Weekly Wrap: US growth in focus

Written by Citadel Global Director, Bianca Botes

Thursday saw the release of key United States (US) gross domestic product (GDP) data. These numbers will set the tone for the upcoming interest rate decision by the US Federal Reserve (Fed). While markets position themselves for a less hawkish Fed, the higher-than-expected US growth rate may pose a challenge to their narrative.

Key themes for this week include:

  • US growth surprises to the upside
  • The South African Reserve Bank (SARB) hikes rates by 25 basis points
  • Gold hovering near nine-month highs
  • South African stocks rally to new record highs
  • US Dollar Index remains near eight-month lows


The US economy expanded by an annualised 2.9% quarter-on-quarter in the last three months of 2022, following a 3.2% jump in the previous quarter, and beating market forecasts of a 2.6% increase. This figure mainly reflects increases in private inventory investment, consumer spending, federal government spending, state and local government spending, and non-residential fixed investment, a figure that was partly offset by decreases in residential fixed investment and exports. On the flipside, imports decreased. However, while growth remains robust, further data is suggesting softer-than-expected consumer spending, worsening investment, and slowing inflation.

At the same time, initial jobless claims, a metric that measures the number of Americans, filing new claims for unemployment benefits, fell 6 000 from the previous week, to 186 000 in the week ending 21 January, its lowest level since April, and well below expectations of 205 000. This result further consolidated evidence of a tight labour market, despite the Fed’s aggressive tightening path last year.

Both data releases could challenge the widely-adopted narrative that the Fed will pivot soon. The Fed also needs to target inflation which remains a far reach from the Central Bank’s 2% target. While global investors position themselves for a slower pace of hikes by the Fed, the latest economic growth readings, coupled with a continuous tight labour market, could motivate the Fed to remain aggressive in combatting inflation. The good news is, however, that the better-than-expected growth also cements the notion of a soft landing or at worst a mild recession in the US.

When it comes to sentiment on the ground in the US, it is not all that optimistic. A survey conducted by the National Association of Business Economics (NABE), found that more than half of US business leaders still believed that the US was already in a recession, or expected the US to enter a recession within the next year. What is interesting to note is that while 50% of business leaders hold this sentiment, the number is down from a similar survey conducted in October 2022, which found that nearly 64% of respondents believed a recession was imminent.

An impending US recession though, will have a far more profound impact on emerging markets. In an annual report, released earlier this month, the World Bank cautioned that the world was “perilously close” to a global recession, while World Bank President, David Malpass, said he was already seeing “devastating reversals in education, health, poverty, and infrastructure” in emerging markets as well as severe backlogs in financing for adaptation to climate change. Malpass also warned that the current economic conditions could set these developing countries back by years.


The United Kingdom’s (UK’s) car production declined by 17.9% year-on-year in December 2022, turning negative after experiencing growth in October and November. British annual car production dipped by 9.8% in 2022 due to global semiconductor shortages, significant structural changes, and the impact of COVID-related supply-chain shutdowns in China. UK factories, however, still produced a record number of electric vehicles last year, growing production by 4.5% from 2021, and accounting for nearly one-third (30.2%) of total car production. Meanwhile, the S&P Global/CIPS UK Composite purchasing managers index (PMI) fell to 47.8 in January, down from 49 in December, undershooting market expectations of 49.1. The latest reading signaled the fastest rate of decline in business activity since the national lockdown in January 2021 and mostly reflecting a weaker service sector performance. Manufacturing production, meanwhile, decreased considerably in January with a PMI print of 46.6, but, at least, the rate of contraction was the least marked since July 2022.

The consumer confidence indicator in the euro area rose by 1.1 points to -20.9 in January, its highest level since February 2022, on hopes that lower energy prices and recovery-fund spending might help avoid a recession this year. The reading, however, remained below market expectations of -20, preliminary estimates showed. In the European Union (EU) as a whole, consumer sentiment increased by 1.4 points to -22.4.

