South African equities have been grappling with various economic headwinds, as reflected by the 0.18% drop in the JSE FTSE Top 40 Index on Thursday.
The market’s reaction came after the release of inflation and producer price data that presented mixed signals for investors.
Inflation expectations for Q4 2024 showed a positive shift, as households’ one-year-ahead inflation expectations decreased to 4.5%, the lowest level since Q3 2021, down from 4.8% in the previous quarter. However, this was tempered by producer price data, which indicated a 0.1% year-on-year decline in November. This marks a second consecutive month of deflation in producer prices, largely driven by lower costs in industries such as coke, petroleum, chemicals, rubber, and plastic products.
While easing inflation expectations could offer some flexibility in monetary policy and potentially boost medium-term sentiment, the persistent pressures on producer prices are a concern. These pressures, coupled with weak domestic demand and sluggish growth prospects, continue to weigh on investor confidence.
Given these dynamics, investors are likely to remain focused on upcoming economic data releases, which could significantly influence market direction. Volatility is expected to remain high, and attention may also shift toward the US Federal Reserve’s interest rate decision and its potential impact on global sentiment. The interplay between domestic challenges and international developments will likely remain a key factor in shaping South Africa’s financial market outlook in the near term.
