Another difficult week, but at least without any major upsets ripping through global markets. Another orderly decline as some might say, or might we even be seeing some silver rims to the dark clouds that have been hanging for the last couple of months? Jacques de Kock provides a summary of this week’s investment meeting below:
From a technical perspective, global equities are still predominantly bearish. It’s only the Sensex looking up and our newly found favourites, Global Infrastructure and Clean Energy, also in bullish territory. In some cases, we did see a bounce in prices this week, but it is far from convincing enough to reverse the bearish outlook.
The US Dollar Index is also merrily climbing it’s way closer to the 110 mark, leaving most other currencies in the dust. We are also seeing some bond strength coming out of the US with the 10Y bond and US TIPS turning bullish for the first time in a while.
This week also saw the US earnings season get underway with the banks reporting some rather disappointing figures. This is probably another reason for the bullish trend in the US bond market, as investors are trying to distance themselves from a struggling US Equity market. Unfortunately, this is also playing into the recession theme that is growing in popularity every day. Especially on the back of a 9.1% inflation print coming out the US on Friday, raising the possibility of a 100bps rate hike by the FED at the next meeting.
In our view, these factors increase the chance of a global recession to just more than 50%. At this stage, we still feel that a recession will be rather shallow and could be short-lived if the FED decides to cut rates again by the end of 2023 – with all the hikes they will certainly have the scope to do so.
At time of writing, the SA Inflation number had just come out at 7.4% (basically on par with the forecasted figure) with food, beverages, and fuel (transport costs) being the major contributors. This seems to be consistent with the lagged effect of fuel increases on the rest of the economy. But as we have seen in the technical charts, oil – and soft commodity prices are trending downward – a positive sign for those worrying about SA Inflation. That being said, we still expect the SARB to hike rates by 50bps on Thursday, with an outside chance of 75bps.
Overall, we think that the effects of global rate hikes should came through in pushing inflation lower, especially in the countries that were “ahead of the curve” with their hiking cycle. But the world looks a lot different to what many of us have became accustomed to over the last 10 to 15 years. Roeloff gave a very nice summary of the differences in his presentation to the team:
We remain underweight risk assets both globally and locally as we try and preserve our clients’ invested capital. We feel that there might still be some pain in the markets over the next 6 months, but in that lies various opportunities that we can deploy into when the time is right.
Jacques de Kock
Quantitative Analyst & Portfolio Manager
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