Our weekly podcast by Kevin Lings:

US not yet suffering inflationary effects of higher oil price  

In this podcast, STANLIB’s Chief Economist, Kevin Lings, discusses the factors that influenced the surprisingly low increase in US PPI data for March, which is showing no second-round effects from tariffs and the higher oil price. However, he cautions it is still early to predict the direction of US interest rates. He also examines latest Chinese economic data, which shows manufacturing activity growing strongly, but weak consumer spending.

The focus areas during the week included:

• The S&P 500 surged by a further 4.5%. This follows a gain of 3.6% in the previous week and 3.4% in the first week of April 2026. In total, the S&P 500 index has gained 12.3% since the low on 30 March 2026, reaching another record high on Friday, 17 April. Year-to-date the S&P 500 is up 4.1%. In the week, the US equity market responded to signs that the conflict in the Middle East was de-escalating (see discussion below), as well as upbeat earnings results/statements from some of the major US banks.
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• Understandably, geopolitical developments were a key focus for markets. Positive sentiment was supported by the ongoing US/Iran ceasefire, as well as optimism about continuing negotiations between the two countries. Sentiment was buoyed further on Friday after Iranian Foreign Minister Abbas Araghchi declared the Strait of Hormuz “completely open” for commercial vessels after a 10-day Israel-Lebanon ceasefire agreement, which sent oil prices sharply lower. However, on Saturday Iran reversed its decision to re-open the Strait and fired on vessels attempting to pass, warning it would block shipping as long as the US blockade of Iranian ports persisted. Iran’s Parliament Speaker Mohammad Bagher Ghalibaf, who led the Iranian delegation in talks with the US earlier this month in Pakistan, said that while gaps “remain significant,” the negotiations between Iran and the US are making progress. He added that “it is impossible for others to pass through the Strait of Hormuz while we cannot” - referring to the US naval blockade. The Islamic Revolutionary Guard Corps’ Navy issued a statement on Saturday afternoon warning vessels not to leave their anchorages in the Persian Gulf and the Sea of Oman. It said that approaching the strait “will be considered co-operation with the enemy, and the violating vessel will be targeted”. The situation remains uncertain and fragile.
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• The STOXX Europe 600 Index ended the week up 1.9%, as investors digested corporate earnings and Iran pledged to open the Strait of Hormuz.  Japan’s stock markets also strengthened: the Nikkei 225 Index gained 2.7% to reach an all-time high, while the broader TOPIX Index was up 0.6%. SA’s All-Share Index gained 1.9%, led by a 2.6% increase in the Resource 10 Index and a 2% rise in the Industrial 25 Index.
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• US Treasuries generated positive returns. Yields fluctuated throughout the week before decreasing on Friday after Iranian officials declared the Strait of Hormuz open. The US 10-year bond yield ended the week at 4.26%, down from 4.31% at the end of the previous week. More interestingly, the yield on two-year government bonds has declined to 3.71%, below the top-end of the Federal Funds target interest rate, highlighting market expectations that US rate cuts will resume if the Middle East conflict is adequately resolved.
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• The de-escalation of the Iran war (prior to Iran’s reversal on Saturday) resulted in a marked improvement in global investor sentiment. Emerging market currencies have gained 3.5% against the US dollar so far in April. The rand has gained a substantial 5.5% against the US dollar this month, after it was one of the most over sold emerging market currencies in March. It seems clear that if the Middle East conflict continues to de-escalate, and the oil price falls, the focus for the rand would shift more decisively back to domestic factors, including the trajectory of interest rates, the outlook for the upcoming local government elections, and the pace of structural reforms.
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• US PPI inflation rose by 0.5% m/min March, well below market expectations for an increase of 1.1% m/m. This more modest increase was mainly due to subdued services inflation. Core PPI rose by a subdued 0.1% m/m in March, which was also below market estimates for an increase of 0.5% m/m. Encouragingly, core goods prices increased just 0.2% in March, which is the slowest monthly gain in four months and could be signalling that tariff-related pricing pressures are beginning to ease. While one month does not establish a trend, the combination of softer PPI data and a contained core CPI reading for March suggests that pipeline inflation pressures remain under control - at this stage. The Federal Reserve (Fed) is expected (98% probability) to keep interest rates unchanged at its next Federal Open Market Committee meeting on 29 April.
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• Regional manufacturing data in the US pointed to a pick-up in activity in April. For example, the New York Fed’s Empire State Manufacturing Index rose to 11 from -0.2 in March, ahead of expectations and the highest level since November 2025, supported by strong gains in new orders and shipments. Employment measures also improved, though input cost pressures increased. Similarly, the Philadelphia Fed’s general activity index climbed to 26.7, its highest reading since January 2025 and the fourth consecutive monthly increase. It was supported by improvements in current shipments and new orders. However, the employment index turned negative, while price measures rose to their highest levels since August.
