November was characterised by interest rate reductions, inflation expectations and the much-awaited US presidential election.
Donald Trump’s victory propelled markets into a high-volatility environment, reflecting heightened uncertainty around his structural policies. With his inauguration approaching in January, this transitional period has already introduced significant volatility across financial markets.
10-year benchmark yields declined across advanced economies, with the U.S., yields dropping by 12 basis points (bps), ending at 4.17%. This decline was supported by a 25bps rate cut from the Federal Reserve (FOMC), which aligned with market expectations. However, the Fed emphasised that inflationary pressures are persisting and reiterated its commitment to a data-driven approach for future monetary policy decisions. The core Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation gauge, rose by 2.8% year-on-year in October, marking a 0.1 percentage point increase from the prior month. Similarly, in other advanced economies, the Bank of England (BoE) also implemented a 25bps rate cut.
In local markets, the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) reduced the repo rate by 25bps, but adopted a cautious stance on further monetary easing. This decision comes despite headline inflation registering at 2.8% in October, and projections suggesting it will average around the 4.5% midpoint of the target range well into 2025.
Yields declined in the domestic bond market, with the R2030 and the longer-dated R2048 declining by 37bps and 38bps, respectively. The FTSE/JSE All Bond Index (ALBI) returned 3.06% for November, supported by positive gains across the curve. Within the ALBI, the 7-12 year and 12+ year maturity buckets recorded most of the gains, delivering returns of 3.20% and 4.00%, respectively. The shorter-term 1–3-year bucket delivered 1.03% and 3–7-year bucket was up 2.302%.
Inflation-linked bonds delivered mixed returns for November as the yield on the long-dated I2050 declined by 10bps, while the short-dated I2029 rose by 6bps. As a result, the FTSE/JSE Inflation-Linked Index (CILI) returned 1.11%, and the Government Inflation-Linked Bond Index (IGOV) returned 1.14% for the month.
In the money market, the 3-month and 12-month JIBAR rates declined by 23bps and 18bps, settling at 7.79% and 8.20%, respectively. The Alexander Forbes Short Term Fixed Interest (STeFI) index, commonly used as a benchmark for money market funds, returned 0.63% for the month.
The Rand strengthened on the back of the US interest rate cut, aided further by subsiding emerging market risk aversion after the conclusion of the US election. The local currency remains volatile, however, reflective of general emerging market currency volatility. The USD/ZAR closed at 18.06 in November, marking a 2.1% depreciation from the previous month.
Looking ahead, we continue to monitor the actions of central bankers across the globe. As we head towards the conclusion of 2024, we remain cautious on the direction of inflation, but maintain our anticipation of further rate cuts in the new year. We will continue to monitor global and local political developments and inflation trends to guide our investment strategy, ensuring alignment with our long-term outlook.
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