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The most important local data releases of the week were the Purchasing Managers’ Indices (PMIs) for March as well as new vehicle sales for the same month. The headline PMIs were pretty bleak, but there were glimmers of hope that the port congestion was easing. The Absa PMI in particular picked up early on the increase in congestion and slower deliveries, so hopefully the signal of an improvement holds true too. The international data calendar was also filled up with PMI releases, with generally good news on manufacturing but a more mixed experience on the services front.
It has been three weeks since the release of the previous Weekly. To summarise everything that has happened since would be an unworkable task, but it is worth highlighting a few key developments. Starting with monetary policy, the Bank of England (BoE) and the US Federal Reserve (Fed) ‘followed’ the European Central Bank (ECB) by not changing monetary policy settings in their respective meetings. However, we did see a cut by the Swiss National Bank and a hike by the Bank of Japan. Locally, the SA Reserve Bank (SARB) kept the repo rate unchanged, but unlike the Fed and BoE essentially confirming that rate cuts were in play, it talked a fairly hawkish game. Clients can read our comment here for our take on the SARB decision (and a summary of the global central banks decisions as well as SA consumer inflation data for February).
On the global geopolitical front, the war between Israel and Hamas dragged on despite intensified global pressure to reach a ceasefire. Indeed, in late March the UN Security Council passed a resolution demanding an immediate ceasefire between Israel and Hamas, with the immediate and unconditional release of all hostages. The US abstained from the vote. The suspected Israeli air strike on the Iranian embassy in Damascus (Syria) in April brought the risk of the current unrest spreading to the rest of the Middle East back to the forefront. This contributed to the oil price increase seen of late (more on this below).
Global supply chain disruptions were also in focus over the past few weeks. TThe Baltimore bridge collapse and this week’s earthquake in Taiwan highlighted how tightly global supply chains are integrated and how one local shock can have potentially large implications across the globe. Although, both events seem not to be having a long-term negative impact on global trade.
There was plenty of domestic political news, with the national election now less than eight weeks away. The arrest of (now resigned) National Assembly speaker Nosiviwe Mapisa-Nqakula stands out. On the one hand, it is encouraging to see that even officials fairly high up in the ranks are not above the law; on the other hand, it was another reminder of how deep corruption runs through the state.
On the local data front, the Quarterly Employment Statistics (QES) for 2023Q4 deserves mentioning. The QES provides insights on formal, non-agriculture employment in SA through an enterprise survey. Following a sample update (which is a regular, best practice procedure by statistical agencies), the post-COVID formal employment recovery is now remarkably faster than previously thought. The updated sample shows that formal employment was back at pre-COVID levels by the end of 2021 already and continued to grow from there. Also on the labour front, a historic wage agreement was achieved in the SA gold mining sector. For the first time in more than 70 years, Harmony Gold signed a five-year wage deal with all relevant unions. There have been several multi-year wage deals signed across the SA mining sector in the last year or two, which brings very welcome stability to the industry as it should remove the risk of strikes. However, the increases of about 6% per year are above forecasted inflation. The SA Reserve Bank (SARB) often flags real wage increases that exceed productivity growth as an upside risk to the inflation outlook.
In commodity and financial markets, the higher-for-longer interest rates narrative remains at play. While the dollar weakened by 0.6% to the euro since last Thursday, it still is stronger to the euro relative to the start of the year. The gold price, another benefactor of the ‘no rush to adjust’ stance, was up last week and is 11% higher than the start of the year. Meanwhile, the Brent crude oil price settled at a five-month high this week. The spot price is now 15.6% higher than at the start of the year. A further and sustained move higher in international oil prices risks derailing the general expectation that (global and SA) headline consumer inflation should slow through 2024. Despite interest rates remaining high, at least for now, global equity markets have been performing really well. The local JSE ALSI’s mere 1.1% increase since the start of the year stands out as a clear underperformer. The rand clawed back some recent losses against the major currencies, but is weaker against he dollar, pound and euro since the start of the year.
Tuesday’s US consumer inflation data will be keenly watched by the markets and monetary policy makers. Headline CPI ticked up in February, from 3.1% y-o-y in January to 3.2%, and may edge up further in March. Arguably more important than the backward/historic inflation print, the inflation expectations data that form part of the Michigan consumer sentiment survey – out on Friday – will also be watched closely. The minutes from the US Fed’s latest meeting will as usual be ripped apart word for word in an attempt to better understand the Fed’s decision making going forward. The ECB meets on Thursday. No changes to its policy settings are expected this month, but the next meeting in June is certainly ‘live’ and could see the first cut being implemented.
