ECONOMIC AND MARKET OVERVIEW
APRIL IN REVIEW
Inflation and interest rates remained in the news, as various central banks had their meetings on monetary policy. At the end of the month, the Federal Open Market Committee (FOMC) of the US Federal Reserve decided not to change policy rates. This was widely expected, with the Federal funds target rate range maintained at 5.25%-5.50%. However, with recent inflation data disappointing and the economy still strong, the focus shifted to any change in tone in the FOMC statement and Chair Jerome Powell’s press conference. The overarching message was that the Fed was not prepared to cut interest rates any time soon, with any easing only considered appropriate once the committee had greater confidence that inflation was returning sustainably to the 2% target. The Fed’s renewed caution over inflation was evident in the policy statement, reflecting the Fed’s assessment of a ‘lack of further progress’ towards the target.
In South Africa, inflation still hovers a little above 5%. Coupled with the “higher for longer” interest rate message from the FOMC, it makes it unlikely that local consumers will benefit from a rate cut soon.
With no Monetary Policy Committee (MPC) meeting at the South African Reserve Bank in April, the focus has shifted from policy rates to politics as the general election on 29 May looms. Markets have not shown significant additional volatility in the run-up to this watershed election, which will likely see the formation of a coalition government with the ANC still, by some margin, the senior partner. International investors are likely to remain on the sidelines until after elections before committing funds to either local bonds or equities. Both of which look appealing from a valuation point of view.