The composite leading business cycle indicator in South Africa grew by 0.1% month-on-month in November 2022, rebounding from a 0.9% drop in October, as increases in four of the 10 available component time series outweighed decreases in the other five, while one remained unchanged. The largest positive contributors were an acceleration in the rate of new passenger vehicle sales and a rise in manufacturing orders volume. On the other hand, the biggest detractors were a narrowing interest rate spread and a decline in the US dollar-denominated export commodity price index. Annual producer inflation in South Africa eased for the fifth consecutive month to 13.5% in December of 2022, down from 15% in November and slightly below market forecasts of 14.05%. This was the lowest reading since April 2022. On the monetary policy front, the South African Reserve Bank (SARB) raised its benchmark repo rate by 25 basis points to 7.25% on Thursday, coming in below the 50 basis point increase expected by markets. This marks the eighth consecutive rate hike since policy normalisation started in November 2021. The move was driven by the Central Bank’s assessment that risks to the inflationary outlook remain skewed to the upside. The headline consumer price index (CPI) forecast was revised up, to 6.9% in 2022, from its previous estimate of 6.7%, was kept unchanged at 5.4% in 2023 and raised up to 4.8% in 2024, from an initial estimate of 4.5%.


Stock futures contracts tied to the blue-chip Dow rose 0.1%, while those linked to the S&P 500 and Nasdaq were up 0.4% and 0.8%, respectively, after new data showed fourth-quarter GDP grew faster than expected and hinted at waning inflation. On the earnings front, Tesla rallied almost 8% in premarket trading after the electric-vehicle maker topped Wall Street estimates on fourth-quarter revenue and earnings. Investors also digested another batch of updates from corporate America, with Intel and Visa among the most prominent companies to report.

European shares rose Thursday afternoon, with the pan-European STOXX 600 gaining nearly 0.6% and Germany’s DAX 40 consolidating above 15 100, as investors welcomed upbeat earnings reports from some key European corporates. Corporate bank, SEB, reported a forecast-beating rise in its fourth quarter net earnings and proposed a larger-than-expected rise in shareholder dividend, while private bank, Sabadell, announced a share buyback and an upbeat full-year outlook. In addition, telecoms company, Nokia, posted better-than-expected quarterly operating profit and forecast higher 2023 sales, and chipmaker, STMicroelectronics, beat fourth quarter sales expectations. Meanwhile, German software company, SAP, said it plans to slash 2.5% of its global workforce, and explore the sale of its remaining stake in Qualtrics. Truck maker, AB Volvo, reported a slightly smaller rise than expected in its fourth quarter core profit. Elsewhere, sentiment was lifted by China’s reopening, an unexpectedly mild winter, and resilient activity data in the eurozone.

London-based stocks regained some traction on Thursday, with the blue-chip FTSE 100 climbing back above the 7 750 mark, driven largely by the real estate and industrials sector. The index has been struggling following a recent rally, that pushed the benchmark to near-record levels, as investors grew weary about Britain’s gloomy economic outlook and downward pressure on earnings. On the individual stock front, investment company, 3i Group, and insurance company, Beazley, were among the top gainers, adding 3.3% and 2.3%, respectively.

Japan’s Nikkei 225 and TOPIX indexes both declined, to close at 27 363 and 1 978, respectively on Thursday, breaking a four-day rally of gains, with investors turning cautious on the back of global economic uncertainties that are taking a toll on sentiment. Meanwhile, a summary of opinions from the Bank of Japan’s January meeting showed that policymakers debated the inflation outlook and the prospect of a sustainable rise in wages, while emphasising the need to keep monetary policy accommodative. Technology stocks led the retreat, with notable losses from Tokyo Electron, Advantest and Keyence.

The JSE FTSE All Share index traded higher on Thursday, near the 80 250 level, marking a fresh record high, after breaking a two-day losing streak. The index was mainly supported by tech and mining stocks. Market sentiment improved on renewed optimism around China’s recovery. However, South Africa’s power utility, Eskom, has announced that it will increase its load-shedding schedule to stage 5 from Thursday, after generating units at four different power stations broke down, which will put pressure on local equities.


Gold prices took a breather on Thursday, to trade near $1 940/ounce but remained close to nine-month highs, following the US’s GDP release. Traders, though, are bracing for big monetary policy events next week, with the Fed decision due on Wednesday and both the Bank of England (BoE) and the European Central Bank (ECB) releasing their decisions on Thursday. Markets are currently still positioning for the Fed to hike rates by 25 basis points, while both the ECB and the BoE are set to stick with a 50 basis point increase each. Gold is highly sensitive to the rates outlook as higher interest rates raise the opportunity cost of holding non-yielding bullion. A less hawkish Fed stance and weaker dollar will favour gold prices.

