Prowess Investments Market Update 16-20 October 2023

Last week, CPI for September printed at the highest level in three months at 5.4% from 4.8% in August. The SARB MPC’s next interest rate decision is next week with an interest rate hike a possibility. Eskom’s electricity grid received a boost as Unit 1 at Kusile Power Station returned to service a month-and-a-half earlier than planned, adding 800 MW of power to the grid.

The Springboks are one win away from defending their tittle after edging out the English in a nail-biting Rugby World Cup semifinal match.

International Market Developments

US Fed Chair Jerome Powell commented last week  that the Fed might hold interest rates steady at its FOMC meeting in November. The recent increase in long-term Treasury yields, if proving persistent, could reduce the need for further hikes “at the margin.” The door remains open for a future hike should policymakers see further signs of resilient economic growth.

The elevated interest rates are making it more challenging for first-time home buyers in the US to enter the housing market due to high borrowing costs and limited inventory as current owners choose not to list their homes for sale.

China’s inflation data for September came in lower than expected. CPI inflation was flat in y/y terms in September, against forecasts for CPI inflation of 0.2% y/y, and down from 0.1% y/y in August. The lower-than-expected inflation data underscores the weakness of demand in China.

Local Market Developments

Headline CPI increased in line with expectations in September to 5.4% y/y, from 4.8% y/y in August. The biggest contributors to the y/y increase in headline CPI were food and non-alcoholic beverages, and housing and utility prices. Core CPI came in lower than expected in September, at 4.5% y/y, from 4.8% y/y in August. The SARB’s latest forecasts indicate that we are unlikely to see more interest rate hikes in the current interest rate cycle as the current level of interest rates will be adequate to steer inflation back to the midpoint of the 3–6% target range over the medium term.

President Cyril Ramaphosa noted in a speech that the fiscal pressures that our country faces stem fundamentally from economic challenges of slow and jobless growth.

He further noted that SA had turned the corner in addressing the energy crisis, with Eskom having returned Unit 1 at Kusile Power Station to service a month-and-a-half earlier than planned. The improvement in the performance of Eskom’s grid is also as a result of a significant drop in demand due to the adoption of 4,500MW rooftop solar among residents.

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