Prowess Investments Market Update 4 – 11 Mar 2024

Last week, the Fed Chair signalled to markets that the Fed is in no hurry to cut rates, leaving investors to continue to track new data releases to assess the likely timing. Locally, the current account (net trade with the rest of the world) deficit widened by more than expected in the last quarter of 2023 as imports exceeded exports.

International Market Developments

Chair of the Fed Jerome Powell addressed the Senate Banking Committee in his semi-annual monetary policy testimony to Congress last week. He noted that the Fed was not far from having the required confidence that inflation is moving sustainably down to 2%. He added that any rate cuts would be done carefully, gradually and at a relatively slow pace, unless of course, economic conditions take a sharp turn for the worse. Inflation has slowed significantly from last year, but there is still concern that the pace of the reduction might not continue this year. The Fed also noted that the US economy and monetary policy are in a good place right now which would warrant vigilance from policymakers before embarking on an easing cycle. The Fed is expected to update its economic forecasts at the 19-20 March FOMC meeting.

The European Central Bank kept its benchmark interest rate unchanged at 4.5%. The decision came on the back of a softer outlook for inflation and economic growth which are fueling expectations for interest rate cuts to begin in June. The bank expects inflation to come in at 2.3% this year, down from 2.7% in December.

Local Market Developments

Locally, the current account (net trade with the rest of the world) deficit widened by more than expected in the fourth quarter of 2023 to 2.3% of GDP (or -R166bn), from an upwardly revised deficit of 0.5% of GDP (or -R34bn) in Q3:23. This was partly owing to a narrowing of the trade surplus, to 1.2% of GDP, from 2.6% of GDP. The value of merchandise imports increased more than that of goods exports. The services deficit widened in Q4:23, to 3.6% of GDP, from a deficit of 3.1% of GDP in Q3:23. The full-year 2023 current account deficit widened to 1.6% of GDP in 2023, from a deficit of 0.5% of GDP in 2022.

A report by German consultancy group VGBE Energy paints a bleak picture of the state of Eskom’s water treatment plants at some of its largest power stations. They noted that these plants require urgent repair and upgrade to avoid over 13,000 MW of capacity going offline. The consulting group was commissioned by National Treasury to analyse the performance of Eskom’s coal-fired power plants and recommend how they can be improved. 

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