Some of the major themes during October has again been the usual culprits, with discussions around inflation and interest rates, the war in the Middle East and Ukraine, and the upcoming US elections.
After a strong start to the month, global equities sold off as better-than-expected US economic data led investors to pare back on expectations of Fed Fund rate cuts, also pushing bond yields higher.
This while defensive assets like gold (>$ 2,700 per ounce) reached a new all-time high and money market fund assets ($ 6.47 trillion) in the US remain stubbornly high. We are living in particularly interesting times right now, both in the market and politically with the closely contested US elections less than two weeks away (at time of writing). We can expect volatility to continue.
The returns from most asset classes over the year are significant, and despite this, investors continue to sit on the sidelines with money market assets at record highs not only in South Africa, but globally. Many of them have missed out on the strong return in almost all risky assets.
News from the market is generally positive and supports the expectation that the next year might yield good returns on investments. Lower inflation and interest rates, a Chinese stimulus and wars that seem to have been priced in offer good opportunities in the market.
The start of Q4 has seen a spike in volatility and a return to a risk-off environment, and one that also favours the dollar. This rapid change in market sentiment once again reinforces the inherent difficulty in trying to time the market, and the importance of well-constructed investment portfolios.
US inflation continued to slow in September (=2.4%, down from 2.5% in August, however consensus was for 2.3%). This was a bit of a damper on the market, but the inflation trend is still lower. The number of Americans filing for unemployment benefits (US jobless claims) jumped to its highest level in a year, which analysts are saying is more likely the result of Hurricane Helene and the Boeing strike than a broader softening in the labour market. However, US retail sales were stronger than expected in September.
The UK economy returned to growth in August, but the broader picture is one of a slowing economy in recent months. UK inflation drops to 1.7% which increases the likelihood of further rate cuts. The European Central Bank (ECB) cut rates for the third time this year to 3.25%.
China will “significantly increase” government debt issuance to offer subsidies to people with low incomes, support the property market and replenish state banks’ capital as it pushes to revive sputtering economic growth. However, the size of the fiscal stimulus is unknown yet, but does offer the opportunity that they will stimulate for as long as it is necessary to stimulate. Part of the stimulus was the cut in the loan prime rate (1 and 5-years) by China’s central bank by 25 basis points each.
China’s economy grew at 4.6% year-on-year in the third quarter, trailing the growth reported for the second quarter which was 4.7%. Although this is still high in nominal terms, the growth is not enough to pull them out of the doldrums.
Oil prices fell amid low Chinese demand and a mixed outlook on Middle East tensions. Brent crude oil futures rose, as investors continued to monitor geopolitical developments in the Middle East. Despite ongoing diplomatic efforts, the persistent exchange of heavy fire left investors uneasy, with close attention on potential supply disruptions in the region and Israel's anticipated response to Iran's missile attack. Additionally, demand worries linger from top importer China, as traders await further clarity on Beijing's stimulus policies. Nevertheless, there are positive signs from the US, with refinery processing reaching its highest seasonal level in six years. Fears of a potential shift to a global oil surplus in the coming quarters continued to put pressure on oil prices.
Source: Trading Economics
The price of gold seems to keep on climbing. Central banks are constantly increasing their reserves and create a strong demand for the precious metal. Supporting gold's upward momentum in October were geopolitical tensions in the Middle East and concerns over a broader conflict, along with uncertainties surrounding the US election and major central bank easing.
Source: Trading Economics
In the past there was a strong directional correlation between the price of gold and the price of Brent Crude oil. However, it seems as if gold has broken this correlation since covid. The inverse now seems to have become the norm.
Source: Trading Economics
US Elections are on 5 November and at time of writing there was no clear winner between Harris and Trump. The outcome will again depend on the so-called seven swing states, where they are not always either Republican or Democrat, but vary. To be elected a person needs 270 seats. On 25 October Harris was leading with one percent.
Source: nytimes.com
However, according to the bookies, Trump is the favourite to win. Trump now has a 59 percent chance to win the election, compared to Harris' 40.1 percent, according to betting odds from realclearpolling.com (in line with other sites). Interestingly, during the past 11 elections the bookies were correct ten out of the eleven times (source: Professor Theo Venter). From an emerging market and South African point of view, a Trump victory might not be good news. Fears of another Trade Wars with China, a possible NATO exit by the US and AGOA, that needs to be negotiated in 2025, might impact us negatively.
South Africa
In its latest Monetary Policy Review the Reserve Bank predicts that inflation is set to remain close to the bank’s target of 4.5%, declining to an average of just above 3% in a best-case scenario, where the rand continues to strengthen over the next couple of years. Inflation came through at 3.8% as expected, which will open the door for perhaps a further rate cut of 25 basis points (93% probability), and hopefully 50 basis points.
The IMF now expects South Africa’s GDP growth to be stronger at 1.1% in 2024 (0.1 point above the January outlook), with 2025’s projection also boosting 0.3 points to 1.5%.
Infrastructure SA (ISA) has launched a R600 million bid window requesting proposals for national and provincial departments, state entities and municipalities to support project development to accelerate the pace and quality of infrastructure delivery. The bid closes 6 December and might be a catalyst for the local economy and markets.
South African business confidence dipped in September on lower vehicle and retail sales and a drop in the value of building plans, but the overall trend since May's election remains positive.
