Global Market Overview | November 2024

02 December 2024

Global markets delivered a positive performance in November with the MSCI World Index adding 2.1% despite seeing a sizable sell-off in emerging markets (MSCI Emerging Market Index: -5%). Emerging markets were under pressure as the attention shifted towards the US presidential elections with Donald Trump’s historic “red sweep” victory and his intended policy plans (comments surrounding tariffs weighed heavily on emerging markets, particularly China). Investors and economists are now assessing how these policies may alter future economic prospects (mainly inflation trajectory, employment, and economic growth, which will all feed into the monetary policy framework). Central bank meetings also garnered attention, while escalating geopolitical unrest continued to herd investors away from riskier assets; however, recent news of an imminent Israel-Hezbollah cease-fire deal has alleviated some pressure. 

Late in the month, President-elect Donald Trump noted that he would impose a 25% tariff on “all imports” from Canada and Mexico on his first day in office to counter alleged drug trafficking and illegal immigrant issues. He also said that he will impose an additional 10% tariff on Chinese goods. These comments sent the respective currencies (Mexican peso, Chinese renminbi, and Canadian dollar) into a tailspin and resulted in a knock-on effect into other emerging market currencies.

In terms of US monetary policy, the US Federal Reserve cut rates by 25bps in November (as expected) with Chairman Jerome Powell leaving the door open for a pause in December as policymakers will have to see where the data leads – investors have further pared back conviction on the number of future rate cuts and are currently pricing in an additional 75bps of cuts through next year. The probability attached to another cut in December has faded in recent weeks; however, most economists are still forecasting another 25bps cut this year. Powell also noted that the election outcome will have no effect on policy decisions in the near term. Looking at the overall performance in US markets, the growth seen across the S&P 500 Index (+3.1%) was bolstered by a solid rally in the Russell 2000 Index, reflective of broader strength in the market as opposed to being mainly driven by the tech sector (Bloomberg Magnificent 7 Index: +5%).

Markets in the Eurozone remained under pressure with the Euro Stoxx 600 Index giving back 2.4% as political uncertainty and mixed economic readings continued to adversely affect flows into equity markets. Investors also continued to monitor and assess commentary from Trump regarding any possible tariffs or additional policy moves which may affect the region. China also sold off heavily during the month (MSCI China: -6.7%) due to similar concerns surrounding Trump’s policy initiatives, while existing concerns surrounding stimulus measures in the region also continued to weigh on investor sentiment.

Locally, the All Share Index (-3.2%, USD: -5.4%) was not immune to the general weakness seen across emerging markets. However, some of the pullback was limited following news that S&P Global Ratings had revised its outlook on South Africa to positive from stable. S&P said it expects South Africa’s GDP growth to increase to 1.4% over 2025 to 2027 from 1% in 2024 as load-shedding has eased, but logistics bottlenecks will continue constraining economic activity. Upside risk emanates from the planned acceleration of economic reforms by the Government of National Unity and a pickup in private investment. In terms of policy moves, the South African Reserve Bank (SARB) reduced interest rates by 25bps at its November meeting (as anticipated) and stressed that while inflation is well-contained in the short term, the medium-term outlook carries significant uncertainties and potential for upside risks. We have pencilled in a further 75bps in interest rate cuts for next year, which is anticipated to bring an end to the current cutting cycle.

Economic Data Review

President-elect Donald Trump’s “red sweep” victory dominates headlines

Flash estimates showed that the S&P Global Composite PMI rose to 55.3 in November up from 54.1 in October. This reading signalled robust expansion in the country’s private sector, and the strongest growth in activity since April 2022. Retail sales increased 0.4% in October, lower than a 0.8% increase in September, but managed to beat the expected 0.3%. The trade deficit widened to $84.4 billion in September, the highest since April 2022, and slightly above the expected $84.1 billion. The unemployment rate was flat at 4.1% in October, unchanged from the three-month low in the prior month and in line with market expectations. The annual inflation rate accelerated to 2.6% in October, up from 2.4% in September, which was the lowest rate since February 2021, and in line with market expectations. The Federal Reserve cut interest rates by 25bps, as expected.