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• Several reports on the US housing market signalled ongoing weakness in the sector. For example, the National Association of Realtors reported that sales of existing homes decreased by 3.6% m/m to a seasonally-adjusted annual rate of 3.98 million in March, with the decline partially attributed to lower consumer confidence and soft job growth. The US National Association of Home Builders Housing Market Index (HMI) weakened in April, dropping four points to 34. All three HMI subindexes declined month-on- month.
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• US weekly jobless claims declined to 207 000 last week from 218 000 in the prior week and below expectations for a reading of 217 000. Year-to-date, initial claims have averaged roughly 212 000, well below the 30-year median of more than 300 000. While continuing claims edged higher, layoffs remained subdued overall, suggesting a steady employment backdrop.
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• US import prices increased by 0.8% m/m in March, which was well below market estimates for an increase of 2.5% m/m. Higher fuel and lubricant prices (+2.9% m/m) accounted for most of the increases. Apart from energy, import price pressures were subdued. Over the past year, import prices rose 2.1%, which is notably below the overall CPI inflation rate of 3.3%.
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• Chinese economic growth started the year on a strong note, with GDP growing by a relatively robust 5% y/y in the first quarter of 2026 from 4.5% y/y in the final quarter of 2025 and above market expectations for growth of 4.8% y/y. This out performance was mainly driven by supply side factors, specifically robust industrial production, which was boosted by strong export growth and increased high-tech manufacturing. Unfortunately, high frequency data for March showed that the economy lost some momentum, and the imbalance between production and consumption activity is becoming more noticeable.
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• China’s industrial production growth slowed to 5.7% y/y in March from 6.3% y/y in the first two months of the year. This performance was, however, higher than market expectations (Bloomberg) for production to deteriorate to growth of 5.3% y/y. Retail sales continued to decelerate, amid the diminished effectiveness of the government’s consumption trade-in programme and cutbacks in vehicle subsidies. Retail sales grew by 1.7% y/y, down from 2.8% y/y in the first two months of the year, and well below market expectations for growth of 2.4% y/y.
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• China’s March trade data showed that exports rose 2.5% y/y, which is down substantially from growth of 21.8% y/y in January and February combined. Imports surged 27.8% y/y in March, following an increase of 19.8% y/y in the first two months of the year. The trade data pointed to weakening external demand alongside commodity-driven import strength, reinforcing expectations of a less balanced growth profile.
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• South African mining production rose by a very welcome 2.3% m/m in February.  This pushed the annual rate of increase up to 9.7% y/y – the highest annual rate of growth since February 2024. Most of the outperformance was driven by PGMs, which surged by 52.3% y/y in February, following an increase of 10.9% y/y in January. The improvement in PGM output contributed almost 97% of the annual increase in overall mining output. Despite this improvement, over the past three months mining production has declined by 1.7% q/q.
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• European Central Bank (ECB) policymakers emphasised that they are not in a hurry to raise interest rates. The head of the French central bank, Francois Villeroy de Galhau, noted, “to bet on April would be premature at this stage. We need to reach a sufficient level of data about the effect on underlying inflation and also the negative effect on demand.”
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• Industrial production in the Eurozone rose unexpectedly in February, growing by 0.4% m/m after falling by 0.8% m/m in January. Ireland, Finland, and Sweden registered the largest increases in output. In contrast, production declined in Malta, Luxembourg and Greece.
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• The International Monetary Fund (IMF) lowered its growth forecast for the Eurozone for 2026 from 1.3% to 1.1%. The IMF warned that the conflict in the Middle East could trigger a “major energy crisis” unless a durable solution is found quickly. The IMF also lowered its 2026 growth forecast for the UK to 0.8%, down from the 1.3% it predicted in January. Of all the G7 economic forecasts, the downward revision to the UK estimate was the largest.
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• Bank of Japan (BoJ) Governor Kazuo Ueda emphasised that the current situation, which involves a significant shock from rising energy prices, makes it difficult to decide on a policy response.  He said there are both upside risks to prices and downside risks to economic growth. With the situation highly uncertain, the BoJ “will take appropriate measures” – consequently, expectations that the BoJ would raise interest rates at its April meeting appeared to recede.
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• According to the monthly Reuters Tankan poll, the conflict in the Middle East contributed to April’s biggest month-on-month drop in confidence among Japanese manufacturers in more than three years. The poll showed sentiment falling 11 points to seven, as optimism declined largely due to the disruption to energy shipments and global supply chains caused by the closure of the Strait of Hormuz.