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• April was a volatile month for markets, with most major stock indexes struggling for direction before ending the in the green. Investors seem to be placing greater weight on the fact that recent data has highlighted a clear slowdown in inflationary pressures in the U.S., which has eased investors’ minds that the Federal Reserve will finally put an end to its aggressive hiking cycle. This optimism has pushed markets tentatively forward; however, worries remain due to fears surrounding the health of global economies, a rise in geopolitical tensions, and the return of United States (U.S.) banking sector fears. Despite the ongoing threats to global growth, the Morgan Stanley Capital International (MSCI) All Country World index ended April up 1.3%. Emerging markets underperformed against their developed counterparts, with the MSCI Emerging Markets index losing 1.3% as compared to a gain of 1.6% for the MSCI World index.
• Investors have been put on high alert yet again following the release of U.S.-based First Republic Bank’s quarterly results, which showed that it lost more than $100 billion in deposits in the first quarter. While the severity of the stress First Republic Bank is under is idiosyncratic, the news was enough to revive worries over the health of the U.S. banking sector.
• On the data front, U.S. factory activity fell to its lowest level since May 2020 after the Institute of Supply Management Manufacturing Purchasing Managers Index (ISM Manufacturing PMI) came in at 46.3 in March. Activity in the services sector is also slowing, with the ISM Services PMI falling to 51.2 from 55.1 in February. The deteriorating data shows that rising interest rates and growing recessionary fears are beginning to weigh on businesses and the economy.
• The slowdown in economic activity is feeding through into inflation numbers, as the latest CPI report showed a decline in headline CPI to 5.0% in March. While still a long way from the Federal Reserve’s (Fed) 2% target, investors believe that the recent trends will be enough to force the Fed to pause its hiking cycle. Consequently, markets have priced in one last 25 basis point hike at their meeting in May, followed by 75 basis points of cuts before year’s end.
• China’s service sector continues to expand, with March data showing the services PMI jumped to 57.8, the largest expansion since November 2020. Both new orders and employment rose, highlighting the positive effect the reopening is having on the sector. It is too early to call a full-blown economic recovery for China as the manufacturing sector continues to lag, with the manufacturing PMI falling to 50. The weakness in factory activity highlights the ongoing effects of the property downturn and global financial uncertainty on growth.
• Pressures in the United Kingdom’s (UK) manufacturing sector continue to mount, with the manufacturing PMI falling to 46.6 in April, the weakest level in four months. Attempts by consumers to cut costs continue to hit demand within the sector and point to a tough road ahead. Similar to other developed economies, activity in the services sector remains robust despite the slowdown in demand for goods. Preliminary estimates are pointing to an increase in the services PMI to 54.9 in April from 52.9 the month before. With annual headline CPI still running at 10.1%, consumers’ pockets will continue to feel the pain of rising interest rates as the Bank of England is forced to get a handle on inflation.
• Not much has changed on the local front as South African businesses and consumers continue to adapt to loadshedding and a higher cost of living. Retail sales were down 0.5% year-on-year in February, marking the third consecutive decline in retail activity. Other sectors of the economy are also under pressure, with both mining and manufacturing production contracting in February.
• Adding to the pressure on consumers was the jump in inflation for March. Headline inflation increased to 7.1% in March and is being driven by the persistent rise in food prices, with food inflation increasing to 14%. With inflationary pressures remaining and loadshedding only adding fuel to the fire, the South African Reserve Bank (SARB) will be under pressure to raise rates yet again at their meeting in May.
• South African equities rebounded in March and seem to be taking direction from global developments, with the JSE All Share index ending April up 2.8%. All sectors ended in the green, with resources, financials, and industrials returning 4.2%, 1.3%, and 3.0%, respectively. South African listed property also rebounded and ended April up 3.8%.
• One-month index movements:
• JSE All Share Index: 2.78%
• S&P 500 Index (US): 1.46%
• FTSE 100 Index (UK): 3.13%
• Hang Seng Index (Hong Kong): -2.48%

ARTICLE WRITTEN BY
MICHAEL DONIAN
INVESTMENT ANALYST
GLOBAL & LOCAL ASSET MANAGEMENT