Absa PMI benefits from no load-shedding in April


Tracey-Lee Solomon

In a public holiday-interrupted week on the domestic front, notable releases included April's Absa Manufacturing Purchasing Managers Index (PMI) and naamsa vehicle sales data. The PMI painted a notably brighter picture compared to March, which was attributed to improved domestic demand and higher output. The sector was likely buoyed by the absence of load-shedding, providing a conducive environment for business activity. Despite this positive momentum, manufacturers remain cautious, evidenced by the decline in the expected business conditions index for April. Their apprehension is well-founded, given Eskom's warning that load-shedding is anticipated to resurface during winter, underscoring ongoing concerns about energy reliability despite the current (welcome) streak of no disruptions.

The international data calendar was jam-packed, particularly in China, where both the official government and private sector PMIs indicated a steady, albeit modest, improvement in factory activity (refer to the international section for further details). While early indicators, such as the better-than-expected Q1 GDP growth, have been encouraging, there is a prevailing sentiment that the Chinese government must take additional measures to achieve their targeted GDP growth of "around 5%" for the year. In response, the Chinese Communist Party's Politburo announced plans to ramp up support for the economy. Notably, the Party's top decision-making body outlined initiatives to bolster the property sector, focusing on addressing housing inventories. The Politburo hinted at employing tools such as interest rate adjustments and reserve requirement ratios to stimulate economic activity, suggesting a potential interest rate cut. Additionally, proposals were made to relax urban residency permits to boost demand for housing in urban areas. Among the proposed policy measures are the issuance of ultra-long-term special treasury bonds and expediting the issuance of local government special bonds to sustain fiscal expenditure. The Politburo's forthcoming gathering in July for a pivotal plenum meeting is expected to provide further insight into the Chinese government's long-term policy direction.

In the Eurozone (EZ), attention centred on the bloc's Q1 GDP performance, which showed a notable improvement. In addition, preliminary data showed that core inflation continued to moderate (although the downtick in headline stalled). The persistent downtrend in inflation, notably in services, further solidifies market expectations of an imminent rate cut by the European Central Bank (ECB). This shift suggests a potential turning point for the EZ economy, as the anticipated easing of interest rates is poised to provide additional support to the economy.

Shifting focus to the US, all attention was directed towards the Federal Reserve (Fed). As anticipated, the Fed opted to maintain its current interest rate. While the monetary policy statement was certainly more hawkish than previous statements this year, relative to market expectations, Powell came across as slightly more dovish. Prior to the meeting, there were concerns that not only would the Fed refrain from cutting rates soon but also that they might need to raise rates to curb inflation. Powell's assertion that current rates were sufficiently restrictive to address inflation and that a hike was unnecessary, citing the need for more time, dispelled such fears. Consequently, the abandonment of a potential rate hike led to a decline in bond yields following the meeting. 

On a more positive note (for inflation), oil prices declined last week. Brent crude oil prices saw a significant decrease of 3.9%, primarily attributed to diminished risk in the Middle East. Currently, Israel and Hamas are considering a 40-day ceasefire proposal, contributing to reduced geopolitical tensions in the region. As previously noted, the oil price has been influenced by a substantial Middle East risk premium. Any indications of progress in resolving the conflict tend to alleviate these concerns, leading to lower oil prices. Similarly, gold prices experienced a decline. Gold, often sought after as a safe-haven asset during times of uncertainty, tends to decrease in value as global geopolitical risks diminish.

Emerging markets like SA stand to benefit from a less risk-averse market environment. This optimism was reflected in the performance of the JSE Alsi, which saw a 2.3% increase w-o-w by Thursday. Additionally, the rand strengthened against major currencies, gaining over 2% against the dollar, euro, and pound. Finally, SA bond yields moved lower in line with international yields.

Among SA’s export commodities, platinum saw a notable gain of 4.6%, driven by concerns surrounding one of SAs largest producers, Implats. Fears of production cutbacks surfaced following Implats' announcement of their intention to shed over 3 000 jobs. Last Friday, Implats confirmed their plans to restructure operations in SA.


Locally, Stats SA is set to unveil the March manufacturing production data. In February, manufacturing production surprised on the upside. An improvement in the February Absa PMI telegraphed the improvement in manufacturing activity. In March, the PMI signalled a slowdown in activity. Annual growth in manufacturing production is likely to have slowed in March. S&P will also release the SA April PMI, encompassing both the manufacturing and non-manufacturing sectors.

On the global stage, April's US nonfarm payrolls data is slated for release later today. Despite signs of a cooling labour market, Q1 data showed persistent tightness. March saw a robust addition of over 300 000 jobs, marking the biggest surge in ten months. Meanwhile, average hourly earnings continued to increase above 4%. There are also concerns as nonfarm labour productivity growth decelerated in Q1. A combination of factors, including higher employment, rising wages, and sluggish productivity growth, is worrying for inflation. 

Turning to the UK, attention is focused on the Bank of England's (BoE) upcoming interest rate decision. The BoE widely anticipated to keep interest rates unchanged, but markets are awaiting any indications of potential policy easing this year. Subsequently, on Friday, the Office of National Statistics will release preliminary UK GDP figures for Q1. Following a technical recession at the end of last year, analysts are optimistic that the UK economy has avoided a further contraction.

