BER Weekly, 12 January 2024


On the domestic front, the November manufacturing production data as well as the December Absa PMI and new vehicles sales data were released this week. However, the most anticipated economic data release this week was the US consumer price inflation (CPI) print for December. The faster-than-expected acceleration in annual price changes shows that the fight against inflation in advanced economies is not fully over - see the international section below for the details. Nonetheless, barring a major economic shock, the US Federal Reserve (Fed) is set to cut interest rates this year – the question is when, and by how much. As such, markets will be keeping a close eye on inflation (and labour market) data for evidence that price pressure has abated enough for the Fed to consider lowering borrowing costs. The same holds for the major European central banks across the Atlantic Ocean – and of course, the SA Reserve Bank (SARB). Indeed, the timing and magnitude of global and local rate cuts will be a key theme for 2024. 

Another important theme for 2024 stems from the fact that more people than ever will be able to head to voting booths this year. With a range of elections across the globe (including in SA) culminating in the US presidential election in November, geopolitics will remain tense. This could result in (even more) volatility for the rand exchange rate and have implications for commodity prices and financial markets.

Beyond election-related jitters, financial and commodity markets are (and will be) impacted by the continued war in Gaza and Ukraine and, more recently, the developments in the Red Sea. Following the seizure of an oil tanker off the coast of Oman on Thursday, there are some concerns that the threats to shipping could be spreading to the Gulf. This pushed oil prices higher yesterday, although most of these gains were reversed later in the afternoon. Following an initial spike in December after BP announced it would halt oil shipments through the Red Sea, the price had come down back below $80/barrel as supply did not seem to be impacted as much by the attacks as initially feared. The oil price jumped once more this morning after news broke that the UK and US carried out targeted strikes against the Houthi rebels. An escalation could risk the price increasing more significantly as it remains highly sensitive to tension in the broader Middle East. 

Week ahead: more SA data for November

Next week sees Stats SA release more high-frequency data for November, including mining production and retail sales. The retail sales will include the Black Friday shopping period and it will be interesting to see whether there was significant growth in spending relative to 2022. While consumers were (and are) under pressure amid high cost of living and elevated borrowing costs, bargain-hunting may have helped volume growth. This data will help colour in the picture for Q4 GDP. Following the manufacturing data released earlier this week (see the domestic section), growth could come out slightly better than we had expected – but it is early days. 

On Monday, we will receive the first estimate for full-year GDP growth for Germany (the Eurozone’s biggest economy). The economy is expected to have contracted by 0.3% following a 1.9% expansion in 2022. China will follow with Q4 GDP figures on Wednesday. Given the low base from 2022 due to the stringent zero-COVID policy pursued at the time, annual growth is set to edge up back above 5% in Q4 from 4.9% in Q3. 

On the political front, an important development will be the election in Taiwan over the weekend. Many political analysts warn that this could be a flashpoint for an escalation of the lingering unease between the island and China. This could have significant implications for geopolitical stability across the globe. There will also be continued media attention on SA’s case against Israel at the International Court of Justice. 


Some better news on SA manufacturing for November and December

According to Stats SA, annual manufacturing production rose by 1.9% in November, slightly down from the upwardly revised 2.3% recorded in October. More importantly for quarterly GDP dynamics, production rose by 0.8% m-o-m (seasonally adjusted, sa) following a 0.1% decline in October. So far, production seems flat relative to the third quarter. This means that, depending on how December plays out, the sector may make a slight positive contribution to Q4 GDP rather than contract as was the case in Q3. The Absa PMI would support a further uptick in December. The PMI rose by 2.7 points to 50.9 index points in December 2023. Part of the uptick came from an encouraging increase in business activity. Businesses that operated through the festive period may have benefitted from relatively less load-shedding in December. However, given that new sales orders did not improve further after a solid increase in November, underlying demand for manufactured goods remained relatively weak. Worryingly, the intensifying crisis at SA ports seems to have contributed to supplier delivery times lengthening even further. The unavailability of inputs required could hurt production abilities and push up costs going forward.

Full-year domestic new vehicle sales barely edge up from 2022

As per Naamsa, total domestic vehicle sales for 2023 rose by just 0.5% compared to 2022 and, at 532 098, remained just below the 536 612 units sold in 2019. The slight rise was largely driven by sales of bakkies, vans and mini buses (up 11.6%) and heavy trucks and buses (up 12.8% amid the continued shift of freight from rail to road), with new passenger vehicle sales down by 4.4% compared to 2022. This category is highly sensitive to borrowing costs, which increased significantly in 2023 and, coupled with other headwinds, depressed sales. Export sales performed much better last year and rose by 12.7% y-o-y. 


US CPI comes in slightly hotter than expected

Annual headline CPI inflation in the US accelerated from 3.1 to 3.4% in December on the back of a slightly faster-than-expected 0.3% m-o-m increase. Core inflation, which excludes food and energy, was also somewhat higher than forecast at 3.9% y-o-y (0.3% m-o-m), but down from November’s 4%. Following the release, futures markets slightly cut back expectations that the Fed would implement its first rate cut in March already. 

In China, this morning’s CPI report also came in slightly higher than expected, although it remains in negative terrain for a third month. CPI fell by 0.3% y-o-y (from -0.5% in November). The main drag is still pork prices, which were down by 26.1%. Factory-gate inflation (PPI) fell by 2.7% y-o-y, up from 3% in November. Meanwhile, exports rose by 2.3% y-o-y as imports increased by a mere 0.2%, resulting in the trade surplus widening to $75.3bn, from $68.4bn before. For the full year, exports declined by 4.6% and imports fell by 5.5%. Interestingly, due to a significant rise in vehicle exports to Russia and a surge in demand for electric vehicles in general, China is likely to have overtaken Japan as the world’s biggest car exporter in 2023. 


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Name: BER Weekly, 12 January 2024