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February 2023 Economic Review

| Market Forces

February economic and market update

Following a strong start to the year, most global markets came under pressure in February, including locally. With the US economy showing resilient data and inflationary pressures lingering, investors are now pricing in higher rates for longer. Concerns around US and China relations over Russia weighed on investor sentiment, with the Russian invasion of Ukraine surpassing the one-year anniversary during the month.

Does the Fed have inflation under control?

January headline inflation in the US slowed again, but less than the market anticipation, coming in at 6.4% year-on-year (y/y), compared to the 6.5% y/y in December. Month-on-month (m/m) January headline inflation rose by 0.5%. The increase in the Personal Consumption Expenditure (PCE) Index to 5.4% y/y was of more concern, which is the Fed’s preferred measure of inflation.

Consumer spending, accounting for two-thirds of US economic activity, increased by 1.8% m/m in January, its biggest rise since March 2021. This was accompanied by retail sales unexpectedly jumping 3.0% m/m in January, beating market expectations of a 1.8% m/m rise. The University of Michigan Consumer Sentiment Index rose to a revised 67 in February, its highest level since January 2022.

Existing home sales in the US fell for the 12th consecutive month in January, and dropped to its lowest level in 12 years.

UK showing modest signs of improvement, inflation remains high

As expected, the Bank of England (BOE) raised rates by 50 basis points (bps) last month, moving the base rate to 4.0%. The UK January inflation eased for the third consecutive month, coming in at 10.1% y/y but remains at high levels.

UK data improved significantly in both the manufacturing and service sectors. The manufacturing purchasing managers index (PMI) reached a seven-month high of a revised 49.3 in February, while the services PMI was revised higher to 53.5 in February and moved into expansionary territory. The 50-point mark separates expansion from contraction.

The UK economy contracted by 0.5% m/m in December, its first decline in three months. Despite this sign of economic slowdown, the unemployment rate remains stable at 3.7% and wage growth remains very strong.


China’s reopening continued to boost factory activity and the official manufacturing PMI rose to 52.6 in February, its highest reading since April 2012. The country’s non-manufacturing PMI measuring business sentiment in the service and construction sectors rose to 56.3 in February.

Japan averts technical recession

Japan’s GDP grew by 0.6% y/y in Q4 2022, less than the consensus expectations of a 2.0% rise but ultimately managed to avert a recession, with the Japanese economy falling by 1.0% y/y in Q3 2022. Japan’s inflation rate rose to 4.3% y/y in January, compared to December’s 4.0% y/y print, its highest reading since December 1981.


Eurozone inflation fell to 8.5% y/y in January, its third consecutive fall. Despite the decline in headline inflation driven by lower energy prices, the European Central Bank (ECB) president still remains concerned about core inflation and explicitly expressed the intention to increase rates by another 50bps in March’s meeting.

The fall in energy prices continued to positively impact households and firms. Consumer sentiment echoed this by rising for the fifth consecutive month in February (a 1-year high) while the latest Eurozone Composite PMI reading pointed to further expansion.

South Africa

In local economic data, January’s headline inflation measured by the consumer price index (CPI) slowed for the third consecutive month to 6.9% y/y, still slightly outside the South African Reserve Bank’s (SARB)’s 3-6% target. The monthly headline CPI contracted for the first time since 2020. Food and non-alcoholic beverages inflation remains a concern, increasing by 13.4% y/y in January, reaching a 14-year high.

February witnessed the hosting of two monumental addresses from the government, the first of which was President Cyril Ramaphosa’s State of the Nation speech. The speech included the declaration of a National State of Disaster and the announcement of a new electricity minister. Later in the month, Finance Minister Enoch Godongwana delivered the 2023 Budget Speech in Parliament. In summary, fiscal policy remains unchanged and the government remains committed to debt stabilisation by fiscal tightening. However, clouds of uncertainty around load shedding continue to grow.

The Financial Action Task Force (FATF) announced that SA would be grey listed, as expected by many. This means that SA has compliance issues or shortcomings that threaten the international financial system, and thus is unfortunately a severe blow on the country’s reputation. A grey listed country is subject to increased monitoring and must deal with adverse economic consequences for trade and transactions with other countries.

Manufacturing and mining production contracted by 4.5% and 3.5% y/y in December. The result marked the 11th and second consecutive monthly drop for mining and manufacturing respectively. This highlights the negative impact of load shedding on the power-intensive parts of the economy. SA’s retail sales decreased by 0.6% y/y and m/m in December as retailers and households dealt with the ongoing load shedding.

Global markets

Developed equity markets lost momentum in February, with the US unemployment and inflation data weighing on investor sentiment. The MSCI World Index returned -2.40% m/m in USD and 2.67 m/m in ZAR. US large-cap tech stocks were amongst the few winners in February, however, there were mixed results for individual stocks. The S&P 500 closed at -2.45% m/m. With risks of a deep recession decreasing significantly in Europe, the Euro Stoxx 50 (€) pushed 1.94% higher m/m. The surprising resilience of some data coming out of the UK resulted in the UK’s blue-chip FTSE (£) increasing by 1.52% m/m.

Emerging markets fared worse than their developed counterparts for the first time in four months, the MSCI Emerging Markets Index closed at -6.54% m/m in USD and 1.56% m/m in ZAR. Chinese stocks were amongst the worst performing, particularly foreign-listed Chinese corporates. China’s escalating geopolitical tensions seemingly resulted in investors taking some profit after rallying the past three months from October lows.

Local markets

The South African equity market followed world markets lower, despite a generally positive month for stocks geared to the domestic economy, with the notable exception of the retailers. The FTSE/JSE All Share Index closed at -2.19% m/m, with the biggest drag on the local bourse stemming from the miners, weighed down by generally weaker commodity prices.

On a sector level, Resources was the only sector to finish in negative territory, closing at -13.23% m/m. Financials led the pack, closing at 1.96% m/m, while Industrials lagged slightly closing at 1.66% m/m. SA Listed Property fell for the second consecutive month, -0.72% m/m. Local Bonds lost some ground, with the All Bond Index (ALBI) returning -0.87% m/m. Cash (STeFI) delivered a moderate return of 0.54% m/m. South African growth managers (-1.96% m/m) outperformed value managers (-2.48% m/m) once again, consistent with global occurrence.

The rand continued to weaken against the dollar, falling 5.06% m/m. Among the major currencies, only the Argentine peso fared worse year-to-date (YTD) against the dollar. The rand lost as much as 3.46% and 2.77% m/m against the sterling and euro respectively. However, the rand managed to gain against the Japanese yen, closing at 4.74% m/m.

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