Prowess Investments Market Update 22 – 29 January 2024

The focus this week will be on the Federal Open Market Committee’s first money policy statement for the year on the back of a stellar US economy performance for 2023. Meanwhile, the SARB’s expected decision to leave rates unchanged will likely give SA consumers a welcome break, for now…

International Market Developments

In 2023, the US economy demonstrated an impressive performance, achieving a 2.5% expansion in output for the year despite experiencing one of the most aggressive monetary tightening cycles in recent history. The advanced estimate for Q4 GDP, released last week, further exceeded expectations, revealing a 3.3% annualized increase (0.8% qoq). While this growth rate was slightly slower than the 4.9% reported in Q3, it still represented a robust expansion in economic activity by pre-pandemic standards, particularly noteworthy given the comparatively lower interest rates that existed during that period. Notably, consumption remained a bright spot with a 2.8% annualised increase, and a significant surge in exports relative to imports contributed positively to net trade. This comprehensive overview underscores the resilience and strength of the US economy in 2023.

Looking ahead, the Federal Open Market Committee is set to deliver their interest rate decision on Wednesday. It is largely expected that the Fed will hold rates steady as inflation continues to show signs of moderating.

Local Market Developments

The SARB’s MPC decided to keep the repo rate unchanged at 8.25% for the fourth straight meeting as largely expected by investors. The decision was unanimous, with all committee members choosing to keep rates on hold. Moreover, the tone of the statement was unmistakably hawkish with the committee expressing concern about ‘serious upside risks’ to the inflation outlook and inflation expectations hovering near the top end of the target range. The Governor noted that although headline inflation has eased in recent prints, the SARB sees no ‘discernible trend that inflation is declining towards target’. Although the MPC noted that the current monetary policy is restrictive, their statement suggests that the MPC would like to see a marked moderation in inflation risks and inflation expectations before considering rate cuts.

Leave a Reply

Your email address will not be published. Required fields are marked *