Overview as at 28 April 2022.
The sell-off in global markets continued during April as equities remained trapped in a volatile grind. Inflationary
concerns continued to dominate the headlines, with comments from the US Federal Reserve officials pointing towards an
even more assertive set of rate hikes. Geopolitical concerns stemming out of Eastern Europe as well as a resurgence in
Covid-19 cases in Shanghai also contributed to the sombre mood, fuelling concerns about global growth prospects.
However, some reprieve was seen towards the end of the month as investors re-entered the markets following the heavy
The US earnings season, while mostly positive, was overshadowed by ongoing concerns surrounding the inflation outlook.
Technology stocks led the decline, with concerns about what higher rates and bond yields would mean for valuations
leading to further pressure in the market. The VIX, which measures volatility in the US equity market, moved from lows
of around 18.6 to a high of 33.4 towards the last week of the month. The US 10-year yield moved up from 2.3% at the
start of the month to 2.8% at the time of writing. Tensions in Europe persisted after Russia warned that further
Western intervention in Ukraine would be met with military intervention. Russia also halted gas supplies to Poland and
Bulgaria towards month end, further magnifying supply constraints and the energy crises.
• We remain cautious on the returns for global equity markets as the supportive monetary and fiscal policy that
helped propel equities last year continues to fade.
• Increasing hawkish rhetoric from the US Federal Reserve compared to other major central banks has helped
increase the relative attractiveness of the dollar. Year to date, the US dollar has appreciated by more than 11% vs
the Japanese yen (as of 25 April 2022). The two regions’ central banks continue along diverging paths of
monetary policy with the Bank of Japan continuing its stimulus package as inflation remains below its 2% target.
• Developed market consumption expenditure is expected to be more muted amid lower savings rates, subsiding
government transfer payments, and as real disposable income is eroded by inflationary pressures.
• China’s economy continues to show signs of weakness with PMI’s falling below their neutral 50 mark.
Further Covid outbreaks across the region in April have added to declining investor sentiment as the government stands
by its economically detracting zero-Covid policy. Low relative valuations compared to other equity regions mean we
keep a close eye on the region, however, for now, we remain neutral until we see signs of an improving economic
• Commodity prices, which had one of their strongest first quarters in 2022 due to tailwinds such as supply
constraints, strong demand and the escalating conflict between Ukraine and Russia, stalled in April. The slow-down of
the world’s second-largest economy, China, has become a headwind for most commodities with copper, an industrial
metal renowned for being a leading indicator of global growth, starting to point towards an economic
• While price pressures remain sticky, particularly against the backdrop of elevated tensions between Russia and
Ukraine, we continue to believe that the inflation profile will subside in the second half of the year.
• We believe inflationary pressures will dissipate in 2H22 as we assume supply chain bottlenecks will likely
unwind as trading conditions normalise. In addition, shelter price base effects from 2021 will likely lead to a
disinflationary backdrop. Increasing headwinds for consumer demand will also likely add to disinflationary pressures
as regions such as Europe continue to struggle with high staple prices such as food and energy.
US data was mixed with the headlines dominated
by inflation and the Fed’s hawkish comments
On a preliminary basis, the S&P Global Composite PMI for the US
declined to 55.1 in April 2022, down from a final reading of 57.7 a month before. This was below expectations as
inflation continued to weigh on consumer spending. Retail sales increased 6.9% y/y in March, however this was well
below the market consensus of 11%. The trade deficit was fairly unchanged at $89.2 billion in February, below the
estimated gap of $88 billion, as imports continued to rise amid robust demand and rising oil prices. The
unemployment rate edged lower to 3.6% in March – the lowest since February 2020. This was below market
expectations of 3.7%. Annual inflation accelerated to 8.5%, reflective of elevated energy prices due to the
Russia-Ukraine war. Policymakers raised the target for the Federal Funds rate to 0.5% during their meeting in May
in an attempt to tame inflation.
