Weekly Market Update | 27 May 2024

???? Local Market Indicators & News Highlights

?? Modest Easing in South Africa's Inflation

In April 2024, South Africa's inflation rate slightly decreased to 5.2% year-on-year, down from 5.3% the previous month, as reported by Statistics South Africa. This decrease, driven primarily by lower food price increases, marks the second consecutive month of easing inflation. However, this slight reduction is not expected to prompt the South African Reserve Bank to lower the benchmark interest rate, currently at a 15-year high of 8.25%. Despite the positive inflation data and a strengthening rand, monetary policymakers are likely to maintain current rates until inflation aligns closer with the targeted midpoint of 3%.

??Investec's Profit Rises Amid Strategic Shifts and Regulatory Probes

Investec reported an 8% increase in annual adjusted operating profit, reaching ￡884.5 million for the year ended March 31, 2024. The South African lender and asset manager also saw a 9.1% rise in headline earnings per share to 72.9p. It announced a final dividend of 19.0p per share, resulting in a total annual dividend of 34.5p per share. The company attributes its financial success to effective client acquisition strategies and favorable high interest rate conditions. Investec also faced increased costs due to a ￡30 million provision for potential compensation linked to a UK motor finance probe.

??? Southern Sun's Resilient Recovery Leads to First Dividend Post-Covid

JSE-listed hospitality giant Southern Sun has demonstrated a robust recovery from the pandemic's impact, showcasing an impressive 88% surge in Adjusted Headline Earnings per share for the fiscal year ending March 31, 2024. Notably, the company declared its first dividend since becoming a stand-alone entity, marking a significant milestone. This financial resurgence is attributed to a 32% increase in Ebitdar and robust tourism and business activities, particularly in Cape Town. The strategic acquisition of additional properties and effective cost management strategies during the pandemic have played crucial roles in Southern Sun's current success, positioning it as a leader in South Africa's hospitality sector.

??? South Africa's Economy Sees Promising Shift Towards Fiscal Health

South Africa may be reaching a critical turning point with its first primary budget surplus in 15 years, suggesting effective fiscal management. This fiscal achievement reflects the government's successful efforts in maintaining revenue above its non-interest expenditure. The primary surplus is a notable 0.4% of GDP for the year ending March 2024, with the main budget deficit also improving to 4.6% of GDP. These developments come at a crucial time for the ANC as it approaches challenging national elections with its economic stewardship critically evaluated. The achievement of a primary surplus offers a narrative of fiscal responsibility that could appeal to both voters and investors, providing a hopeful outlook amidst ongoing economic challenges.

?? Global Market Indicators & News Highlights

???? United States: Mixed Signals in Market Dynamics

Index Divergence: The Dow Jones suffered its worst week since early April with a 2.01% drop, while the Nasdaq hit new record highs, illustrating a significant divergence in market performance.

NVIDIA's Impact: NVIDIA's earnings beat propelled its stock up 9.3%, influencing the Nasdaq's climb but failing to uplift broader market sentiment as most S&P 500 stocks declined.

Economic Data Reactions: Surprisingly strong business activity in May, especially in services, raised concerns about delayed interest rate cuts by the Federal Reserve, impacting equity and bond markets.

????Europe: Economic Outlook and Policy Uncertainty

Mixed Market Performances: European markets showed mixed responses; while Italy and France saw notable declines, Germany remained relatively stable.

Eurozone Economic Indicators: Eurozone PMI showed improvement, suggesting strengthening business activity, yet persistent inflation concerns continue.

ECB Rate Cut Prospects: ECB President Lagarde hinted at a potential rate cut in June, bringing both hope and skepticism among investors about the effectiveness of such measures.

????United Kingdom: Persistent Inflation and Market Caution

Inflation Above Expectations: UK inflation remained higher than anticipated, complicating the Bank of England's monetary policy decisions.

Core Inflation Concerns: Core inflation also exceeded forecasts, adding to the worries about persistent price pressures despite a slowing economy.

Rate Cut Speculations Softened: Financial markets scaled back their expectations for rate cuts this year, responding cautiously to the latest inflation data.

???? Japan: Economic Contractions and Market Responses

Equity Market Response: Japanese stocks ended the week lower, reflecting global market trends and internal economic signals.

Government Bond Yields: Japanese bond yields rose, driven by speculation about Bank of Japan's policy tightening amid improving manufacturing activity.

Currency Challenges: The yen remained weak despite potential monetary tightening, complicating Japan's economic outlook amid fluctuating market conditions.

???? China: Housing Sector Focus and Policy Measures

Market Retreat: Chinese equities fell as optimism about new aid for the housing sector was offset by fears of persistent high rates in the U.S.

Housing Sector Aid: The People’s Bank of China announced significant measures to support the troubled housing sector, but market reactions were mixed.

Economic Indicators: Despite policy efforts, ongoing challenges in China’s property market and uneven economic recovery indicators continue to influence investor sentiment.