Weekly Wrap – 20 May 2022

Bianca Botes,
director Citadel Global


It has been a seesaw ride, across the board, in financial markets this week, as market participants grapple with various market influences.

Key themes for the week include:

  • Volatility remains elevated
  • Chinese economic outlook remains dim
  • US jobless claims at a 16-week high
  • Milk prices soar to an all-time high
  • European Central Bank (ECB) minutes outline inflation fears and need for monetary tightening
  • South African Reserve Bank (SARB) hikes rates by 50 basis points


Anyone involved in the financial markets is surely feeling some sense of sea sickness, as volatility remains abundant in all areas of financial markets.

The Webster dictionary defines volatility as “a tendency to change quickly and unpredictably” while in financial markets, volatility is defined as the degree of variation of a trading price series over time. High volatility, such as the conditions we are trading in at the moment, will thus see big swings in the prices of financial instruments. These swings will often be unpredictable, even by the best traders and technical analysts.

Volatility is the consequence of uncertainty, and is affected by numerous factors, including inflation, interest rates, changes in taxation, monetary policy decisions, industry changes and numerous political and economic events.

When we consider the current global landscape, it is easy to conclude why there is such a high level of uncertainty across global markets. Some of the factors influencing volatility include:

  • Inflation – Inflation across the globe already surprised to the upside, overshooting initial expectations, and while we can use various inputs to determine expected inflation, the risk of further unexpected increases remains.
  • Monetary Policy – Globally, central banks have started tightening their economic belts to counter inflation, by rising interest rates and tapering down quantitative easing. It is however not clear whether the action by central banks is aggressive enough to counter the rapid rise in inflation.
  • The risk of recession – Wealth Management Specialists, Citadel, recently adjusted their models to indicate a 40% chance of recession versus the 25% chance expected earlier this year. Other analysts and financial market participants, however, are more cynical, placing that probability closer to 80%.
  • The Ukraine Russian War – The uncertainty of how long the war will drag on, the economic effect it is having on the region, as well as the knock-on effect it has on commodity prices across the globe, continues to cause concern.
  • China Lockdowns – China continues to deploy their zero COVID-19 tolerance policy which is resulting in continuous lockdowns in key economic hubs in China. As the world’s second largest economy, the slowdown in the Chinese economy reverberates across the globe.

This erratic market behaviour is expected to be a reality for the time being, and while markets are behaving unpredictably, the best we can do is keep a level head, because with volatility comes opportunity.


Data from the world’s second largest economy, China, sketched a dire picture this week, as the country’s retail trade declined by 11.1% year-on-year in April, worse than market expectations of a 6.1% decrease, and after a 3.5% drop in the prior period. This marked the second consecutive month of decline in retail sales, as well as the steepest decline since March 2020, as consumption deteriorated amid widespread COVID-19 cases and strict restrictions in several key states, including Shanghai and Beijing. Meanwhile, China’s industrial production unexpectedly fell by 2.9% year-on-year in April, tilting from a 5% gain in March. It was also the first decline in industrial production since March 2020.

Looking at the United States (US), retail sales increased 8.2% year-on-year in April. The reading follows an upwardly revised 7.3% rise in March, as American consumers continued to spend despite record high levels of inflation. Initial jobless claims rose to a 16-week high, increasing by 21 000 to 218 000 in the week ending 14 May, from a revised 197 000 in the previous period and above the market estimate of 200 000.

The United Kingdom (UK) unemployment rate dipped down to 3.7% in the first quarter of this year, the lowest reading since 1974, outperforming market expectations of 3.8%. There are fewer unemployed people than job vacancies for the first time since the inception of employment record keeping. Also, the employment rate increased by 0.1% to 75.7%. Meanwhile, real wage growth for regular pay was 1.9% lower than a year ago in March, the biggest decline since the third quarter of 2013, as high inflationary pressures continue to hurt consumers’ purchasing power.

South Africa’s retail sales rose by 1.3% year-on-year in March, compared with a 0.9% decline in the previous period, missing market expectations of 1.5%. The largest positive annual growth rates were recorded for sales of pharmaceuticals and medical goods, cosmetics and toiletries, and household furniture.

The South African Reserve Bank raised its benchmark repo rate by 50 basis points to 4.75% during its May Monetary Policy Committee (MPC) decision, as expected. This is the fourth consecutive hike and the biggest hike since 2016, due to heightened inflation risks stemming from geopolitical tensions. Policymakers noted that the overall risks to the medium-term growth outlook are assessed to be balanced, while the risks to the inflation outlook are assessed to the upside. Headline Consumer Price Index (CPI) forecasts have been revised higher to 5.9% in 2022 versus 5.8%, 5% in 2023 versus 4.6%, and 4.7% in 2024 versus 4.6%. Meanwhile, the GDP growth projections were cut to 1.7% in 2022 from an earlier estimate of 2%, mainly due to a combination of short-term factors including flooding in the key KwaZulu-Natal province and the resumption of rolling power blackouts. However, the GDP growth forecasts were kept unchanged at 1.9% for 2023. The implied policy rate path of the central bank model indicates gradual normalisation through 2024.


