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January Investment Newsletter

ZAR: "Loadshedding" disrupts lucrative mining sector, causing business activities to halt; US: Dollar economy sales from manufacturing and services sectors continue supporting for economic shortfalls in payrolls and local consumer demand; EUR: Decelerating German inflation inspires fresh consumer confidence amidst overall Euro-zone cost of living spikes; GBP: UK business activity continues to lessen, worsens with strikes and negative consumer sentiment; JPY: Tokyo Core CPI worse than Bank of Japan initially thought; AUS: Fuel and electricity costs surge in aussie dollar economy, causing Bank of Australia concern over interest rates.

USD: DOLLAR ECONOMY EVER SO RESILIENT

The greenback economy contracts for a seventh consecutive month in January 2023. However, the manufacturing and services sectors continue to smooth out US economy shortfalls, strongly indicating a potential 2Q2023 boom.


According to the S&P Global Flash U.S. Composite PMI, a movement from 45.0 in December to 46.6 in January occured, indicative of healthy buyer and seller activity within the US economy.


A survey by S&P Global also revealed a cooling off period for the greenback economy, mostly in response to US Fed rate hike pressure and sticky recession features such as inflation-adjusted salaries, increased rental costs, as well as a decrease in consumer and business spending.


EUR: DECELERATING GERMAN INFLATION SIGNALS BULLISH 2023

A surge of optimism has been sweeping the Euro-zone after business activity rebounded to modest growth in January, indicating a possible recovery from recession.


In December, S&P Global's Euro-zone Flash Composite PMI was 49.3, the first time it reached 50, helping to push its economic health from a contractionary state to a growth state.


Inflation in Germany also eased and businesses began to believe the year will be better than expected. Manufacturing activity improved for the first time since August in France, while output in Germany slid.


ZAR: PERSISTENT "LOADSHEDDING" REDUCES OVERALL MINING ACTIVITY

In November, South African mining output (not seasonally adjusted) dropped by 9.0% y/y, following a decline of 11.0% y/y in October. The industry has decreased by 8.2% annually over the past ten months. November's decline was primarily due to declines of 22.0% y/y in platinum group metals, 19.4% y/y in iron ore, and 4.6% y/y in gold.



Persistent "loadshedding" (power cuts) of up to 12 hours a day worth of no electric power supply, could see much of the mining activity come to a grinding halt. A possible reopening of the Chinese economy could provide the South African economy some support with mining activities, as they are strong BRICS allies.


GBP: UK BUSINESS ACTIVITY LESSENS FURTHERMORE

Economists speculated that unfavorable interest rates, strikes, and consumer fears of recession are to blame for the rapid drop in economic activity in the British private sector in January.


The S&P Global Flash Composite PMI fell to 47.8 in December from November's 49.0, indicating a consumer tension in spending. Furthermore, the survey noted industrial disputes, staff shortages, export losses, a rising cost of living, and the possibility of interest rate hikes in the near future, all of which point to a continued decline in the economy.


Markets expect the Bank of England to raise interest rates to 4% from 3.5% later this year and to peak around 4.5% for the incoming British tax year.


JPY: TOKYO CORE CPI EXCEEDED PREDICTIONS

A new report from the Ministry of Internal Affairs and Communications indicates that the CPI in Tokyo was up 4.3% on an annualised basis from 4.0% in the preceding month. Although it excludes volatile fresh foods, this is the highest index since 1981.


For the fourth consecutive month, Tokyo's CPI exceeded expectations as fuel and food import costs rise. With inflation on the rise, the Bank of Japan (BoJ) is under more pressure to tighten monetary policies, leading to a 0.4% rise in the Japanese Yen.


Markets are anticipating the BoJ will widen its yield curve control after a surprise move in December, even though a survey suggested the central bank will not raise rates.


AUS: AUSSIE CENTRAL BANK LOOKING TO HIKE INTEREST RATES EVEN MORE


Inflation in Australia jumped to a 33-year high in the last quarter of 2022 as travel costs and electricity prices increased, putting further pressure on the central bank to raise interest rates. The Australian Bureau of Statistics reported an 8.4% rise in the consumer price index in December, up from 7.3% in November.


Last Monday, the Australian dollar (AUD) strengthened against the greenback (USD), rising by 0.3% to $0.6992, just below the key level of 70 cents.


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