International market overview - As at 28 June 2022

Central banks of England and Switzerland, among others, also extended a hawkish stance following the United States Fed’s record 75 basis points hike, which sent shock waves through markets. Prevailing geopolitical tensions in Eastern Europe also lent further volatility to markets as western nations pressed on with further sanctions against Russia. Some relief following easing lockdown controls from China’s zero-covid measures remained a highlight, which have had a dampening impact not only on economic readings but also on corporate earnings.

Equities on Wall Street remained better for sale for most of the month amid recessionary fears spurred by aggressive interest rate hikes, although a rebound was spurred by bargain hunting and headlines about the possible softening of regulatory scrutiny on Chinese tech. While the rate hike trajectory remains assertive, policymakers affirmed that the US economy would be strong enough to withstand further tightening measures.

The local bourse tracked the swings in global markets with a rebound from the month’s lows amid improved risk-sentiment towards the latter part of the month. Emerging market currencies faltered against dollar strength, with the local unit trading above the critical R16 to the dollar mark. Sentiment was also driven by the mixed bag of economic indicators, including a higher GDP print supported by easing of Covid-19 restrictions as well as an improved unemployment rate. This was, however, offset by accelerating consumer prices above the South African Reserve Bank’s (SARB) target range. The reimposition of load-shedding remains a headline risk for domestic growth, with the introduction of stage six power cuts further dimming the economic outlook.

Oil prices have also kept traders on their toes ahead of the Organisation of the Petroleum Exporting Countries (OPEC+) meetings towards the end of the month, with expectations that the oil cartel will stick to its planned output boost for the next three months until September. However, recent reports that Saudi Arabia and the United Arab Emirates are already near maximum production capacity suggest that further supply increases may therefore be unable to relieve mounting pressure on the global economy.


US data was mixed with news flow dominated by inflation numbers, which accelerated to its highest since December 1981

The S&P Global Composite Purchasing Managers’ Index (PMI) for the US was revised lower to 53.6 in May 2022, down from a final reading of 56 the month before, signalling a slower upturn in business activity, due largely to price hikes and supply-chain disruptions. Ahead of expectations though, retail sales increased 8.1% year-on-year, from a downwardly revised increase of 7.8% in April.

The trade deficit narrowed to a four-month low of $87.1 billion in March, below market forecasts of an $89.5 billion gap, as exports were up 3.5%, while imports declined 3.4%. The unemployment rate was unchanged at 3.6% in May, marginally higher than initial forecasts of 3.5%. Annual inflation increased unexpectedly to 8.6%, the highest the US has seen in over 40 years. As a result, the Federal Reserve increased its target rate by 75 basis points to between 1.5% and 1.75%, during its June 2022 meeting. Policymakers now expect interest rates to climb to 3.4% this year, well above initial expectations of 1.9%, while the economy is anticipated to expand by 1.7% compared to previous estimates of 2.8% in March.

Eurozone inflation hits a record high, however, the ECB has guided for gradual rate hikes

On a preliminary basis, the S&P Global Eurozone Composite PMI fell to 54.8 in June, as new orders for goods and services stagnated for the first time since the demand recovery started in early 2021. This is, however, still ahead of the market consensus of 54. The Eurozone posted a trade deficit of €32.4 billion in April 2022, compared to a surplus of €14.9 billion in the same period last year, as imports surged 39.4% year-on-year, while exports rose at a softer 12.6% year-on-year. In line with expectations, the unemployment rate stood unchanged at 6.8%. Annual inflation for May was confirmed at a record-high 8.1% due to a broad increase in the price of energy, food, alcohol, tobacco, and services. This remains well above the European Central Bank’s target of 2%, and as such, the central bank announced that it will be raising interest rates by 25 basis points from July 2022. Policymakers also highlighted the conclusion of net asset purchases.

UK data remains mixed with inflation rising in line with expectations

According to preliminary reports, the S&P Global/CIPS UK Composite PMI remained unchanged at 53.1 in June, higher than the forecasted 52.3. This reflects resilient business activity trends that were seen across the service economy as a whole. Retail sales volumes decreased 4.7% year-on-year, compared to estimates of a 4.5% decline. The trade deficit declined to £8.5 billion in April, from £11.55 billion in the previous month, as imports dropped while exports gained. The unemployment rate was worse than expected as it edged higher to 3.8%. Annual inflation also increased in line with expectations to 9.1% in May. During its June 2022 meeting, the Bank of England (BOE) raised the key Bank Rate by 25 basis points to 1.25%, as widely expected. The BOE emphasised its commitment to reining in inflation back to the 2% target and only “act forcefully” if necessary. The central bank now expects inflation to be over 9% during the next few months and to rise to slightly above 11% in October while GDP growth is expected to slow sharply over the first half of the forecast period.