Finally, China is gearing up to release its trade data for April. Beijing has turned to exports to boost its economy amidst challenges in the property market. This should be reflected in another robust trade surplus in April.


Nkosiphindile Shange


The seasonally adjusted Absa PMI surged to 54 in April 2024, up from 49.2 in the prior month, to signal a renewed expansion in SA factory activity. The rebound comes from improved business activity, while better domestic demand filtered through to higher new sales orders. A full month of no load-shedding was likely positive for sustained business activity. The continued efforts to solve the port issues may have also had a positive impact. However, cost pressures remain. On that front, while petrol prices increased by 37 cents to the highest level since October 2023, diesel prices (an important input cost for manufacturers) decreased by 30-36 cents.  (Click here to listen to an interview on the April PMI, and here for one in Afrikaans, which starts at about 16 minutes in).

Staying with April news, domestic new car sales surpsingly ticked up, by 2.2% y-o-y following eight straight months of declines. More trading days relative to April 2023 may have helped with the increase. While welcome, car demand will remain suppressed in an environment with sticky inflation, high interest rates, and higher fuel prices. Worryingly, export sales slumped by 23.9% y-o-y from a high base set in April 2023.


The trade balance surplus edged down to R7.3 billion in March, below a Reuters poll for a surplus of R15 billion. This is almost half the downwardly revised surplus of R13.3 billion recorded in February. The narrowing was due to the rise in imports of 6.1% m-o-m, while exports grew by just 1.8%. In other news, SA recorded a budget surplus of R2.1 billion in March, compared with a deficit of R56.27 billion in the same month a year earlier. Finally, according to the SARB, credit extension to the private sector grew by a faster-than-expected 5.2% y-o-y, up from 3.3% in February. This was mainly driven by higher corporate credit extension (6.4% in March from 2.7% in February) as an extension to households slowed further to a three-year low of 3.7%.


Nomvelo Moima


As expected, the US Fed held the federal funds rate steady on Wednesday, at 5.25% - 5.5%. Unlike the past two FOMC meetings, there has been a noticeable shift in the wording of the Fed’s official statement. Acknowledging for the first time that "in recent months, there has been a lack of further progress" toward its 2% target, it is clear that the FOMC no longer views the recent persistence of inflation as a bump in the road. Fed Chair Jerome Powell’s post-meeting press conference notably did not provide any forward guidance on the path of interest rate cuts for the year as in prior meetings. This shift in communication signals the recent data has pushed the Fed to delay rate cuts further into the year, meaning rates will remain high for longer. However, with this, Chair Powell indicated that a need to hike again would be unlikely, calming market concerns of a more hawkish Fed response.

In other news, the ISM Manufacturing PMI disappointed at the start of the second quarter. Dipping to a below-consensus 49.2 in April from 50.3 in March, the headline index slipped back into contractionary territory after its first month of expansion since September 2022. The decline was due to softer demand, reflected in the new orders and new export orders sub-indices falling back into contraction. Worryingly, the input prices climbed higher. This supports concerns of US inflation remaining sticky as the reacceleration of inflation appears to extend beyond service prices, further posing a risk to the Fed’s inflation outlook.


According to the first estimate from Eurostat, the EZ economy grew at its fastest pace since 2022Q3. Following two consecutive periods of -0.1% q-o-q growth, the EZ economy expanded by a better-than-expected 0.3% q-o-q in 2024Q1. This was driven by growth accelerating above market forecasts in all four of the bloc’s largest economies. Notably, Germany’s economy made a solid rebound from -0.5% q-o-q in 2023Q4 to 0.2% q-o-q.

A preliminary estimate showed that EZ consumer inflation remained stable at 2.4% y-o-y in April. Inflation slowed for services (3.7% y-o-y compared to 4% y-o-y in March), non-energy industrial goods (0.9% from 1.1%) as well as energy prices (-0.6% from -1.8%). Conversely, price increases in food, alcohol, and tobacco accelerated to 2.8% from 2.6% in the prior month. Core inflation, which excludes volatile food and energy categories, continued to fall from 2.9% y-o-y to 2.7% y-o-y in April. Despite the slowdown in headline inflation stalling, the fact that core inflation continued to trend lower reinforced market (and our) expectations for the ECB to begin cutting interest rates in June.


The official NBS manufacturing PMI came in slightly above consensus, at 50.4 in April, but was down from the 12-month high of 50.8 in March. The momentum gained in factory activity was led by expansions in new orders, foreign sales, and output. The employment and raw material inventory indices remained in contractionary terrain, while input cost inflation accelerated. The Caixin Manufacturing PMI told a similar, but slightly upbeat story, rising above market expectations to 51.4 in April. This marked the highest reading since February 2023. Amid improvements in demand conditions, output, new orders, and foreign sales all expanded at a faster pace. Meanwhile business confidence remained positive but eased from March due to concerns of rising cost pressures.


Editor:           Lisette IJssel de Schepper
Tel:                +27 (21) 808 9777
Email:           lisette@sun.ac.za

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Name: Absa PMI benefits from no load-shedding in April