Written version
- Markets experienced a highly volatile month in March as fears of contagion in the banking sector frightened investors. On Friday, March 10, tech-focused lender Silicon Valley Bank (SVB) suddenly collapsed due to a depositor bank run, which it could not cope with due to poor risk management practices. The collapse sent ripples across the financial industry as SVB became the second-largest bank failure in US history and the largest since the Great Financial Crisis. Just two days later, federal regulators also shut down Signature Bank due to concerns about depositors withdrawing large amounts as the SVB collapse began to spread fears of widespread contagion. Sentiment surrounding the health of the US financial sector has since improved following actions by officials to shore up confidence and make depositors whole. While the banking sector is not out of the woods, markets have taken relief from the fact that no further problems have surfaced and have continued to press forward. Consequently, the Morgan Stanley Capital International (MSCI) All Country World index ended March up 2.8%, with emerging (MSCI Emerging Markets index) and developed (MSCI World index) markets returning 2.7% and 2.8%, respectively.
- The US economy remains resilient, with the services sector leading the way. The Institute of Supply Management’s Services Purchasing Managers Index (ISM Services PMI) came in at 55.1 in February, well into expansionary territory and beating expectations of 54.5. New orders advanced at their fastest pace since November 2021, further highlighting the strength and confidence within the sector. The ISM Manufacturing PMI also edged higher to 47.7 in February, however, pointed to the fourth consecutive month of falling factory activity. While the economy is holding up for the time being, the recent bank collapses will undoubtedly cause credit conditions to tighten, which will put pressure on growth and consumer spending in the months ahead.
- There were no surprises on the inflation front, with the latest CPI report falling in line with expectations. Headline CPI rose 0.4% in February and 6% on an annual basis, while core CPI fell to 5.5%. Despite the turmoil in the banking sector, the Federal Reserve (Fed) decided to raise rates by another 25 basis points at their meeting in March as inflation remains their point of focus. Fed Chair Jerome Powell did, however, indicate that they may be close to pausing and stated that the bank collapses would result in tightening financial conditions.
- The Chinese reopening is well underway, with the economy opening its doors to tourists for the first time in three years. The reopening has lifted consumption in the world’s second-largest economy and put it on a higher growth trajectory for 2023. Economic data confirmed this observation, with the manufacturing PMI coming in at 51.9 in March, marking the third consecutive month in expansionary territory. The services sector also continues to advance at a rapid pace, with the services PMI jumping to 58.2, the highest reading since May 2011.
- Despite the modest recovery in the UK, fresh data has highlighted the tough road ahead for the economy. Manufacturing activity contracted for the eighth straight month after the manufacturing PMI fell to 48 in March. The services PMI also declined to 52.8 in March from 53.5 the month before. While the services sector is still running in expansionary territory, the latest CPI report showed a jump in headline inflation to 10.4%, which will likely force the Bank of England to tighten conditions further and put additional downward pressure on consumer and business sentiment.
- Locally, mining production fell by 1.9% year-over-year in January, beating estimates of a 2.7% decline but marking the completion of a full 12 months of consecutive contractions. On a better note, manufacturing activity surprised to the upside with production advancing 1.1% in January, as compared to expectations for a 0.3% decline. With load shedding set to continue, the local economy will need to get used to lower levels of productivity.
- South African inflation accelerated faster than expected in February, with both headline and core CPI coming in at 7.0% and 5.2%, respectively. With inflationary pressures increasing, the South African Reserve Bank (Sarb) shocked the market by raising the repo rate by 50 basis points to 7.75%. Reserve Bank governor Lesetja Kganyago stated that inflation remains a severe risk and that load shedding is only exacerbating the problem.
- Local equities contracted in March as the slowing economy and banking turmoil in the US took their toll on risk sentiment. The JSE All Share index ended the month down 2.1%, with financials weighing on the local bourse with a return of -6.4%. Industrials also detracted with -1.0%, while resources benefited from a rebound in gold and other commodity prices to end the month up 0.7%. South African listed property has fallen 3.7%, marking the third consecutive monthly decline.
- One-month index movements:
- JSE All Share Index: -2.10%
- S&P 500 Index (US):3. 51%
- FTSE 100 Index (UK): -3.10%
- Hang Seng Index (Hong Kong): 3.10%
