There are two types of economic data. Soft economic indicators, which are based on sentiment, are qualitative in nature and are, therefore, subjective. Hard economic indicators, on the other hand, are more objective as they offer a defined set of data points. The two stories being reflected by these different indicators need to be considered when looking at how markets respond to what is happening in economies.
In the United States (US), for example, the recent flow of soft US economic data has seen respondents from a number of surveys express a negative short-term view of the US economy. The Conference Board’s Consumer Confidence Index recently registered its largest monthly decline in confidence since February 2021, while the University of Michigan’s Sentiment Index fell to its lowest level since late 2022, and its surveyed one-year inflation expectations increased to 4.9% from 4.3%. The CNN Fear and Greed Index has also seen its dial move to ‘fear’.
In contrast, hard data out of the US reflects a resilient economic landscape. Personal Consumption Expenditure (PCE) growth remains strong, according to the Federal Reserve Bank of St. Louis, on the back of softening rental inflation. Further, the US unemployment rate is stable at 4.1%, while the S&P Global US Composite Purchasing Managers’ Index (PMI) has experienced an uninterrupted expansion since February 2023, led by robust services PMI trends.
When we compare what is happening in the US to Germany and China, we see a contrasting picture. Poor sentiment in the US, based on soft data points, coincides with a marked pullback in US markets, while positive sentiment in Germany and China is driving growth in equity markets. In the last year, the S&P 500 has lagged both the Hang Seng in China and Germany’s Deutsche Börse by significant margins. This pullback is being led by sentiment around government policy. While the US administration is acting to reduce government bloat, Germany and China are individually pursuing fiscal expansion strategies to support their ailing economies.
In the US, negative sentiment points to a potential US recession, despite the hard data indicating that the US economy is fairly stable. In Germany and China, positive sentiment is driving markets despite the hard data suggesting that both these economies are showing signs of persistent weakness.
Ultimately, it is, more often than not, sentiment that drives our markets, despite the evidence to the contrary.
DATA IN A NUTSHELL
The week’s key themes:
· US services PMI shows softening in manufacturing activity
· Semiconductors face headwinds
· Copper rally cools
The US economic indicators revealed mixed signals this week, with S&P Global PMI data showing a softening in manufacturing activity. The US Manufacturing PMI declined to 49.8 in March, falling below the survey expectation of 51.7 and compared to the previous month’s 52.7, signalling a contraction in manufacturing activity. The Services PMI softened to 54.3, exceeding the anticipated 51.0 reading. Consumer confidence retreated to 92.9 in March, missing expectations of 94.0 and down from the previous 100.1. New home sales remained steady at 676,000 in February, slightly below the projected 680,000 but above the previous month’s 664,000. Initial jobless claims held steady at 224,000 for the week ending 22 March.
Eurozone economic indicators displayed mixed performance, with the composite PMI signalling resilience despite ongoing challenges. The manufacturing sector showed incremental improvements, with France’s PMI climbing to 48.9 in March, surpassing expectations of 45.8 and marking a 25-month high. Germany’s manufacturing indicators hint at a gradual stabilisation, with new orders showing modest gains and job cuts decelerating. Spanish retail sales demonstrated notable recovery, expanding 3.6% year-on-year in February, driven by non-food sales growth of 1.6% and a 1.3% monthly increase.
South Africa’s producer prices rose 1.0% year-on-year in February, slightly decelerating from January’s 1.1% increase, with food products, beverages, and tobacco driving the inflation rate despite easing price pressures.
Equities
The S&P 500 Index finished the last five days marginally higher at 0.83%, but semiconductor stocks faced significant headwinds. Micron Technology led the fall, plummeting 11.20%, while Broadcom and Super Micro Computer fell 9.24% and 9.59% respectively. These declines follow Alibaba Chairman, Joe Tsai’s cautionary remarks about potential artificial intelligence (AI) spending bubbles, casting doubt on the sustainability of current tech investment narratives. The market seems increasingly sensitive to warnings about AI infrastructure overinvestment, with Tsai’s comments highlighting broader geopolitical tensions and sparking investor concerns about the pace of AI development and chip sector valuations.
European markets showed mixed performance over the past five days, with the Euro Stoxx 50 declining 1.28%. Global energy company, Iberdrola, led positive momentum, climbing 4.07%, while global consumer internet group, Prosus NV, and global multi-energy group, TotalEnergies, also gained. Financial stocks like Intesa Sanpaolo and Unicredit saw modest increases. In contrast, Dutch fintech company, Adyen NV, suffered the most significant drop of 6.85%, followed by financial services group, Nordea Bank ABP, down 6.18%. Technology and industrial sectors struggled, with Bayer AG, Siemens AG, and Infineon Technologies experiencing notable declines.
The FTSE/JSE Capped Top 40 Index closed slightly lower, down 0.13%, with MTN Group, emerging as the standout performer, surging 5.44%. The telecommunications giant’s strategic infrastructure-sharing deal with Airtel Africa in Uganda and Nigeria underscores an innovative approach to network expansion, potentially reducing capital expenditures while improving service coverage. MTN’s leadership position was complemented by gains from financial services group, Old Mutual, and telecommunications company, Vodacom Group, which rose 4.91% and 4.75%, respectively.
Commodities
Gold extended its gains to reach a fresh high of $3,059.63/ounce on Thursday, following an equally impressive previous week. The precious metal has climbed over 16% year-to-date, amid market volatility and geopolitical tensions, rewarding investors seeking alternative asset protection. Gold reached new highs as Trump’s recent announcement of a 25% tariff on imported cars sustained trade concerns.
Copper’s rally shows signs of cooling, with trading platform COMEX front-month futures pulling back from recent highs, retreating to $511.95/tonne. The current pullback appears tactical, driven by traders taking profits and reassessing supply dynamics ahead of potential tariff implementations. At the same time, Goldman Sachs’ commodity research team maintains a bullish outlook for copper demand and supply dynamics in the third quarter.
Brent crude oil futures climbed to $74.02/barrel on Thursday, holding near Wednesday’s four-week high of $74/barrel, driven by persistent concerns over tightening global supply. US crude oil inventories fell unexpectedly last week, according to the US Energy Information Administration. Energy companies, TotalEnergies, Equinor, and Shell, advanced their carbon capture strategies with a $715 million investment in Norway’s Northern Lights project.
Currencies
The US Dollar Index struggled to maintain momentum, trading near 104.40 after briefly attempting to break above the 104-resistance level. Despite upbeat fourth-quarter gross domestic product data revised to 2.4% and a surprise 25% auto import tariff announcement, the dollar faced mixed market signals. The Federal Reserve maintained its projection for two rate cuts in 2025, viewing slightly higher inflation and moderating growth.
The euro continued its year-to-date appreciation against the dollar, currently trading around $1.085/€, with underlying bullish sentiment tempered by upcoming tariff implementation on 2 April. External factors, including potential German spending plans and Ukraine peace negotiations, provide additional complexity to the currency dynamics. However, markets remain cautious, anticipating potential volatility from the Trump administration’s forthcoming trade policy actions against multiple trading partners.
The rand traded within R18.10/$ and R18.30/$ range this week, closing at R18.24/$ on Thursday. Last week the South Africa Reserve Bank (SARB) held rates steady at 7.5% amid escalating US tensions, with SARB Governor, Lesetja Kganyago, citing “extreme uncertainty” as the reason.
Key indicators:
USD/ZAR: 18.16
EUR/ZAR: 19.59
GBP/ZAR: 23.53
GOLD: $3,074.90 BRENT CRUDE: $73.70