Source: Trading Economics
As June 2025 approaches, and with it hopes of SA being removed from the FATF greylist, local regulators and financial services authorities are taking swifter, more visible action (withdrawing licenses, debarring representatives, and imposing administrative sanctions and fines).
Two pots are on the go. Sars has received over 1.2 million applications for tax directives for pension fund withdrawals under the two-pot system, with payouts totalling R21.4 billion to date.
Source: Momentum Investments
Minister of Electricity Kgosientsho Ramokgopa said while it has been more than 200 days without load-shedding, Eskom must now focus on maintaining and improving electricity generation. He said the current energy availability factor is nearly 64% compared to just above 55% in March 2023, and the utility was on track to achieve an energy availability factor of 70% in 2025.
Source: Momentum Investments
Over the last year, the South African Rand not only held its own against most developed market currencies, but also outperformed most emerging market currencies. The positive sentiment after the GNU was formed, as well as tight monetary policy from the SARB supported the rand. Many indicators are ticking upwards in our favour, and some analysts expect the rand to stay strong for longer and do not rule out a rand/dollar rate of below R17 during the next 12 months. The mid-term budget in October was uneventful and a confirmation of what was budgeted for in February.
Source: Fund Focus
Snippets from the market
National Treasury does not expect South Africa to exit grey listing before October 2025, with South Africa now considered to have largely or fully addressed 16 of the 22 action items.
Former Minister of Labour, Reserve Bank governor and Finance Minister, Tito Mboweni, passed away after a short illness.
President Cyril Ramaphosa refused to answer questions by opposition parties in the National Assembly on the Phala Phala scandal, saying the matter must be left to the Constitutional Court.
The Gauteng High Court in Pretoria dismissed impeached Public Protector Mkwebane’s application to receive a gratuity of R10m. It stated that “It would be absurd for an employer to pay a gratuity to someone who left office in disgrace”.
The PIC has increased its stake in NinetyOne from 10% to 15%.
Coronation announces deal to secure 51% black ownership.
R298bn – the amount paid out to beneficiaries and policyholders over the 1st 6 months of 2024 by SA’s life assurance sector.
$11.5 trillion – Blackrock’s current assets under management, following $221bn of inflows in Q3 alone.
Google signs an agreement with Kairos Power to use small nuclear reactors to power its AI data centres. In last year, the California-based power company received the first permit in 50 years from US regulators to build a new type of nuclear reactor.
More legal action against the National Health Insurance (NHI) Act as the SA Private Practitioners Forum (representing ~ 3,000 specialists and 1,500 other healthcare professionals) filed its application in October.
R 83.3m – Shoprite’s CEO, Pieter Engelbrecht, is expected to earn R83.3m in 2024. Some people do struggle to survive…
Minister of Electricity Kgosientsho Ramokgopa said South Africa’s deal with Karpowership to supply electricity to the country is “dead in the water” after failing to complete financial arrangements.
The South African government is provoking a damaging tit-for-tat with Taiwan by demanding that that country’s government move its liaison office out of Pretoria.
The leaders of the 10-member government of national unity met on Wednesday 16 October to resolve disputes within the coalition that may threaten its sustainability.
The National Transmission company of SA was formally launched last week, the 1st step of a proposed splitting of Eskom into 3 companies, focused on generation, transmission, and distribution.
South Africa and the US had a bosberaad to iron out differences between the two countries, with the US embassy hope will be a cornerstone of future relations between South Africa and the US.
The Home Affairs Department acted against 33 officials between July and September as part of its plan to stamp out corruption and maladministration in its ranks. Minister Leon Schreiber suspects he will have a year and a half to sort out the department before he might be replaced.
The Zulu prince, Lungalomndeni Zulu, was arrested for minerals theft amounting to R26 million at Richards Bay Minerals (RBM).
The City of Tshwane has warned that high water consumption is putting the city’s water system under strain and may lead to the system running dry and collapsing.
Arts and Culture Minister Gayton McKenzie has hit back at media reports that suggest he went on a joyride to the Paris Olympics that cost taxpayers R800 000. McKenzie said it was a false portrayal that he went to watch the Olympics, when in fact he had several meetings for the country’s benefit.
Impeached former public protector Busisiwe Mkhwebane has resigned from the EFF.
Former ANC spokesperson, Pule Mabe, charged with fraud and corruption.
ActionSA will lay charges against the Free State Premier, Maqueen Letsoha-Mathae and three others.
South Africa signed an agreement with Nasa last week to host one of the US space agency’s antennae in the Karoo.
South Africa’s tax authority has so far approved 1.1 million applications for withdrawals under the two-pot system. SARS announced that R21.4 billion had been paid out. National Treasury has estimated that R5 billion in tax revenue could be derived in 2024/25.
Sars commissioner Edward Kieswetter has granted special permission for kerosene fuel to be imported over the next year.
Fuel price increase forecast: The Automobile Association (AA) expects the first fuel price increase since May in November. This is because of higher international product prices and a steady softening of the rand against the dollar.
Namibia and South Africa held talks to resolve a disagreement over rights to the Orange River. A treaty signed in 1890, specifies that the border runs along the northern bank of the river – which would place it under South Africa’s jurisdiction. Namibia wants the middle of the river to be the border. Both parties said they were confident the matter could be resolved amicably.
The Hawks arrested diamond dealer, Louis Liebenberg and his wife, Dezzi.
Source: Daily Maverick
Comments