West Texas Intermediate crude futures climbed above the $81/barrel mark, while Brent Crude soared above the $87/barrel mark as investors continued to assess the demand outlook, while bracing for tighter global supplies. The reopening of the Chinese economy bolstered optimism about a rebound in crude consumption this year, with authorities saying that the number of COVID-related deaths and severe cases in China is now 70% lower than peak levels in early January. A lower-than-expected rise in US crude inventories and a weaker dollar also supported oil prices. On the supply side, the Organization of the Petroleum Exporting Countries, OPEC, will likely maintain current oil production levels when they meet next, keeping supply tight. Investors were also tracking Russian crude flows as more Western sanctions and price caps on Russian petroleum products are due to take effect next month.

European natural gas prices swung between gains and losses but remained below €60/MWh (megawatt hour) on Thursday, after falling 15% in the first three days of the week, as traders weigh risks of a rise in Asian demand and supply prospects, with a cold snap being predicted for the Korean Peninsula, northern China and Japan. In addition, China’s reopening is expected to contribute to a rise in energy demand and competition on the liquid natural gas (LNG) market, which is causing an increase in prices. At the same time, shipments from Norway, Europe’s top gas provider, remain below capacity as the production recovers from planned and unplanned outages. On the other hand, US Freeport LNG said on Monday that it had finished repairs in its plant and asked regulators for permission to restart it. European countries have avoided a big energy crisis so far, thanks to unusually warm weather, record LNG imports, and a rise in the generation of electricity through other alternatives, including coal, nuclear, and wind.


The US Dollar Index held below 102 on Thursday, hovering near its lowest level in almost eight months, on expectations of less aggressive policy tightening from the Fed and worries that a US recession is imminent, even though recent data showed the economy remains resilient. On the flip side, data is pointing to a weakening economy. Mixed corporate earnings suggest that the broader economy is facing headwinds. Money markets are pricing in an over 95% chance of a 25 basis point increase at the next policy meeting. However, the Fed rhetoric in recent addresses remained largely hawkish, reinforcing the notion of higher rates for longer, even if the pace of hikes slows.

The euro extended gains to approach $1.09, as January ends, to trade at a fresh nine-month high. Investors are betting on more aggressive monetary policy tightening from the ECB, coupled with an expected change in pace by the Fed. The ECB is expected to continue its aggressive campaign and raise interest rates by 50 basis points in both February and March with the deposit rate reaching a peak of 3.25% from the current 2%. The bias for an aggressive ECB was reinforced by Governing Council member, Klaas Knot, who also signaled at least two more 50 basis point rate increases.

The British pound found its footing around $1.24, to trade near the six-week high of $1.245 it reached on 23 January, as all eyes turn to the BoE’s policy announcement due next week. The Central Bank is set to raise interest rates by 50 basis points to 4.0%, as it tries to tackle double-digit inflation, while markets are split on how much further rates will rise beyond that. Britain’s inflation rate moved further away from October’s 41-year high but remained well above the central bank’s 2% target. Meanwhile, the risk of the UK slipping into recession continued to weigh on sentiment after the latest PMI survey.

The South African rand traded near the R17.20/$ mark for most of the week. On Thursday, the rand gained momentum to the R17.01/$ level ahead of US growth figures and the SARB interest rate announcement. Both announcements surprised markets, with US growth overshooting forecasts, while SARB hiked rates by less than expected, marching the rand back to the R17.15/$ mark at the time of writing. During the SARB interest rate announcement, policymakers noted that upward inflationary risks persist, while the risks to the medium-term domestic growth outlook are assessed to be balanced after the downward revisions to South Africa’s GDP forecast. The bank slashed its forecast for economic growth in 2023 to 0.3%, from 1.1% previously, and sees the economy expanding 0.7% in 2024, compared with a previous estimate of 1.4%, on the back of prolonged loadshedding.

The rand is trading at R17.26/$, R18.77/€ and R21.36/£.