Prowess Investments Market Update 28 November – 5 December 2023

The bond market’s biggest monthly rally in years gathered pace this week after more dovish comments delivered by several Fed officials. The likelihood of a Fed rate cut in March has risen, with swaps now fully pricing in a reduction in May. Locally, investors are awaiting the SA GDP growth numbers for Q3:23.  

International Market Developments

US Fed Chair Jerome Powell was among several policymakers to speak on the economy and monetary policy this past week. Policymakers are preparing for the final FOMC meeting in December with Investors watchful for comments that might indicate when the Fed might begin its rate cutting cycle. Several policymakers have reiterated recently that the Fed should not be considering rate cuts just yet, supporting the narrative of higher rates for longer. Given this, the Fed will likely hold rates steady this month with a view to easing policy in 2024, though with officials ready to hike rates further if needed,

Trader bets on a quarter-point Fed cut in March have risen, with swaps fully pricing in a reduction in May. They project over a full point of easing by December 2024. The bond market’s biggest monthly rally in years gathered pace this week after more dovish comments delivered by several Fed officials, most notably Governor Christopher Waller on Tuesday. Known for a relatively hawkish mindset, Waller said he’s increasingly confident the policy rate is well positioned to bring down price growth to the Fed’s goal.

The Eurozone CPI moderated more than expected in November, to 2.4% y/y, from 2.9% y/y in October. On a m/m basis, CPI was down by 0.5% in November, after having increased by 0.1% in October. Core CPI also moderated in November, to 3.6% y/y, from 4.2% y/y in October. The data suggests that recent interest rate hikes are having the desired impact. ECB President Christine Lagarde noted recently that the bank would make policy decisions based on the latest data and keep rates high for as long as is necessary.

Local Market Developments

There were not many key takeaways from the (recent) SARB investor call. Offshore investors expressed concern about the upcoming two-pot saving system for pensions and its negative impact on the economy. This is even though the change in the pension system is relatively minor, increasing the annual withdrawal limit from 25k to 30k per person.

Locally, GDP growth for Q3:23 is in the spotlight today and is expected at 0% q/q, from 0.6% q/q in Q2:23. On a y/y basis, GDP growth is expected at -0.1% in Q3:23, from 1.6% y/y in Q2:23.

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