Economic week in review: BER

Cape Town - In its weekly economic review released today, the Bereau for Economic Research (BER) says that global financial markets were dominated by key central bank policy decisions last week, with three major central banks raising their policy interest rates to the highest level since before the global financial crisis in 2008/9. Despite further tightening, global stock markets rose through most of the week as traders/investors had a dovish interpretation of the guidance on the interest rate trajectory.

The European Central Bank (ECB) all but promised to deliver another 50bps hike next month, but the Bank of England (BoE) and US Federal Reserve (Fed) were more hesitant to commit and signalled that their tightening cycles were close to peaking, said the Bureau, adding that the dovish slant from the Fed, with Fed Chair Jerome Powell pointing to a “disinflationary process” underway in the US, boosted stocks as traders increased bets about the possibility of rate cuts later this year.

However, it explained that the block-buster US jobs data on Friday threw a spanner in the works with the consensus-beating print leading to a sell-off in US bonds and causing equity markets to move lower as a robust labour market could mean high(er) interest rates for longer.

On the local front, the first data releases for January came out last week, including the Absa PMI and naamsa new vehicle sales figures. The manufacturing PMI performed better than expected as the business activity index rose relative to December despite many respondents flagging load-shedding as weighing on output, said the Bureau, further explaining that it remains to be seen whether this can be sustained in the coming months and will depend on how well the sector can put in place mitigation measures to cope with the high levels of load-shedding that are expected to continue.

"Recent official manufacturing output data has been volatile (partly due to the lingering impact of the April 2022 flooding on vehicle manufacturing production), which makes it challenging to track the performance of the sector – this week sees the release of the December data to complete the picture for 2022. According to naamsa, load-shedding at recent “destructive higher stages” has an amplified negative impact on vehicle production. The domestic section unpacks the latest data which shows that annual domestic vehicle sales growth slowed in January relative to December 2022, while vehicle exports plunged.

"Despite the dip on Friday, most global stock markets still ended the week in the black. In  contrast, and after strong gains so far in 2023, the JSE ALSI closed 0.7% lower on the back of losses in the resource index. This was driven by lower prices for major SA export commodities such as platinum and gold. Positive for SA’s trade balance and inflation, the (1-month forward) Brent crude oil price declined by almost 8% w-o-w as markets await more clear signs that the reopening of China is resulting in higher demand for oil. On the other hand, if sustained, the notable weakening of the rand exchange rate towards the end of the week will counter the extent to which a lower oil price will filter through to lower domestic fuel prices," the Burea said.

Week ahead: SA mining and manufacturing data for December

In addition to the manufacturing production data mentioned earlier, the Bureau said Stats SA will publish mining production figures for December (both on Thursday), and the data is likely to confirm that both sectors contracted on a quarterly basis in Q4 and will be a drag on GDP. "Outside of the data, the key event on the local calendar will be the State of the Nation Address on Thursday night. Attention will be focused on any announcements on a support package to firms and households to help them manage the increased intensity of load-shedding. However, the details of a possible package are only likely to be provided in the budget statement on 22 February."

More broadly, the Bureau stated that President Ramaphosa may announce a state of disaster to deal with the energy crisis, and a cabinet reshuffle also remains a possibility this week after Deputy President David Mabuza confirmed his resignation over the weekend.

It is a relatively quiet week on the international data front, with the 2022Q4 GDP release for the UK being of interest after both the US and Eurozone economies performed better than expected during the final quarter of last year. The week closes with the (preliminary) University of Michigan’s consumer sentiment index for February.

In addition to gauging consumer sentiment, the survey also tracks inflation expectations going forward – an important gauge of the impact and effectiveness of Fed policy tightening in bringing down inflation. Speaking of the Fed, several US central bank policymakers have speaking engagements this week