Monthly Market Update – 01/2022
January was an eventful, and in many ways unnerving, start to the year. South African equities, however, bucked the global trend and ended the first month of 2022 on a positive note. Sasol was the top performer, increasing a whopping 33% for the period as it benefitted from the spike in energy prices. On the pandemic front, SA Covid-19 infections continued to ease.
At its January meeting, the SARB’s Monetary Policy Committee (MPC) raised the repo rate to 4%. The 25 basis point increase was widely expected and came on top of a similar increase in November 2021, making it only the second rate hike in more than three years. The MPC believe a gradual rise in the repo rate will be sufficient to keep inflation expectations well anchored. The Reserve Bank also cut its economic growth forecast for 2021 to 4.8%, from an earlier estimate of 5.2%.
Global equity markets had a volatile start to 2022 with interest rate hikes once again being the main topic of discussion in January. Developed markets struggled to absorb the expected rate hikes and inflationary pressures. This resulted in equity, property and bond indices kicking off the year in the red.
Rising political tensions surrounding the build-up of Russian troops on the border of Ukraine placed pressure on an already-tight global energy market. Brent Crude closed out the month 17% higher at near $91 per barrel, the highest level since January 2014.
Following January’s US Federal Reserve meeting, the Fed’s statement and subsequent Q&A session were more hawkish than investors expected. Jerome Powell mentioned that there would be quite a bit of room to raise interest rates without threatening the labour market. It confirmed widespread expectations that the first rate hike will be at the Fed’s next meeting on 16 March. The prospect of tighter central bank policy heightened market volatility.
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