The focus areas during the week included

• The S&P 500 gained a modest 0.5% in volatile trade. Most of the gains were driven by US Federal Reserve (Fed) chair Jerome Powell’s relatively dovish comments at the Federal Open Market Committee (FOMC) press conference, a weaker-than-expected April labour market report released on Friday morning, and Apple’s earnings update, released after the close of trading on Thursday. In Apple’s results, investors appeared especially encouraged by its announcement that it would buy back $110 billion of its own shares, the largest repurchase in history. Earlier in the week, the US equity market declined after the release of the Employment Cost Index for Q1 2024, showing a substantial increase of 1.2% in the quarter and an annual rate of increase of nearly 5%.

• The South African All Share Index gained a substantial 1.4% in the week and has risen by a very welcome 4.7% since 17 April. This reflects a range of factors, including attractive valuations, less anxiety about the outcome of the National Election on 29 May, and more encouraging data from China. Unfortunately, year-to-date the market is still down -0.6%, but this is significantly better than the year-to-date decline of -6.5% recorded on 19 March 2024.

• The weaker-than-expected US labour market report for April helped to push the yield on the US benchmark 10-year government bond to an intraday low of around 4.45% on Friday morning – its lowest level in nearly a month – which was also reflected in the performance of SA’s bond market.

• Year-to-date the rand/dollar is down by -1.2%, while emerging market currencies are down by -3.6%. This outperformance partly reflects the fact that the rand has strengthened by a significant 3.8% against the US dollar in the past eight days from a relatively oversold position.

• The US economy added 175 000 jobs in April 2024. This was below the consensus estimate of 240 000 jobs and the smallest gain in six months. The unemployment rate increased slightly to 3.9% from 3.8% in March, while wage growth eased to below 4% y/y for the first time since mid-2021. Although the April labour market report was weaker than expected, it was a very pleasing outcome from a financial market perspective. This is because US labour market data has been especially strong in recent months, raising concerns/doubts about the Fed’s ability to get inflation fully under control. April’s data will help to ease some of those concerns – although a rate cut by the Fed would require a broader array of data moving in the “right” direction over a sustained period.

• US job openings fell from 8.8 million in February 2024 to 8.5 million in March 2024. This was below market expectations for a decline to 8.6 million. In general, job openings have trended lower from a peak of more than 12 million in early 2022, but they remain high relative to historical trends. In addition to the moderation in job openings, the US quit rate slipped from 2.2% to 2.1%. This is, effectively, the lowest quit rate since early 2018. It will help to soften wage growth, as it signals a reduction in both the number of available jobs as well as people’s willingness to switch companies.

• US labour productivity (output per hour) grew by 2.9% y/y in the first quarter of 2024 from 2.7% in the final three months of 2023. US productivity growth has been relatively strong over the past four quarters after a two-year period of significant weakness. Strong productivity growth should help to get inflation more fully under control without a significant rise in the rate of unemployment, but the gain needs to be sustained.

• The US Conference Board’s measure of consumer confidence declined sharply in April to 97, its lowest level in nearly two years. It has trended weaker in recent months.

• On Friday, the US Institute for Supply Management reported that its gauge of services sector activity had fallen back into contraction territory at 49.4. This is the first time the index has been below the key 50 level since December 2022.

• The Fed has kept the Federal Funds Target Interest Rate unchanged at a range of 5.25% – 5.5%, while Powell’s commentary during the press conference was less hawkish than expected, especially given the upside surprises in US inflation data over the past three months. While Powell acknowledged the disappointing inflation data, he indicated that “it is unlikely that our next move will be a hike”. This provided some relief to investors who were beginning to worry that a rate hike was becoming a likely option. Powell also pushed back against stagflation worries, stating that “I don’t really understand where that’s coming from”, highlighting that the current growth rate is trending well above 2%. Lastly, the Fed indicated that it would slow the pace of its quantitative tightening by allowing $25 billion per month of Treasury bonds to mature from the central bank’s balance sheet, which is down from the current $60 billion.