On the domestic front, Stats SA will publish mining and manufacturing production data for February on Thursday. In January, mining output was weaker than expected while manufacturing surprised on the upside. The Absa PMI, which rose to above 50 in February, suggests that output may have looked better once more. However, it is important to flag that business activity remained stuck in negative terrain and that the increase in the headline index was rather driven by the non-activity components of the index.
The S&P Global South Africa PMI fell to 48.4 in March from 50.8 in February due to sales drying up. Similar weakness was reflected in the manufacturing Absa PMI, which declined to 49.2 points in March 2024 from 51.7 in February – the full report is here. This was due to business activity and new sales orders declining in March. However, there was a promising sign in the Absa PMI in the form of improved supplier deliveries, likely due to less congestion at local ports. Some panellists in the S&P Global PMI also noted that freight backlogs were starting to improve. Furthermore, purchasing managers remain upbeat about the future economic conditions. The hindrance to improved business activity may come from rising cost pressures, with fuel prices ticking up further this week. On 3 April, fuel prices increased by about 65 cents per litre, with a 3 cents uptick in diesel prices.
According to naamsa, new car sales decreased by 11.7% y-o-y in March. This follows a decline of 0.9% in February. The biggest drag came from passenger vehicles, which declined by 8%, reflecting weak demand in the current high-interest rate environment. Export sales, which have been volatile of late, slumped by 27.1% y-o-y.
Amid significantly less intense load-shedding compared to the same period last year, Stats SA reported that annual electricity production rose by 4.2% y-o-y in February. Compared to the previous month, production was up by 1.6%.
In an interview, the SA Reserve Bank (SARB) governor, Lesetja Kganyago, told Reuters that he would prefer to establish a lower inflation target before 2025. A team of policymakers, comprising the SARB and the National Treasury, are busy identifying the appropriate range and the associated risks. Along with identifying the risks, the team must advise the governor on the appropriate timeline for achieving the target. When inflation targeting was introduced in 2000 with a 3-6% headline CPI target, there were plans to lower the target to 3%-5% gradually, then eventually to 2%-4%. The governor feels it was a mistake that the target was never lowered. The SARB currently has an objective of 4.5% (the midpoint of the 3-6% target) but expressed that it would prefer to see inflation at 3%. Inflation was 5.6% y-o-y in February, and the SARB forecasts it to slow to 4.5% only in 2025Q4.
The JP Morgan global manufacturing PMI ticked up in March (see table below), broadly signalling an improvement in the health of the manufacturing industry. The March reading was the highest since July 2022. Notably, a 16-year high in manufacturing PMI expansion was registered by India, headlining growth in the sector globally.
In the US, the ISM manufacturing PMI resulted in the move into expansionary terrain. New orders and production indices contributed the most to the overall index. Meanwhile, the ISM services PMI slipped in March. The S&P global composite PMI marginally pulled back in March with both manufacturing and services dragging on the overall index.
Moving to China, the Caixin composite PMI edged slightly higher in March, suggesting that growth momentum continues to build. The manufacturing PMI pushed further into expansionary terrain. This was driven by the fast-rising new orders. There were pronounced reductions in input costs. Further developments in the manufacturing sector will be closely monitored as China’s government becomes increasingly dependent on the sector for growth amid continued pain in the property sector. The service sector, in tandem with manufacturing, ticked up in March. Aligning with the Caixin PMI reading, the official NBS composite, manufacturing, and services PMIs all moved higher in March.
The UK had a mixed bag of PMIs, with the S&P Global composite PMI slipping in March. Impressively, the manufacturing PMI entered expansionary terrain for the first time since July 2022. Decent new orders, output, and suppliers’ delivery time readings added to gains in the headline PMI. Nonetheless, the upward movement in the manufacturing sector was not enough to offset the decline in the services PMI.
Finally, the HCOB composite PMI for Eurozone (EZ) ticked up in March. The manufacturing PMI, however, remains in contractionary territory. Supply delivery times and inventories indices dragged the overall index marginally lower. To be clear, the former index signals a reduction in supply chain bottlenecks, as a result of diverting away from the ongoing Red Sea blockades and should be seen as an improvement in supply delivery times. On a positive note, the services PMI edged higher in March.
A preliminary estimate showed that EZ annual consumer inflation moderated from 2.6% in February to 2.4% in March. Factors dragging on the headline consumer inflation were broad-based, although services inflation remains sticky in the EZ. Core inflation, which strips out food and energy prices, eased to 2.9% in March from 3.1% in February.
Editor: Lisette IJssel de Schepper
Tel: +27 (21) 808 9777
Email: lisette@sun.ac.za
Click here for previous editions of this publication.
Please refer to the glossary on the BER website for explanations of technical terms.
Friday, 05 Apr 2024
