US economic data shows inflation slowing in April, with core inflation now at 3.6% y/y. The main drivers are shelter inflation, which continues to rise above the long-term average, and a 22.4% y/y increase in motor insurance costs. Both categories are expected to slow down over the coming months. If inflation falls below 3% and the US labour market weakens slightly, STANLIB anticipates one or two interest rate cuts should be possible from the US Federal Reserve this year.

In SA, key economic sectors were all negative in Q1 – mining, manufacturing and retail – signalling a likely decline in Q1 GDP growth. At the same time, unemployment has risen to 32.9%. However, the rand/dollar has strengthened by about 5% over the past month, partly due to dollar weakness but also some local factors, e.g. less concern about the election outcome and better electricity production. While commodity price moves have also buoyed the local equity market, investors are showing more confidence in an improved second half for the economy.