Eurozone benefits from easing Covid-19 restrictions
but high inflation remains a concern
Initial estimates showed the S&P Global Eurozone Composite PMI
increased to 55.8 this month as private sector growth soared, amid eased Covid-19 restrictions. This was ahead of
the expectations of 53.9. The Eurozone posted a trade deficit of €7.6 billion in February 2022, compared to a
surplus of €23.6 in the same period a year ago, as imports increased 38.8% y/y, driven by a surge in energy
purchases, while exports rose at a slower 17% y/y. The seasonally adjusted unemployment rate in the euro area fell
to a new record low of 6.8% in January, below estimates. Annual inflation climbed to its highest on record to a
revised 7.4% in March 2022. This is now more than three times above the European Central Bank’s (ECB) target
of 2%, as sanctions on Russia pushed natural gas and fuel prices to record highs. During its March meeting, the
ECB said that it expects to conclude net asset purchases by the third quarter, and that any adjustment in the
interest rate will take place gradually after the asset purchase programme is concluded. On the economic front,
the central bank has acknowledged intensifying inflation pressures, mostly due to the surge in energy
UK unemployment rate returns to pre-Covid levels, however geopolitical
concerns remain at the forefront
Britain's gross domestic product grew 9.5% y/y in February 2022, in line with expectations. According to
preliminary reports, the S&P Global/CIPS UK Composite PMI fell to 57.6 in April, below the forecasted 59.6, as
momentum to pass-through escalating costs to consumers post the Covid-19 pandemic dried up. Retail sales volumes were
almost flat at 0.9% y/y, well below expectations. The trade deficit reduced to £9.26 billion in February, from
£12.84 billion in the previous month, as exports to European Union nations jumped 25.4%. The unemployment rate
was in line with expectations at 3.8% returning to pre-pandemic levels. Annual inflation also increased in line with
expectations to 7% in March. At its March 2022 meeting, the Bank of England raised its benchmark interest rate by
25bps to 0.75%, as widely expected. Recent events, such as the invasion of Ukraine by Russia, are likely to
heighten both the peak in inflation and the adverse impact on economic activity by further pressuring household
income. Inflation is expected to increase further in 2Q22, to around 8%, and possibly even higher later this
data was under pressure with its zero-Covid policy weighing on growth prospects
China’s composite PMI plunged to 43.9 in March, from 50.1 a
month before. This was well below expectations of 49. Retail sales declined 3.5% y/y, overwhelming estimates of a
1.6% fall. This was the first drop in trade since July 2020 as consumption weakened amid widespread Covid-19
lockdowns. China’s trade surplus jumped to $47.4 billion, from $11.8 billion in the same period a year before,
easily beating forecasts of $22.4 billion. Exports extended their double-digit growth, rising 14.7% y/y, while
imports fell 0.1%. The surveyed urban unemployment rate was up to 5.8% in March – marking the highest jobless
rate in over two years. China’s annual inflation rate rose to a three-month high of 1.5% as the cost of
household goods and services increased. This was slightly ahead of the expected increase of
Japan’s central bank maintained its dovish stance
Flash estimates showed that the Jibun Bank Composite PMI reading for
Japan rose to a four-month high of 50.9 in April 2022, from a final 50.3 in the previous month. This was well ahead
of expectations. Retail sales rose 0.9% y/y in March, ahead of the estimated 0.4%, driven by a recovery in
consumption of general merchandise, medicine, and toiletries. Japan posted a trade deficit of ¥412 billion
compared to forecasts of ¥100 billion. This marked the eighth consecutive month of a trade shortfall as imports
jumped 31.2% y/y. The unemployment rate fell to 2.6% - the lowest in over a year. Thisslightly exceeded expectations
of 2.7%. As widely expected, the Bank of Japan, left its key short-term interest rate unchanged at -0.1% and
maintained the target for the 10-year Japanese government bond yield at ~0%. The central bank also said that it
expects the economy to grow more slowly, amid headwinds from a resurgence in Covid-19 cases and a rise in commodity
prices due to the war in Ukraine.
In South Africa, data was mixed
The seasonally adjusted Absa PMI increased to 60 in March from 58.6
in the previous month. The latest reading pointed to the eighth straight month of expansion in manufacturing
activity, and at the strongest pace since records began in March 1999. Retail trade fell by 0.9% y/y in February,
compared with a 7.7% surge in the previous month. It was the first decrease since last August. Private sector credit
grew by 3.62% y/y in February, after a 3.11% gain a month earlier. This marked the eighth straight month of
increase, and the strongest rise since August 2020. The value of recorded building plans passed slipped by 19.5%
from a year earlier in February, after an upwardly revised 49.4% jump in the prior month. This marked the first
decline since January 2021 as building plans declined for all segments. The trade surplus rose to R10.6 billion in
February from R4.07 billion in January. Exports advanced 8% while imports increased at a slower 3.1%.
Mining production plunged by 6% y/y in February, after an upwardly revised 1.7% rise in the previous month. It was
the steepest decline in mining activity since January 2021. Manufacturing production went up by 0.2% y/y in
February, decelerating from a revised 2% growth in the prior month and well below market expectations of a 3.1%
Consumer price inflation rose to 5.9% in March, from 5.7% in the previous month and slightly below market
expectations of 6%. Main upward pressure came from fuel, food and housing. Core inflation, which excludes prices of
food and energy, printed at 3.8%, the highest since February 2020, from 3.5% in the prior month. The South African
Reserve Bank did not have a MPC meeting in April. The next MPC meeting is scheduled for 19 May.
Moody’s changed South Africa’s sovereign credit rating outlook to stable from negative and affirmed the
Ba2 rating, citing the improved fiscal outlook that raises the likelihood of government’s debt burden
stabilising over the medium term.
Overview as at 28 April 2022.
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