Quiet week on the local front ahead of elections; global focus on central bank speak


Tracey-Lee Solomon

The domestic data calendar was quiet, with consumer inflation data the most notable release. The downward surprise in headline CPI (see domestic section) was welcome, but it is unlikely to sway the SA Reserve Bank (SARB) to cut interest rates next week. This week's global economic news was dominated by ‘central bank speak’. US Federal Reserve officials sounded more hawkish than their European counterparts. The slew of flash PMI data released yesterday generally came out a bit stronger than expected.

Fed Governor Waller emphasised the need for several months of lower inflation data before considering easing monetary policy, citing little risk to the economy if rates remain restrictive for the next three to four years. This was echoed by others, with concerns about cutting rates too soon in focus. The latest Fed meeting minutes confirmed a hawkish stance, with some officials even open to further rate hikes if inflation remains high – although this was before the latest data showed a downtick in inflation. Despite the hawkish tilt, taking recent comments and data together, it suggests that rate cuts might still begin later this year. Markets anticipate two cuts starting in September. The next Fed meeting in June will provide more insights.

In Europe, European Central Bank (ECB) President Lagarde expressed confidence in controlling inflation, predicting it will be near the target in the coming years. The ECB is expected to cut its policy rate in June. However, new wage data suggests a potentially bumpier road to lower inflation. The international section has more. Of late, the Bank of England (BOE) has also been pleased with a steady decline in inflation in the UK. While this trend continued in April, inflation came in higher than expected, and services inflation remained sticky. Even so, it now appears likely that we will see a decoupling of European interest rates with the US, as both the ECB and BoE look poised to cut their policy rates before the Fed.

Finally, during a rain-soaked press conference on Wednesday, UK Prime Minister Sunak announced that the general election would be held on July 4, much sooner than expected. Sunak was required to call an election by December and hold it by January. The prevailing expectation is that the Conservative Party will lose significant support with the Labour Party taking charge of government following the election. It seems Sunak may have concluded that his party's popularity was unlikely to improve, although the UK-based Economist newspaper called the snap election announcement odd and illogical.

In local news, on Wednesday, the National Union of Metalworkers of South Africa (Numsa) initiated an indefinite strike at SA Steel Mills after the company allegedly dismissed over 100 workers for participating in a lawful strike, as ruled by the labour court. Numsa had secured a court interdict on May 7 to prevent the company from unfairly disciplining and dismissing the striking employees. On Monday, the labour court reaffirmed that the industrial action was protected and lawful and upheld the interdict obtained by Numsa. The union demands the reinstatement of over 124 fired colleagues and has vowed to continue striking until their demands are met. Earlier in the week, the Truck Drivers Forum and Allied SA (ATDF-SA) called off the national strike action initially scheduled for Monday. The ATDF-SA has repeatedly called for the exclusion of foreigners from the trucking industry.

Moving to financial markets, the FOMC minutes and hawkish statements from Fed officials led to a slight strengthening of the dollar against the euro this week. By Thursday’s close, the rand had depreciated against the dollar week-on-week. This was after the rand hit its strongest level against the dollar since July last year earlier in the week. The rand weakness was not just due to dollar strength as it also lost ground against the euro and the British pound. The usually volatile rand has been relatively stable ahead of the upcoming national elections next Wednesday, which is anticipated to be the most contested since the start of South Africa’s democracy. Violence has been minimal compared to other hotly contested elections across the continent. South Africa has been free from load-shedding for over 50 days. In addition to higher non-oil commodity prices, this period of political calm, growing expectations of a market-friendly election outcome and a lack of electricity disruptions has helped the rand recover after being oversold earlier in the year. The future trajectory of the currency will largely depend on the continuation of these stable conditions. One thing is certain: former president Zuma will not return to the National Assembly after the election. On Monday, the Constitutional Court ruled that Mr Zuma is ineligible to be a member of parliament due to the 15-month sentence previously imposed on him by the same court. However, Zuma's name will likely still appear on the MK party's ballot in next week’s election.

Last week, Brent crude oil prices declined despite political disruptions in two major oil-producing nations. Iranian President Ebrahim Raisi died in a helicopter crash on Sunday, and Saudi Arabia's Crown Prince Mohammed bin Salman cancelled his trip to Japan due to his father's ill health. Although these events are significant, they do not affect oil production policies in either country. Instead, the decline in oil prices was driven by concerns that prolonged higher interest rates, particularly in the US, would suppress oil demand. Other commodities were also affected by the expectation of higher for longer rates. After hitting a new record high earlier in the week, the gold price tumbled after the release of the FOMC minutes and registered a weekly decline of 1.5%. Similarly, the price of platinum declined by 2.3% but stayed above $1 000/oz.

In equity markets, the JSE Alsi was little changed w-o-w despite a midweek rally. The same trend was seen in most global bourses. After reaching a record high on Tuesday, the S&P 500 declined to register just a 0.2% uptick w-o-w. In Europe, the UK’s FTSE 100 (1.2%) and Germany’s DAX (-0.3%) were down w-o-w. China’s stock exchange was also in the red despite the People’s Bank of China announcing fresh support for the country’s property sector. Among other measures, the PBOC would set up a nationwide programme to provide 300 billion yuan ($41.5 billion) in loans to fund state purchases of unsold homes.


