6 October 2024 Economic Overview - By efpc
Overall, October proved to be a challenging month for financial markets. The month saw widespread declines in global equities and bonds, and a mixed bag of economic data that continued to influence investor sentiment. Growth risks remained the primary concern, despite signs of resilience in the United States (US) economy, with uncertainty further heightened by the upcoming US election and the potential implications of a policy shift on inflation and interest rates.
Despite a robust performance in the first three quarters of 2024, global equity markets experienced their second consecutive monthly decline, with a 2.3% drop in October. The US market, in particular, was affected by third-quarter earnings reports from about half of the S&P 500 companies during the month. Although reported earnings were generally favourable, the guidance provided was less optimistic, leading to some caution among investors. Notably, the technology sector saw disappointing results from major players, such as Apple, Meta, and Microsoft, contributing to the overall market decline at the end of the month.
In Asia, the initial optimism sparked by China’s broad stimulus package announcement before Golden Week faded as the specifics of the package failed to meet expectations. This led to a nearly 6% decline in Chinese equities in October, following a substantial 23% increase in September. The Hang Seng Index suffered a severe blow early in the month, falling 9% and marking its worst daily performance since the 2008 financial crisis. Conversely, Japan emerged as the top performer in the region despite the Bank of Japan’s hawkish stance during its October meeting and the political uncertainty following the ruling coalition’s electoral defeat.
The bond market also faced challenges, with US Treasuries recording their largest monthly loss in two years, on the back of stronger-than-expected US payroll data that dampened rate-cut expectations. The prospect of less aggressive interest rate cuts also buoyed the US dollar, which appreciated against all major currencies in October.
Locally, despite a strong performance from the resources sector and a continuation of relatively positive sentiment, the Johannesburg Stock Exchange followed global indices lower. One of the most closely-watched local events was the Medium Term Budget Policy Statement at the end of the month, highlighting a continuation of the commitment to fiscal consolidation and stabilising South Africa’s debt-to-GDP by 2025/2026. A slight weakening of fiscal ratios is expected, however, primarily on the back of lower-than-expected tax revenue.
Other key economic highlights for the month included:
• Inflation in the US eased to a three-year low of 2.4%, down from 2.5% in the previous month. Meanwhile, the South African Consumer Price Index dropped significantly to 3.8% in September, down from 4.4% a month earlier.
• The Reserve Bank of India opted to maintain interest rates. At the same time, the minutes from the US Federal Reserve’s last meeting revealed that Chair Jerome Powell faced considerable opposition to the 50-basis-point rate cut proposed in September. Additionally, the Bank of Canada implemented its third consecutive rate cut, lowering interest rates by another 50 basis points.
• Economic growth in China slowed in the third quarter of 2024, putting pressure on Beijing to introduce further stimulus measures. The country’s gross domestic product expanded by 4.6%, a slight decrease from the 4.7% growth recorded in the previous quarter.