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  • Quantitative tightening by global central banks initially dampened sentiment for stocks in May, however, the realization that we may have reached peak inflation in the United States and announcements by Shanghai to ease Covid restrictions subsequently lifted the mood. As such, stock markets struggled to find direction with the Morgan Stanley Capital International (MSCI) All Country World Index losing -0.13%. Both developed and emerging markets also ended the month relatively flat with the MSCI World Index returning -0.16% followed by 0.14% for the MSCI Emerging Markets Index.
  • The United States (U.S.) is starting to show signs of a slowdown with the Institute of Supply Management’s Manufacturing Purchasing Managers Index (ISM Manufacturing PMI) falling for the second consecutive month to 55.4 in April as compared to 57.1 in March. This marks the weakest level since July 2020 and can be attributed to labour shortages, supply chain issues and stubbornly high demand.
  • The pace at which the U.S. continues to add jobs is astonishing and continues to contribute to an already tight labour market. The US economy managed to add 428,000 jobs in April, marking the 12th consecutive month that they have added above 400,000 jobs.
  • On the upside, inflation in the U.S. slowed to 8.3% in April as compared to 8.5% in March. Despite the slowdown, inflation remains much higher than the 2% target and combined with the tight labour market gives the Federal Reserve room for more interest rate hikes. Thus, it comes as no surprise that they have essentially guaranteed another 50-basis-point hikes at both their June and July meetings before reassessing.
  • In China, industrial production fell for the first time since March 2020 by 2.9% as the Covid-19 lockdown measures rattle supply chains and distribution channels. On a better note, Shanghai has subsequently announced an easing of Covid restrictions which should help alleviate the situation.
  • In the United Kingdom (UK), inflation hit a 40-year high of 9% in April due to rising prices for electricity, gas, and fuels. The Bank of England (BOE) expects U.K. inflation to rise to around 10% in 2022 due to the ongoing war in Ukraine and lockdowns in China.
  • In an attempt to tame inflation, the Bank of England hiked interest rates by 25-basis-points to a 13-year high of 1% at their meeting in May. Given that consumers are getting squeezed by both higher prices and interest rates, the BOE has a very tough job of balancing inflation against slowing growth and recessionary pressures.
  • Locally, South Africans are having to deal with rolling blackouts which are hindering business activity. As such, our manufacturing production fell by 0.8% year-on-year in March. This coupled with rising costs of food and fuel is going to have sustained effects on economic growth.
  • The local inflation rate stood unchanged at 5.9% for April, however, marks the 12th consecutive month of it being above the South African Reserve Bank’s (SARB) 4.5% midpoint. Annual core inflation – which excludes volatile items such as food, fuel, and energy – increased to 3.9% from 3.8% in March.
  • In line with global central banks, the South African Reserve Bank also increased the Repo rate by a further 50-basis-points to 4.75% at its MPC meeting in May, thus bringing the prime lending rate to 8.25%. The Reserve Bank yet again cited upside risks to inflation, with emphasis on the effects of the rising cost of electricity and potential for further currency weakness.
  • The South African rand had a volatile month after lockdowns and the interest rate hike by the Federal Reserve caused it to hit a mid-month high of R16.32 against the greenback. However, SARB’s 50-basis-point hike subsequently pushed the rand back below the psychological R16 level. Consequently, the rand ended the month up 1.2% and 0.9% against the dollar and pound respectively but lost 0.7% against the euro.
  • South African equities also ended relatively flat with the FTSE/JSE All Share index losing 0.47% in May. Both the industrial and resource sectors dragged down performance after losing 2.36% and 0.32% respectively. Financials, on the other hand, ended May up 4.16%.
  • One month index movements:
    • JSE All Share Index: -0.47%
    • S&P 500 (US): 0.01%
    • FTSE 100 (UK): 0.84%

 

Source: Investing.com and Trading Economics