Stubborn inflationary pressure, likely requiring further interest rate increases at a time of slowing economic growth, is dampening global prospects of an economic recovery any time soon.
Economists at the Bureau for Economic Research (BER) in their weekly Economic Review has noted that the UK consumer inflation (CPI) print came in higher than expected at 8,7% in May, which contributed to the Bank of England’s (BoE) surprise decision to hike interest rates by 50 basis points instead of 25bps.
This comes after the US Fed halted rates two weeks ago and the anticipation that the BoE was near the end of its rate hiking cycle just a month ago.
Markets are now pricing in significantly more BoE hikes during the second half of 2023, the BER said.
Standard & Poor’s Purchasing Managers Index data for June released on Friday showed that weakness in global manufacturing remained, while services data also disappointed.
“In local economic developments, CPI data came in slightly lower than expected and cooled to a 13-month low, at 6,3%. Meanwhile, SA Reserve Bank (Sarb) data shows that the underlying economic momentum remains very poor,” the Bureau noted.
“Disappointing economic data and expectations of potentially higher policy interest rates weighed on global financial markets. Indeed, major international stock markets ended
the week in the red. The FTSE All-World Index, which tracks the biggest companies across the globe, declined by 2.2% week-on-week. This was its biggest weekly fall since March at the time of the collapse of Silicon Valley Bank.”
The SA JSE ALSI was down by more than 5% week-on-week.
“The dollar benefitted from the shift in sentiment on Friday in particular and, despite depreciating against the euro through Thursday, closed the week slightly stronger against the European currency. Following three weeks of a strengthening rand, the local currency closed Friday at an almost two-week low against the dollar and also lost ground against the euro and pound,” the BER said.
In commodity markets, the more downbeat sentiment and concerns about the strength of global demand pushed the Brent crude oil price lower last week. This was despite a surprise decline in US inventory levels and the anticipated start of Saudi Arabia’s production cut this coming weekend.
“Amid a stronger dollar and worries about more rate hikes, the gold price tumbled by almost 2%,” the BER said.
However, the biggest development over the weekend was the first attempted coup in Russia in three decades. The armed uprising followed months of aggressive infighting between Yevgeny Prigozhin and leaders of Russia’s armed forces.
A Belarus-brokered deal, in the end, saw Prigozhin leave Russia for allied Belarus and Wagner mercenaries pulling back from a potential assault on Moscow halfway between the Russian capital and the Azov Sea port city of Rostov-on-Don.