The US Dow lost over 400 points soon after opening on Thursday, while the S&P 500 and Nasdaq each fell near 1%, as investors agonised over soaring inflation and tighter monetary policy, and their expected impact on economic growth. The dreary quarterly reports from big-box retailers, mainly Target and Walmart, underscored what detrimental impact inflation and supply chain bottlenecks could have on corporate earnings, and are reigniting fears of a slowdown in the US economic growth.

The FTSE 100 shed 1.5% on Thursday, extending losses from the previous session, tracking its European and Asian peers lower after Wall Street sold off the day before. Among single stocks, Royal Mail Plc tumbled more than 5% after it reported an 8.8% loss in pre-tax profits, while EasyJet reduced its first-half loss and reported a rise in summer bookings. HomeServe Plc gained after Brookfield Asset Management Inc agreed to buy the UK repair site for £4.1 billion.

European equity markets traded lower on Thursday, shedding almost 2% and extending losses from the previous session amid broad risk-off sentiment across all markets, as inflationary concerns and rate hikes remains in focus. After the latest earnings results released in the US indicated that inflation is hurting company profits, automobile and retail stocks were among the biggest losers on European indices.

The South African JSE FTSE All Share Index also tracked European markets lower, shedding over 2% on Thursday, and recorded the second consecutive session of losses, with almost all sectors trading in the red. Traders are also digesting earnings reports that point to a deteriorating global economy.


Agricultural commodity prices made headlines yet again this week, as Class III Milk, mainly used to produce cheddar cheese, skyrocketed to a record high of $25/CWT due to increased price pressure from fertilizer, fuel, and animal feed costs, prompted by Russia’s invasion of Ukraine.

Sticking with agricultural commodities, sugar futures on International Commodities Exchange rose to 20¢ per pound in mid-May, a one-month high, as the prolonged war in Ukraine lifted input costs for producers and incentivised farms to divert production to biofuels and more profitable crops. Rising prices for energy, fertilizers, and logistics led producers to pass on costs burdens to consumers. At the same time, farms in the European Union (EU) increased acreage for other grains to take advantage of soaring prices for crops typically grown in war-torn Black Sea areas. S&P Global Commodity Insights cut sugar output forecasts for the 2022/23, marketing the year’s production to 17.3 million tonnes from 17.5 million. Meanwhile, Brazilian production decreased by 38.7% year-on-year in April. Sugar has seen a 5.69% monthly increase, while prices are up 15.6% year-on-year.

Oil prices fell for the third straight session on Thursday, with West Texas Intermediate crude futures falling below $107 a barrel. A global economic slowdown, that could reduce consumption and dent fuel demand, is expected to offset any current supply constraints. Meanwhile, the EU this month proposed a total ban on oil imports from Russia in six months’ time, the move has, however, been delayed due to resistance from some member states.

Gold remained near a 15-week low, even as it edged up to trade at $1 820 an ounce on Thursday, as investors weighed worries over a weakening global economy against a strong dollar and prospects of even faster rate hikes by the US Federal Reserve (the Fed). 


The dollar index receded to around 103.7 on Thursday but remained near a 20-year high, as receding safe-haven demand was weighed against expectations of aggressive interest rate hikes by the Fed. Safe-haven currencies retreated on Thursday after an announcement that Shanghai will start allowing more businesses in zero-COVID areas to resume normal operations from the beginning of June, as the city looks forward to the end of lockdown. Meanwhile, Fed Chair, Jerome Powell, recently affirmed that the central bank was intent on using its tools to bring down multi-decade high inflation, even if it involves moving past broadly understood neutral levels.

The euro traded mostly sideways, lingering around $1.05, as traders increased their bets for higher borrowing costs, after ECB member, Klaas Knot, said the central bank should not rule out a 50 basis point rate hike in July and ECB member, Villeroy de Galhau, warned a lower euro could threaten the ECB’s efforts to steer inflation towards its target. The common currency remains close to the five-year low of $1.035 reached last week and is still on the verge of hitting dollar parity for the first time in 20 years, as the invasion of Ukraine by Russia deepened the energy crisis, boosted inflation, and is slowing EU economic growth.

The British pound fell below $1.25 this week, remaining near the recent two-year lows witnessed last week, as investors continue to worry over stagflation or even recession risks, as the inflation rate hit levels not seen since 1982. Bank of England Governor, Andrew Bailey, recently said that the current surge in inflation was the Central Bank’s biggest challenge, since it gained independence in 1997.

The South African rand traded around R15.80/$, the strongest level since 4 May 2022, after the SARB raised interest rates by a further 50 basis points to 4.75%, as expected, and signalled a gradual normalisation of the monetary policy through to 2024. Higher precious metals prices also supported the currency. Stronger gains were however capped by the fact that markets largely priced in the interest rate hike leading up to the MPC announcement, as well as the ongoing global uncertainty. Wide trading ranges are expected to remain the norm, with a range of R15.80/$ to R16.20/$ remaining realistic, even in a higher interest rate environment locally.

The rand is trading at R15.84/$ R16.75/€ and R19.77/£.