• In March 2024 the growth in SA’s broad money supply (M3) was recorded at 6.9% y/y. This is up from a revised growth rate of 5.7% y/y in February 2024. Despite the latest acceleration, the growth in money supply has been on a downward trend after peaking at 11.2% y/y in June 2023 – which is consistent with a moderation in inflation.

• SA’s private sector credit extension rose by a substantial R95.4 billion (+2.1% m/m) in March 2024, after increasing by only R42.9 billion (+0.9% m/m) in February. This translates into an annual growth rate of 5.2% y/y, which is the highest rate of expansion since July 2023, and up from 3.3% y/y in February. A breakdown of the credit extension data by sector shows that corporate credit (up R99.6 billion for the month) explains most of the increase in March. In contrast, consumer credit decreased by R4.2 billion (-0.2% m/m) in the month.

• SA recorded a trade surplus of R7.3 billion in March 2024, which was below market expectations for a surplus of R16.5 billion and down from a revised surplus of R13.3 billion in February 2024. In Q1 2024, SA’s trade account recorded a positive balance of R10.787 billion compared with a deficit of R5.684 billion in Q1 2023. In March, imports of oil rose by almost R4.5 billion, which, together with a R2.8 billion decline in vehicle-related exports, undermined the trade surplus for the month.

• SA has experienced a full month of no electricity outages by Eskom, which might have contributed to the surge in the manufacturing PMI index for April to 54 from 49.2 in March. In early May, Eskom’s Energy Availability Factor was recorded at 64.4%, its best performance in many years. While there has been a genuine improvement in Eskom’s ability to generate electricity, the recent gains have been underpinned by a reduction in planned maintenance. Various anecdotal (but unconfirmed) reports suggest that Eskom has increased its use of diesel to avoid load shedding ahead of the National Election on 29 May.   

• Euro area GDP surprised on the upside in Q1 2024, growing by 0.3% q/q after declining by 0.1% in the final three months of 2023. The market expected GDP to grow by only 0.1%. The decline in Q4 2023 was a downward revision from 0%, meaning that the economy fell into a technical recession in the second half of last year.

• Euro area consumer inflation was steady at 2.4% in April 2024, while core inflation slowed further from 2.9% to 2.7%. European Central Bank (ECB) policymaker and Bank of France Governor François Villeroy de Galhau said that the latest data strengthened confidence that inflation would return to the 2% target by next year. This suggests that the ECB should be able to start lowering borrowing costs in June 2024.

• The Norwegian central bank kept its key interest rate unchanged at 4.5%, saying it might have to keep borrowing costs higher for longer than previously envisaged to quell inflation. In contrast, on Tuesday Colombia’s central bank decided to reduce its benchmark interest rate from 12.25% to 11.75%. Five members of the Board of Directors voted for a 50 bps cut, but two other policymakers favoured larger cuts: one wanted 75 bps, and the other voted for 100 bps. Colombia’s inflation rate was recorded at 7.4% in March (versus 7.7% in February) with core inflation at 6.8%. Colombia has an inflation target of 3%, with a permissible deviation of +/- 1%. Colombia’s exchange rate weakened by less than 0.5% in the remainder of the week.

• In China, the value of new home sales by the country’s top 100 developers declined by 45% y/y in April, with residential property transactions falling by 13% m/m. This is in line with the decline recorded in March. China’s housing downturn, which is now in its fourth year, remains a significant drag on the performance of the economy. It has undermined consumer spending and left developers with a significant supply of unfinished apartments.

• China’s official manufacturing Purchasing Managers’ Index (PMI) expanded for the second consecutive month in April 2024, suggesting that the economy maintained some momentum going into the second quarter of the year. However, although the April manufacturing PMI was better than expected at 50.4, this was down from 50.8 in March. In addition, the non-manufacturing PMI index dropped to a below-consensus reading of 51.2 compared with 53 in March, as new orders and services activity slumped. Overall, the latest activity data suggests that the pace of economic growth in China remains tepid.