Prowess Investments Market Update 1st – 8th Apr 2024

Inflation data releases for the US and the Eurozone headline the week ahead amid concerns about the slower than expected pace of disinflation. Locally, inflation pressures are also on the rise as drought weather poses risk to the food inflation risk outlook and increased oil prices are likely to put pressure on fuel prices.

International Market Developments

This week’s US March CPI data scheduled for Wednesday, followed by PPI on Thursday, will be closely watched by the market for evidence that the disinflation trend is indeed continuing. Fed Chair Jerome Powell commented that the Fed is still on track for three rate reductions this year. However, Fed policymakers are increasingly stressing the need for increased confidence that inflation is heading sustainably back to 2% before rate cuts can be considered. As a result, the market has reduced the expected number of rate cuts from six at the beginning of the year to now pricing in two cuts this year with the first rate cut of 25 bps expected in September.

Eurozone inflation data is also out this week, and the market will be looking for further confirmation that it is firmly on a downward trend, with recent ECB projections indicating that inflation was poised to decline towards the 2% target sooner than previously expected.

Local Market Developments

Locally, the SA BER manufacturing PMI undershot expectations in March, slipping to 49.2, from 51.7 in February. The slippage was driven by declines in both the business activity and new sales orders indices, which suggests that demand conditions were sluggish in March. Customer demand remains constrained by price pressures emanating from load shedding and wider economic uncertainty.

A petrol price increase is currently forecast for next month, while further inflationary pressure is expected to come from the drought weather conditions experienced in the mid to late summer period for crop production. All these uncertainties, including the markets being disappointed on the delay in US rate cuts and the uncertainty around the upcoming elections, have led to SA’s ten-year benchmark bond weakening materially, to 11.98% from 11.13% since the start of the year.

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