Watch video

Written version

• Markets rebounded in June as investors cheered news that the US had reached an agreement to lift the debt ceiling and avoid default. Sentiment is also being buoyed by hopes that China will introduce fresh rounds of stimulus in order to support the ailing economy. On the other hand, hawkish central bank comments and growing concerns regarding slowing global growth have been put on the sidelines for the time being. Consequently, the Morgan Stanley Capital International (MSCI) All Country World index ended June up 5.6%. Developed markets outperformed, with the MSCI World index returning 5.9% as compared to 3.2% for the MSCI Emerging Markets index.
• The US economy is displaying mixed signals. According to the latest data from the Institute of Supply Management’s report, the manufacturing PMI dropped to 46.9 in May, indicating the seventh consecutive contraction in the manufacturing sector. In the same month, the services PMI also declined to 50.3, falling well below the anticipated increase of 52.2. These reports emphasise that businesses are grappling with heightened uncertainty over fears of future demand.
• On the other hand, the labour market remains tight, with approximately 1.79 jobs per unemployed. There was also a surprising development in the latest nonfarm payrolls release, which revealed that the US economy added 339 000 jobs in May. This figure marks the highest increase in four months and significantly surpasses the forecasted 190 000 jobs. Adding to the relative resilience of the US economy was a string of positive releases relating to the housing market. Building permits, new home sales, and housing starts all experienced month-on-month growth in May, with increases of 5.6%, 12.2%, and 21.7%, respectively.
• The US Federal Reserve also decided to leave interest rates unchanged at its meeting in June; however, it has since come out with hawkish comments that two more rate hikes are on the cards before year-end. With the labour market and interest rate-sensitive housing market both showing signs of strength, more rate hikes cannot be ruled out. Despite the Fed forecasting two more rate hikes, the market is currently only expecting one more 25 basis point hike.
• China continues to report weak economic data as euphoria post-reopening begins to fade. Factory activity declined for a third consecutive month in June, as the manufacturing PMI came in at 49.0, still below the 50 mark. The services sector also seems to be cooling off as the non-manufacturing PMI fell to 53.2 from 54.5 in May. With data continuing to disappoint to the downside, there will be additional pressure on authorities to step in to prop up growth for the second half of the year.
• The UK economy remains in a very difficult position as ongoing inflation concerns, rising rates, and slowing growth dampen the outlook for economic growth. The latest CPI report showed that annual inflation remained at 8.7% in May, above consensus for a drop to 8.4%. Of more concern was the fact that core CPI, which excludes the effects of volatile items like food and energy, increased to 7.1% from 6.8% in April. As a result, the Bank of England surprised markets by raising rates by 50 basis points in June and joined other major central banks in stating that future rate hikes will be necessary.
• The South African economy narrowly missed a technical recession in the first quarter as GDP growth came in at 0.4% quarter-on-quarter. Local manufacturing production advanced 0.5% (month-on-month) in April, following a downwardly revised 3.4% jump in March. This points to the resilience of the manufacturing sector, which has had to deal with bouts of load shedding. Retail sales, on the other hand, contracted 1.6% in April, marking the fifth consecutive decline as load shedding, inflation, and higher rates adversely impact the sector. On the inflation front, both annual headline and core CPI declined to 6.3% and 5.2% in May, respectively.
• South African equities followed global peers higher, with the JSE All Share index returning 1.3% in June. The broad index was dragged down by resources which fell 8.2%, whereas both financials and industrials advanced 11.4% and 3.6%, respectively. South African listed property was flat with 0.0%.
• One-month index movements:
  • JSE All Share Index: 1.28%
  • S&P 500 Index (US): 6.47%
  • FTSE 100 Index (UK): 1.15%
  • Hang Seng Index (Hong Kong): 3.74%