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Ok. Got itIncoming economic data for the fourth quarter of 2023 suggest a modest improvement for mining and manufacturing actvity.
A difficult balancing act
Incoming economic data for the fourth quarter of 2023 suggest a modest improvement for mining and manufacturing actvity, while retail sales for November highlight a constrained consumer. Survey data for January suggest a weak start to the new year, highlighting weak demand conditions and ongoing impact from logistics challenges. Trade data for December exceeded expectations, although the cumulative trade balance of R61,0bn for 2023 is still less than half of the 2022 trade balance of R192,0bn. While some improvements were reported at ports over the course of December, these do not appear to have persisted into January. Fiscal data for December, a pivotal month for corporate income tax revenues, confirmed a still weak revenue trajectory for corporates (in line with expectations), with more resilience from other categories. At the current run rate, the fiscal targets set during the Medium Term Budget Statement (MTBPS) may still be met, but expenditure, still far outpace planned estimates and remain a meaningful risk. This sets the scene for a difficult balancing act for the upcoming Budget 2024, even if largely anticipated at this juncture.
Headline inflation for the year to December 2023 moderated to 5,1% from 5,5% the previous month, below market expectations. Core inflation remained steady at 4,5%. A decrease in fuel prices was the most significant contributor to the monthly decline, while food inflation edged lower to 8,5% y-o-y. This leaves the annual average inflation rate for 2023 at 6,0%.
Producer inflation for December also trended lower to 4,0% from a figure of 4,6% the prior month. The Monetary Policy Committee (MPC) of the South African Reserve Bank (SARB) kept the bank’s key lending rate on hold at 8,25%, with a unanimous vote. The accompanying statement acknowledged disinflationary trends but also highlighted a multitude of risks that remain to the inflation outlook. Even so, the commentary did little to alter market pricing of an expected local interest rate cutting cycle.
Domestic assets delivered mixed results in January. The FTSE/JSE All Bond Index gained 0,8% over the month, while a stronger US dollar saw the Rand depreciate by 2,1% against the greenback over the month. Local equity markets weakened over the month, with the FTSE/JSE All Share losing 2,9%, with weakness across resources (-5,9%) and financials (-2,9%). Headline figures hide some mixed underlying results, with large capitalisation stocks (-3,5%) underperforming relative to mid (-2,8%) and small cap stocks (1,7%).
The consumer discretionary sector outperformed over the month, with the retailers such as Mr Price and Truworths benefitting from sales updates that were more constructive than many expected. Naspers (0,3%) and Prosus (0,1%) ended the month flat but held up well relative to Chinese technology company Tencent (-7,8%), which suffered the overhang from domestic Chinese economic concerns. Despite the weak start for risk assets, the property sector continued its recovery, gaining 4,1% over the month, bringing the 12 month returns to 15,8%.
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Nedgroup Private Wealth (Pty) Ltd and its subsidiaries (Nedbank Private Wealth) issued this communication. Nedgroup Private Wealth is a subsidiary of Nedbank Group Limited, the holding company of Nedbank Limited. ‘Subsidiary’ and ‘holding company’ have the same meanings as in the Companies Act, 71 of 2008, and include foreign entities registered in terms of the act. There is an inherent risk in investing in any financial product. The information in this communication, including opinions, calculations, projections, monetary values and interest rates, are guidelines or estimations and for illustration purposes only. Nedbank Private Wealth is not offering or inviting anyone to conclude transactions and has no obligation to update the information in this communication. While every effort has been made to ensure the accuracy of the information, Nedbank Private Wealth and its employees, directors and agents accept no liability, whether direct, indirect or consequential, arising from any reliance on this information or from any action taken or transaction concluded as a result. Subsequent transactions are subject to the relevant terms and conditions, and all risks, including tax risk, lie with you. Nedbank Private Wealth recommends that, before concluding transactions, you obtain tax, accounting, financial and legal advice. Nedbank Private Wealth includes the following entities:
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