Throughout the month, the global financial markets have been weaving their way
through an intricate tapestry of geopolitical uncertainties, pivotal economic data,
and the strategic directions undertaken by central banks. In the United States,
the Federal Reserve’s March Federal Open Market Committee (FOMC) meeting
heralded a wave of optimism. The dovish tone struck by Federal Reserve
Chairman Jerome Powell not only reassured investors, but also hinted at a
potential easing of interest rates in the latter part of the year. This, combined
with the Fed’s upward adjustment of the 2024 GDP growth forecast from 1.4% to
2.1%, injected a notable dose of confidence into the markets. Such optimism
helped temper fears that the Federal Reserve might maintain a tight monetary
policy, which could risk nudging the economy toward recession. The sectors most
responsive to economic cycles – industrials, materials, and energy – saw
heightened activity, reflecting a greater attention as the month ended.
In the US, market performance was broad, with the S&P 500 and the Nasdaq 100
making significant strides, recording gains of +3.2% (YTD: +10.6%) and +1.2%
(YTD: +8.7%) respectively. Across the Atlantic, the MSCI Europe ex UK Index
firmed by +3.7% over the month (+8.3% YTD), despite emerging signs of
economic slowdown in key economies. The UK’s FTSE 100 Index also experienced
a fruitful month, closing with a +4.8% gain (YTD +4.0%). Japan’s equity markets
continued on an upward trajectory, with the Nikkei Index climbing by 3.8% (YTD:
+21.5%), although concerns over a depreciating yen – lurking near JPY 152
against the US dollar – remained a focal point for potential governmental
intervention in the forex markets.
On the domestic scene, the FTSE/JSE All Share Index ended the month stronger
(up by +3.2%), although it is still negative on a year-to-date basis (-2.3%). This
monthly rebound was largely led by a 15.4% surge in the resources sector (YTD:
0.8%), contrasting with a downtrend in the financial sector, which dipped by -3.5%
(YTD: -7.1%).
From a monetary policy perspective, the South African Reserve Bank (SARB)
maintained a cautious stance by keeping the repo rate unchanged at 8.25% during
its second Monetary Policy Committee (MPC) meeting of the year. The continued
increase in headline CPI inflation remains a point of concern, prompting the MPC
to keep a close eye on inflationary pressures. The market had largely anticipated
the decision to maintain rates, placing greater emphasis on the SARB’s tone for
hints at future policy direction. Given the current rate levels, the policy stance is
deemed restrictive, aligning with the broader inflation outlook and the imperative
to mitigate elevated inflation expectations. Consequently, any prospective rate
cuts by the SARB’s MPC are anticipated to be cautiously considered (possibly
materializing towards the end of 2024) and will be contingent on the domestic
and international inflation landscape and the evolution of global interest rate
trends as the year unfolds.
Article by Corion Capital