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Week in Review: US Inflation Cools

Major US indices ended the week higher on the back of encouraging signs that inflation pressures are continuing to recede. The Labor Department’s Wednesday morning release of the consumer price index (CPI) showed that CPI rose 0.1% for the month of March against a Dow Jones estimate for 0.2%, bringing the year over year inflation rate to 5%. The slowest pace since May 2021. Excluding food and energy, the core CPI accelerated 0.4% and 5.6%, both as expected.

Minutes released on Wednesday of the Federal Reserve’s March 21-22 meeting revealed that the central bank is now forecasting a “mild recession” later this year bought on in part by the recent banking turmoil that saw the collapse of Silicon Valley Bank and Signature Bank. Officials indicated they will closely monitor the tightening of credit conditions. The expectation being that the more credit tightens, the less the Fed will need to hike rates. Projections following the meeting indicated that Fed officials expect gross domestic product growth of just 0.4% for all of 2023.

In other economic news, the Producer Price Index fell by 0.5% MoM in March, the biggest monthly decline since April 2020, and rose by 2.7% YoY after increasing by 4.9% YoY in February. US retail sales also came in softer, dropping 1% in March from February, a sharper decline than the 0.2% fall in the previous month. The downtrend in retail sales and slowing producer prices adds further evidence that the economy is slowing as consumers reduce spending as prices remain high.

The U.S. corporate earnings reporting season got off to a good start this week with large U.S. banks reporting robust first quarterly performance.  JPMorgan shares ended 7.6% higher on Friday after the U.S. largest bank by assets, said its first-quarter profit rose to $12.62 billion, or $4.10 a share, from $8.28 billion, or $2.63 a share, in the year-ago quarter. Wells Fargo and Citigroup also topped analyst estimates for revenue Friday. Still ahead are Goldman Sachs and Bank of America results on Tuesday, while Morgan Stanley discloses earnings Wednesday.

For the week, the Dow booked four consecutive weeks of gains, while the broad-market S&P 500 gained 0.79% and the Nasdaq advanced 0.29%.

Stocks in Europe rose for the week as recession fears waned. In local currency terms, the pan-European STOXX Europe 50 Index advanced 1.89% while the UK’s FTSE 100 Index climbed 1.68%.

In Asia, Japanese equities gained over the week, with the Nikkei 225 Index rising 3.54%. The market was buoyed by New Bank of Japan Governor Kazuo Ueda who said that it is appropriate to keep the central bank’s loose monetary policies in place for now. In China, stocks were mixed after a volatile week as softer-than-expected inflation dampened investor sentiment.

Market Moves of the Week:

The International Monetary Fund (IMF) has warned that South Africa’s fiscal metrics could deteriorate further in the medium term than initially forecast amid high inflation, rising borrowing costs, a weaker growth outlook and elevated financial risks, in its Fiscal Monitor Report released this week. Amidst an increase in rolling power cuts, the IMF cut its 2023 growth forecast to slight growth of 0.1%.

South African Finance Minister Enoch Godongwana who is attending the IMF and World Bank spring meetings in Washington ruled out a recession for South Africa this year despite the gloomy IMF forecast.

On the Johannesburg Stock Exchange, the JSE All Share index ended the week firmer on Friday, the benchmark index gained 2,28% over the week, with strong gains across the major sectors.

Meanwhile, the rand also ended the week firmer at R18.08 to the US dollar, after trading above the R18.50/$1 level earlier in the week, dragged weaker by the International Monetary Fund (IMF) lowering South Africa’s growth forecasts and heightened load shedding.

Weekly Movements 2023

Chart of the Week:

The consumer price index, a widely followed measure of the costs for goods and services in the U.S. economy, rose 5% from a year ago versus the estimate of 5.1%. The data showed that while inflation is still well above the Fed target rate, it is showing continuing signs of decelerating.

CPI March 2023
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