Locally, the focus will be squarely on Wednesday's elections. The last few days of campaigning will be crucial for all parties and could tilt the polls away from or in favour of the current ruling party. Official results are not expected before the weekend, but any unrest or protests could unsettle local financial assets. Furthermore, the SARB MPC is set to meet on Thursday and is widely expected to keep the interest rate unchanged. As always, the tone of the statement will be closely monitored. The SARB has emphasised upside risks to inflation and inflation expectations in recent meetings and a slightly softer touch on these issues could firm up expectations of (a) SARB rate cut(s) later this year. Indeed, while the US Fed has adopted a more hawkish stance, a lower oil price and stronger rand provide positive news for local inflation. Additionally, we will receive data on private sector credit extension and producer price inflation for April.

Internationally, Germany will release its consumer confidence index. In the EZ, we will receive May’s flash consumer inflation print. Following robust wage data this week, the ECB will closely monitor this to ensure inflation is declining as expected. The May inflation print will help determine whether a June interest rate cut is likely.

Finally, the US will release its core PCE index for April, the Fed’s preferred gauge of inflation. The official April CPI met expectations for the first time this year, and there are hopes that the PCE will be similarly predictable.


Nkosiphindile Shange


According to Stats SA, headline consumer inflation (CPI) moderated to 5.2% y-o-y in April from 5.3% y-o-y in March. The headline reading decelerated for a second consecutive month, largely due to a softer price increase in food and non-alcoholic beverages (up 4.7% y-o-y vs 5.1% in March). Meanwhile, fuel inflation continues to place upward pressure on transport prices, which picked up to 5.7% y-o-y. On a monthly basis, CPI rose by 0.3% in April, down from 0.8% in the prior month. Lastly, core inflation, which excludes food and energy costs, eased to 4.6% y-o-y in April from 4.9% y-o-y in March. April’s inflation print shows some welcome disinflation progress, reaffirming our view that headline CPI reached its peak in February and that we can expect to see inflation continue to moderate throughout the rest of the year.

In other news, the SARB’s composite leading business cycle indicator fell by 1.9% m-o-m in March, from a downwardly revised 1.3% increase in the prior month. This marks the largest contraction since August 2022. Only two of the seven components showed growth, with the positive contributors being the increase in South Africa's US dollar-denominated export commodity price index and a widening of the interest rate spread.


Nomvelo Moima


UK CPI rose by 2.3% y-o-y in April (0.3% m-o-m), down from 3.2% y-o-y (0.6% m-o-m) in March, data released by the Office for National Statistics (ONS) showed. The deceleration in inflation was welcome, but the reading was above economists' 2.1% market forecast. Services CPI remains sticky and rose by 5.9% in April, from a 6% increase in March. Core CPI increased by 3.9% y-o-y, down from 4.2% in March, but again above the 3.6% market forecast. Sticky inflation means there was a reduced probability of the BoE lowering the policy rate in June. Still, the continued move towards the 2% target meant that an August rate cut (our current view) remains likely.

The S&P Global flash UK PMI showed that there was a continued expansion in business activity in May on the back of a resurgence in manufacturing production, albeit slower than in April. The manufacturing output index rose to a 25-month high, but a decline in the services index to a 6-month low meant that the composite PMI fell to 52.8 in May compared to 54.1 in April.


The HCOB flash Eurozone composite PMI output index rose to 52.3 points in May, a 12-month high, from 51.7 points in April. The Eurozone economic recovery is gaining momentum, with new orders rising at the fastest pace in over a year and business confidence hitting a 27-month high in May. The services sector provided the biggest support, with manufacturing output remaining slightly in negative terrain. In the factory sector, weak demand in international markets limited the extent of growth in new orders as new export orders decreased for the 27th consecutive month, albeit at a softer pace. The softer pace of increase in output prices was welcome. Though business activity improved across the Eurozone, in France, the composite output index decreased for the first time in 2024, from 50.5 points in April to 49.1 in May.

On the wage front, the data released by the ECB showed that pay growth picked up in 2024Q4. Negotiated wages rose by 4.69% in 2024Q1, following a 4.45% rise in 2023Q4, as unions continued to demand compensation for real wages lost to rapid inflation in the past two years. The ECB expects compensation per employee in the eurozone to grow by 4.5% in 2024, 3.6% in 2025, and 3% in 2026.


The US Fed released minutes from their last meeting (late April/early May) on Wednesday. The minutes showed that the members remain aware of inflation risks and pressures. The progress of disinflation stalled in the first three months of the year as inflation remained high, and the Fed agreed that keeping rates at their current levels was required until there was evidence that inflation was coming down to desired levels. Still, over the medium term, inflation was expected to return to within the 2% target. The meeting took place before last week’s downtick in inflation (for more, click here). On Tuesday, Cleveland Fed President Loretta Mester said that she wants to see inflation declining for a few more months to confirm a sustained downward trend before considering rate cuts. The US dollar index strengthened somewhat, settling above the 105.00 level, but the lingering probability of multiple cuts later this year capped gains.

The S&P Global Flash US PMI Composite Output Index reached 54.4 points in May, a 25-month high and up from 51.3 points in April. This was the 16th consecutive month of output increases. This acceleration contrasts with the slowdown in March and April. The services sector led this improved performance, with the services activity index up to a 12-month high of 54.8 in May, up from 51.3 points in April, the highest reading in 12 months.


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.

View PDF Version of this article

Name: Quiet week on the local front ahead of elections; global focus on central bank speak