China’s data mostly ahead of expectations with easing Covid-19 restrictions supporting sentiment

China’s composite PMI jumped to 42.2 in May, from 37.2 a month before. This was well below expectations of 45. Retail sales declined 6.7% year-on-year, which was better than the expected decrease of 7.1%. China’s trade surplus jumped to $78.76 billion, from $51.12 billion in the same period a year before, beating forecasts of $58 billion. Exports climbed 16.9% year-on-year, and imports increased 4.1% year-on-year. The surveyed urban unemployment rate was down to 5.9% in May, easing from the highest jobless rate in over two years. China’s annual inflation remained unchanged at 2.1% as consumption strengthened following an easing of Covid-19 curbs in some major cities.

Japan’s central bank maintained its dovish stance

Flash estimates showed that the Jibun Bank Composite PMI reading for Japan rose to a seven-month peak of 52.3 in June 2022, from a final 51.1 the previous month. This was ahead of expectations. Retail sales increased to 2.9% year-on-year in April, ahead of the estimated 2.6%, boosted by stronger consumption as coronavirus restrictions in various regions were eased. Japan posted a trade deficit of ¥2.4 trillion compared to consensus estimates of ¥2 trillion, as imports soared 48.9% year-on-year. The unemployment rate fell to 2.5%, which was slightly better than expectations of 2.6%. 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%. Policymakers view that Japan’s economy has picked up, despite some weakness from the impact of Covid-19 and surging commodity prices, however, it was reiterated that extra easing measures could be implemented if needed.

In South Africa, data was mixed

South Africa’s GDP rose by 1.9% quarter-on-quarter in the three months to March, following an upwardly revised 1.4% rise in the prior period and well above market estimates of a 1.2% rise, which was helped by the easing of all remaining Covid-19 restrictions.

The composite leading business cycle indicator fell by 0.3% in April, following an upwardly revised 1% rise in March. The RMB/BER business confidence index fell to 42 in quarter two of 2022 from 46 in the previous period, reaching the lowest level since quarter one of 2021. The deterioration was mainly felt by manufacturers and new vehicle dealers due to ongoing supply chain shortages and the temporary closure of the Toyota plant in Durban due to flooding. Meanwhile, building contractors turned decisively more upbeat.

The S&P SA PMI rose to 50.7 in May from 50.3 in April, indicating a slightly stronger improvement in the health of the private sector economy. Private sector credit grew by 5.99% year-on-year in April, after a 5.92% gain a month earlier. This marked the tenth straight month of increase and the strongest rise since May 2020.

The value of recorded building plans passed plunged by 8.3% from a year earlier in April, compared to a downwardly revised 15.1% rise in the prior month. Retail trade rose by 3.4% in April, following an upwardly revised 1.7% rise in the previous month and beating expectations of a 1.6% increase.

The trade surplus shrank to R15.49 billion in April from an upwardly revised R47.2 billion in March. The current account surplus rose to R143 billion in quarter one of 2022, from an upwardly revised R132 billion in the fourth quarter, beating market expectations of R105 billion. As a ratio of GDP, the current account surplus rose to 2.2% from 2.1% in the last quarter of 2021.

Mining production plunged by 14.9% year-on-year in April, after a downwardly revised 7.5% fall in the previous month. It marks the third consecutive month of a downturn in mining activity and is at its steepest pace since June 2020 mainly due to the ongoing power crisis.

Manufacturing production fell by 7.8% year-on-year in April, after a revised 0.6% decrease in the prior month and worse than market expectations of a 2.6% drop. Loadshedding and the severe floods in KwaZulu-Natal were the main reasons flagged for the negative print.

Consumer price inflation (CPI) accelerated to 6.5% in May, from 5.9% in April, above market expectations of 6.2% and above the SARB’s target range of 3-6%. It was the highest reading since January 2017, as prices continued to accelerate mostly for transport (fuel) and food. Core inflation, which excludes prices of food and energy, rose to 4.1% in May, the highest since August 2019, from 3.9% in the previous month. The SARB’s next monetary policy meeting will be held in July when further hikes are expected.

The unemployment rate eased to 34.5% in quarter one of 2022, the first decline in seven quarters, down from a record high of 35.3% in the prior period. Among sectors, job gains were seen in the community and social services, manufacturing, and trade. Positions were cut in private households, finance, and construction.


  • 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.
  • Hawkish rhetoric from the US Federal Reserve compared to other major central banks has helped increase the relative attractiveness of the dollar.
  • 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.
  • The partial reopening of the Chinese economy and recent upside surprises to economic data are welcomed. While we are cautious of sudden lockdowns being erected, low relative valuations compared to other equity regions are making the investment case attractive.
  • Commodity prices remain elevated amid supply-side constraints, low inventories and as conflict between Ukraine and Russia continues. However, industrial commodity prices have shown notable weakness in recent weeks as the global economy continues to slow.
  • 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 the second half of 2022 as we assume supply chain bottlenecks will likely unwind as trading conditions normalise. Increasing headwinds for consumer demand will also likely add to disinflationary pressures as high staple prices such as food and energy erode real consumption expenditure prospects. Moreover, more favourable base effects will likely assist in lowering year-on-year CPI prints.