Investment Market Update
OCTOBER 2024
What developments have unfolded in local and global markets throughout the month of October?
45%
EU institutes tariffs on Chinese EVs
$2,790 /oz
Gold reaches all time high
2009
The last time Japan’s Liberal Democratic party wasn’t in power
EMERGING MARKETS VS THE RAND
US DOLLAR VS THE RAND
EMERGING MARKET EXCHANGE RATE VS USD
GLOBAL MARKET
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In October, investors faced a turbulent market environment characterized by notable fluctuations and shifting sentiment. Although the month began on a strong note, equity markets later declined due to stronger-than-expected U.S. economic data.
This prompted investors to reassess their expectations for interest rate cuts by the Federal Reserve. At the start of October, the probability of a 0.5% rate cut in November stood at 35%, but this dropped to 0% by the end of the month. Factors driving this shift included the potential Trump presidency and unexpectedly high inflation data, leading markets to expect that interest rates would remain elevated for longer, which also affected global bond markets and drove bond yields higher.
Donald Trump has won the U.S. election and additionally, voters have given the Republican party control of the Senate and a majority in the House, granting them significant influence over policy decisions. Betting markets in October had begun to signal the possibility of a Trump victory, although uncertainty lingered. Bond yields climbed throughout the month, in part because a Trump presidency was expected to result in higher U.S. inflation if his tariff policies were enacted, potentially necessitating higher interest rates. The Federal Open Market Committee (FOMC) is set to meet on November 6-7 to decide on monetary policy, just one day after the election.
At the end of October, Rachel Reeves presented her first budget, which included a few surprises, with a significant emphasis on increasing government revenue. However, the most unexpected announcement was that projected government spending would be much higher than anticipated. This led to an increase in UK government bond (gilt) issuance, causing gilt prices to fall sharply at the end of the month.
ANALYTICS - OCTOBER COMMENTARY:
SMARTIE BOX IN RANDS:
LOCAL MARKETS
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South African equities outperformed the broader emerging markets in October, driven by strong gains in the commodities sector, especially gold stocks.
After four months of declining bond yields and the dissipation of the election risk premium, South African bonds weakened during the month, aligning with trends in global markets. Headline inflation continued to decline, dropping to 3.8%, the lowest level in over three years.
The Medium-Term Budget Policy Statement (MTBPS) was the first fiscal policy announcement since the Government of National Unity (GNU) was formed. Initially, the markets reacted negatively to this risk event, but the downturn quickly stabilized, leaving no lasting impact. Key updates included upwardly revised, though still conservative, growth forecasts and a deeper main budget deficit, while fiscal consolidation remained a priority.
In September, South Africa’s Consumer Price Index (CPI) fell to 3.8%, slipping below 4% for the first time since March 2021. This significant decline in inflation was largely due to lower fuel prices and stable food costs. The current and expected inflation figures have fueled speculation about the South African Reserve Bank’s (SARB) upcoming interest rate decision in November, particularly whether a substantial 50 basis point cut is justified.
Producer Price Index (PPI) data for September showed a year-on-year increase of 1%, the lowest in four years, marking the 13th consecutive month of decline. This data supports the easing trend in overall price pressures, contributing to the deflationary movement seen in the CPI. The PPI decline was primarily driven by falling global oil prices and a stronger rand, though both factors have uncertain futures and present notable risks.
- The JSE All Share Index dipped in the negative (down 0.9%) breaking a streak of seven consecutive months of positive performance.
- Financials (down 0.4%) dipped in the red, while Industrials (down 2.8%) saw a more significant decrease. Resources (up 3.0%) remained in positive territory.
- Small-caps (up 0.1%) and Mid-caps (up 0.5%) managed to remain in positive territory, while Large-caps (down 1.1%) ended the month in the negative.
- Both the S&P SA REIT sector (down 1.5%) and the SA Listed Property sector (down 2.8%) fell over the month.
- SA Nominal Bonds (down 2.2%) and Inflation Linked Bonds (down 1.0%) weakened during October.
- Developed Market Equities outperformed their Emerging Market peers in US Dollar terms, with the MSCI World Index down 2.0% and the MSCI Emerging Market Index down 4.3%.
- Relative to the US Dollar (Rand depreciated 2.6%), the Euro (Rand appreciated 0.2%) and the Pound Sterling (Rand appreciated 1.7%).
- Commodities performed well in October, with Gold (up 3.9%), Platinum (up 1.3%) and Brent Crude (up 1.9%) all achieving positive returns.
MONTHLY RETURNS:
