflation was also up 0.3% in the month. On a year-on-year basis, core PCE inflation rose by 2.8%, also slightly above expectations for a rise of 2.7%, but in line with last month’s reading of 2.8%. Services inflation was again the key driver, rising 4% y/y, while goods inflation rose by a more modest 0.1% y/y in March.
  
  
• The S&P flash Composite PMI Output Index for the US, which tracks the manufacturing and services sectors, fell to 50.9 in April from 52.1 in March. Importantly, the manufacturing component of the index fell back into contraction territory at 49.9, well below the consensus estimates of around 52. In addition, the S&P’s gauge of services sector activity, while still indicating expansion, also missed expectations at 50.9 (versus 52.1 in March and a consensus estimate of 52). The report’s most startling aspect was the sharp contraction in service sector employment, which could signal weaker job growth this month.
  
  
• According to data provided by the EIA, US crude oil inventories fell by 6.4 million barrels to 453.6 million barrels in the week ended 19 April 2024. Analysts expected inventory levels to rise by 825 000 barrels.
  
  
• In March 2024, SA’s producer price index (PPI) rose by 1.1% m/m, the highest monthly increase since September 2023. This follows a rise of 0.5% in February and 0.1% in January. The March increase was above market expectations for prices to increase by 1% (Bloomberg). The larger-than-expected monthly increase (which was largely driven by fuel) pushed the annual PPI rate to 4.6% compared with 4.5% y/y in February, and market expectations for producer inflation to remain unchanged at 4.5% y/y. Despite the reacceleration, producer inflation remained within the South African Reserve Bank’s target range for the 10^th consecutive month.
  
  
• SA’s composite leading business cycle indicator rose in February 2024 for the first time since November 2023. The indicator increased by 1.7% m/m, following declines of 0.2% in January and 0.9% in December. Over the past year the leading indicator has declined by 0.9%, although this is significantly less severe than the average annual declined of 5.6% recorded over the past 12 months. Overall, the leading indicator continues to signal that the South African economy remains stagnant.
  
  
• Numerous European Central Bank (ECB) policymakers have signalled that they expect to start reducing interest rates in June 2024, barring any economic shocks. However, comments by more hawkish members of the ECB have cast some doubt on the outlook for euro area interest rates. German Bundesbank President Joachim Nagel said in a speech that a decision in June “would not necessarily be followed by a series of rate cuts,” given the current uncertainty. Executive Board member Isabel Schnabel highlighted that services inflation was the biggest concern. “There is a consensus emerging that we may be facing a quite bumpy last mile,” she said.
  
  
• The HCOB Eurozone Composite Purchasing Managers’ Index (PMI), which includes the services and manufacturing sectors, rose to 51.4 in April 2024 from 50.3 in March. The consensus forecast was for the PMI to increase to a more modest 50.7. In addition, Germany’s PMI rose above the key 50 index level in April, while the Ifo Institute’s barometer of business confidence improved for a third consecutive month. The German government increased its forecast for economic growth this year to 0.3% from 0.2% previously.
  
  
• According to Eurostat, the aggregate government debt-to-GDP ratio in the euro area declined further in 2023 to end the year at 88.6%. This is down from 90.8% at the end of 2022. In 2020 (during Covid) the ratio increased sharply to 97.2% compared with a pre-pandemic level of 84% in 2019. While 2023 represents a further improvement in euro area government debt, the ratio is still well above the 69% that prevailed prior to the global financial crisis.
  
  
• As expected, the Bank of Japan (BoJ) kept its policy target rate unchanged at 0% to 0.1% at its April policy meeting. BoJ Governor Kazuo Ueda hinted that interest rates are set to increase further in the second half of this year (possibly July or October), assuming that more progress is made in getting inflation anchored around the 2% target. While inflation momentum is on the rise, the BoJ does not want to rush future rate hikes – despite a further depreciation of the yen. In the week, the Tokyo area core consumer price index (CPI) for April 2024 rose by 1.6%, below market expectations for a rise of 2.2% and down from 2.4% in March. The easing in inflation was attributable primarily to the impact of education subsidies, which were introduced in the month.