The fourth quarter U.S. gross domestic product (GDP) advance estimate released during the week reveals a strong and resilient economy, growing at a 2.9% annualised pace in the fourth quarter of 2022. This growth rate was slightly slower than the 3.2% recorded in the third quarter, but it exceeded market expectations of 2.6%. It’s the second consecutive quarter of growth, following the start of 2022 which saw the economy contracting for two consecutive quarters. The increase in GDP was driven by growth in private inventory investment, consumer spending, government spending, and non-residential fixed investment. Decreases in residential fixed investment and exports offset gsome of the growth.
The U.S. composite purchasing managers index (PMI), a measure that tracks both manufacturing and services activity, increased in January to 46.6 from 45 in December, indicating a slowing economy. Typically, a PMI reading of below 50 signals a contraction in business activity, while a reading above 50 signals expansion. The United Kingdom, Germany and Australia also showed signs of slowing business activity, with composite PMI readings of 47.8, 49.7 and 48.3 respectively. In contrast, the Eurozone’s composite PMI climbed to 50.2 in January from 49.3 in December, the first time it has been above the 50 mark since June 2022. This increase was primarily driven by an increase in activity in the services sector.
In company news, Microsoft announced a new multiyear, multibillion-dollar investment with the artificial intelligence lab OpenAI, the company behind the ChatGPT tool. The tech giant declined to provide a specific dollar amount, however, it is speculated that they were looking to invest an additional USD 10 billion into the start-up, following their previous investments made in 2019 and 2021. Public interest in OpenAI surged following its November release of ChatGPT, a text-based chatbot that can draft prose, poetry or even computer code on command. Microsoft said the goal of the renewed partnership is to accelerate the developments in artificial intelligence and aid both companies to commercialise advanced technologies.
Stocks rose on Friday and completed a winning week fuelled by the better-than-expected economic growth. All major U.S indices posted positive gains for the week. The tech-heavy Nasdaq index, rose 4.32% and closed out its fourth week of gains. It’s on pace for its best monthly performance since July 2022. The S&P and Dow rose by 2.47% and 1.81%, respectively, this week. The Euro Stoxx 50 and FTSE 100 indices ended with weekly moves of 1.41% and -0.07% respectively. In Asia, both the Nikkei 225 index and Hang Seng index secured strong positive weekly gains of 3.12% and 2.84% respectively. Financial markets in mainland China were closed for the Lunar New Year holiday, which started on January 21 and will reopen on Monday, January 30.
Market Moves of the Week:
The South African Reserve Bank’s Monetary Policy Committee (MPC) raised interest rates by 25 basis points this week, taking the country’s repurchase rate to 7.25% and the prime lending rate to 10.75%. It was highlighted that the vote was not unanimous. Three MPC members preferred the announced increase, while two voted for a 50 basis point increase. The raise is the eighth since the central bank began its hiking cycle at the end of 2021 when it adopted a combative stance to tame spiralling inflation. The other key takeaways from the recent press conference were:
- The forecast for GDP growth for 2023 was set at only 0.3%. Given the scale of load shedding, the central bank estimates that it deducts as much as 2 percentage points from growth in 2023. A material reduction in load shedding could significantly raise growth.
- The forecast for headline inflation remained unchanged at 5.4% in 2023 and further decreased to 4.8% in 2024 and 4.5% in 2025. Headline inflation is only expected to sustainably revert to the mid-point of the target range by the fourth quarter of 2024.
- The forecast for core inflation is lower at 5.2% in 2023 (down from 5.5%) and 4.7% in 2024 (down from 4.8%).
The JSE all-share index rose by 1.92% this week, driven by gains in the industrial sector which gained 3.54%, followed by financials (1.70%). In contrast, the resource and property sectors ended the week with negative market moves of -0.48% and -1.56% respectively. Following a less hawkish South African Reserve Bank and stronger US GDP data, the rand ended the week at R17.19 to the U.S. dollar.
Chart of the Week:
The U.S Economy expanded at a faster than expected rate in the final months of 2022. The advance estimate released during the week showed the economy grew by a 2.9% annualised rate. It concludes a year of 1% annual growth even with the economy contracting for two consecutive quarters in the first half of 2022.