International Markets

Most international markets ended the month on the front foot as economic data in the US showed signs of resilience, reinforcing market expectations of a soft landing and optimism that the Federal Reserve (Fed) would continue with its rate cutting cycle. This was further bolstered by an expectation of an improvement in global growth prospects as both the European Central Bank (ECB) and the People’s Bank of China (PBoC) move toward a more accommodative monetary policy. 

In the US, all major indices ended September in the green, despite a pullback early in the month, and reaching new record highs, on the back of the Fed cutting rates by 50 basis points. The S&P 500 ended the month higher by 2.0%, the Dow was higher by 1.8%, and the Nasdaq up by 2.7%. This also marked the first time since 2019 that all three indices ended the month of September in the green.

On the economic front, inflation in the US continued to slow, falling for the fourth consecutive month, with CPI printing at 2.5% YoY for August, versus the 2.9% YoY print in July. Core CPI remained sticky, however, printing at 3.2% YoY, unchanged from July. Core CPI excludes the volatile food and energy components. The Fed’s preferred inflation gauge core, which also excludes food and energy, advanced by a lower than expected 2.7% in August versus the July print of 2.6% YoY. While commencing its easing cycle with a 50-basis point cut, the Fed indicated two further reductions before the year end, with most expecting an additional 100 basis points in cuts for 2025. 

With August’s inflation showing a steady disinflationary trend, which is expected to extend to 2025, confidence in an easing inflationary environment could shift the Fed’s focus to concerns of softening employment and weaker growth, compared to price pressures. There is an expectation that growth will slow to trend with a fading fiscal impulse and rising unemployment, which partly offsets the easier monetary conditions.

US retail sales for August surprised the markets on the upside, rising 0.1% MoM as opposed to the market expectation of a 0.2% decline, in contrast with the July print of a 1.1%, which was revised upward.

In the UK, the FTSE closed the month lower by 1.7%, as inflation for the August period printed at 2.2% YoY, unchanged from the July print, and above the 2.0% target rate of the BoE. Having cut rates for the first time in four years in August, the BoE kept rates unchanged, holding steady at 5% as services inflation increased to 5.6% YoY for August vs the July print of 5.2% YoY. Core inflation increased at 3.6% YoY for August vs the 3.3% print of July. UK officials continue to weigh options to ease fiscal constraints imposed by rules that debt is required to decline as a share of GDP over the following five years. The OECD has also backed calls for fiscal reform as it believes the current rules are too short term focussed, discouraging long term investments which is needed to support longer term growth.

The major European markets of France and Germany both ended in the green as the Chinese stimulus measures boosted markets, with the Cac up marginally at 0.1% and the Dax up by 2.2% for the month. Headline inflation in the eurozone dropped to 2.2% YoY for August compared to the July print of 2.6% with core inflation, which excludes alcohol, energy, food and tobacco easing to 2.8% vs the July print of 2.9%. 

In France, August inflation dropped sharply to 2.2% YoY vs the July print of 2.7% YoY, while German inflation also dropped to 2.2% YoY in August vs the 2.7% print of July. The German economy continues limping toward a weak recovery, hampered by poor personal consumption with households remaining cautious about spending despite rising income levels. Manufacturing and construction sectors have entered a deeper recession as investment continues to falter on policy uncertainty. Like its US counterpart, the ECB cut rates by 25 basis points to 3.5%, the second cut in its easing cycle launched in June.

Asian markets, especially China, ended the month strongly in the green as the Chinese government unveiled its largest stimulus package since the outbreak of the COVID-19 pandemic, in an attempt to revive the economy. These ‘forceful’ stimulus measures included rate cuts, a reduced reserve requirement ratio and further relaxation of mortgage rules to bolster the market. Even more may be required to sustain growth and seed a favourable shift in market sentiment, such as a further reduction in the reserve requirement ratio, more cuts to the medium-term lending rates and further support fort the property sector. 

Both the Shanghai Composite and Hang Seng indices closed the month higher by more than 17% as the US$325 billion stimulus measures boosted the markets and demonstrating the Chinese government heeded warnings that the country could miss its 5% growth target for the year. 

On the economics front, Chinese retail sales and industrial production numbers for August printed at 2.1% YoY and 4.5% YoY, both advancing slower than anticipated. August inflation printed at 0.6% YoY, rising for the seventh month in a row, but below forecast, and the PBoC target rate of 3%. The manufacturing PMI for September printed at 49.8, vs the August print of 49.1, and above consensus expectations of 49.5. It still came in below the 50 mark, however, for the fifth month in a row. The non-manufacturing PMI number, which measures sentiment in the services and construction sector, came in at 50 for September, below the 50.3 reading in August. 

The Japanese market underperformed relative to their Chinese counterpart, closing the month lower by 1.9%, in anticipation that the incoming Prime Minister, Shieru Ishiba, would follow policies to keep the yen strong, coupled with a mixed bag of economic datal. Japanese headline inflation (CPI) for August printed at 3.0% versus the 2.8% of July, with higher wages leading to a sustained pick up in consumption. Japanese core inflation, which excludes energy and food, and a key metric used by the BoJ in its formulation of monetary policy, printed at 2.0% YoY, vs the July print of 1.9% YoY. Wage increases in Japan are gradually lifting salaries, which will see a rise in disposable incomes, combined with some tax relief. Private consumption continues to be the key driver sustaining current growth trends in Japan. The BoJ kept rates unchanged at the September meeting at around 0.25%.

South African Markets

On the local front, the All-Share index broke through the 87 000 level during September, before closing at just below 86 500, ending the month higher by 3.3%. A slew of good news factors contributed to the strong market, including the Chinese stimulus measures, easing monetary policy locally and offshore, together with growing confidence in the GNUs resilience. Industrials climbed by almost 5% for the month, property by a similar gain, resources by just over 3% and financials by 1.4%. 

On the economics front, local headline inflation for August eased further to 4.4% YoY, compared to the July print of 4.6% YoY - the lowest point since April 2021. Despite easing price pressures, concerns persist with the uptick in prices of food, alcoholic beverages, and tobacco. Core inflation also moderated to 4.1% YoY in August, versus the previous July print of 4.3% YoY. Against this backdrop of slowing inflation, the South African Reserve Bank (SARB) eased the pressure on the consumer at its September MPC meeting and cut rates by 25 basis points, taking the repo down to 8%. 

South African GDP for the second quarter strengthened by 0.4%, with manufacturing, gas and electricity industries driving most of the growth. A recovery in household spending is expected due to higher wages, lower interest rates (an expectation of a further 75 basis points projected by mid-2025), and early pension withdrawals under the two-pot pension system.