Mixed data out of the Eurozone as the ECB maintains a careful and data-driven approach

The HCOB Flash Eurozone Composite PMI fell to 48.1 in November from 50 in October, missing expectations of it remaining at 50. Retail sales increased 0.5% m/m in September, above an expected 0.4%. The Eurozone posted a trade surplus of €12.5 billion in September, accelerating from a €4.1 billion surplus in August and ahead of an expected €7.9 billion. The unemployment rate remained flat at 6.3% in September and was below expectations. Annual inflation accelerated to 2% in October, up from 1.7% in September, which was the lowest level since April 2021, in line with expectations. The ECB lowered three key interest rates by 25bps in October, as expected, and has signalled growing consideration of rate cuts, according to the accounts of its November meeting.

UK economic readings remain subdued, with inflation rising to the highest level in six months

The S&P Global Composite PMI contracted to 49.9 in November, from 51.8 in October, below expectations for it to remain at 51.8, to mark the first decline in the UK private sector activity this year. Pressure was more pronounced for manufacturers, although service providers unexpectedly saw a stalling in activity. Retail sales declined by 0.7% in October, following a downwardly revised 0.1% rise in September and much worse than an expected 0.3% drop. The UK’s trade deficit widened to £3.46 billion in September, from a revised £2.02 billion deficit in August. Imports fell 3.7%, while exports dropped by 5.8%. The unemployment rate rose to 4.3% from August to September, up from 4% in the previous three-month period and exceeding the expected 4.1%. Annual inflation went up to 2.3% in October, the highest in six months, compared to 1.7% in September. This exceeded both the Bank of England's (BoE) target and market expectations of 2.2%. The BoE lowered its interest rate by 25bps to 4.75% at its November meeting, as expected, marking the second rate cut in four years.

Investors continue to assess stimulus talks out of China while monitoring key data out of the region

The Caixin China General Composite PMI rose to 51.9 in October compared to 50.3 in September, marking the highest reading since June amid a rebound in factory activity and faster growth in the service sector. Retail sales increased by 4.8% y/y in October, accelerating from a 3.2% rise in the previous month and exceeding market expectations of 3.8%. China’s trade surplus jumped to $95.27 billion in October compared to $ 56.13 billion in October 2023 and surpassing market expectations of $75.1 billion. The survey unemployment rate eased to 5% in October compared market estimates and September’s reading of 5.1%, marking the lowest reading in four months. China’s annual inflation rate fell to 0.3% in October from 0.4% in September, below the expected 0.4%. The People’s Bank of China (PBoC) retained its key lending rates at the November fixing, in line with market expectations. Rates remain at record lows following rate reductions in October and July. The latest decision reflects the PBoC's ongoing assessment of existing stimulus measures.

Inflation in Japan falls to the lowest reading since January

The Jibun Bank Flash Japan Composite PMI increased to 49.8 in November, marking the second consecutive month of contraction in private sector activity. Retail sales decreased 2.3% in September, the first monthly decline in six months and the steepest contraction since August 2021, after an upwardly revised 1% rise in August, which was the fastest pace in three months. Japan’s trade deficit expanded to ¥416.25 billion in October from ¥294.1 billion in September and was worse than expected. The unemployment rate in September dropped to 2.4%, compared with market consensus and August's reading of 2.5%. The Japanese annual inflation rate fell to 2.3% in October, down from 2.5% in September, and marked the lowest reading since January. The Bank of Japan (BoJ) unanimously maintained its key short-term interest rate at 0.25% during its October meeting, keeping it at the highest level since 2008 and matching market estimates.

Local CPI settles below the bottom of the inflation target band

The leading business cycle indicator rose by 0.9% m/m in September, rebounding from a 0.7% fall in the previous month. The SACCI Business Confidence Index decreased to 110.2 in September (below forecasts of 112), from a five-month high of 111.5 in August. Retail sales rose 0.9% y/y in September, following an upwardly revised 3.3% rise in the previous month. This marked the seventh consecutive month of growth in retail activity, although it was the weakest since April. The trade surplus was R12.8 billion in September, up from a downwardly revised R5.1 billion in the prior month. Exports rose by 3.5%, while imports fell by 1.3%. Mining production in South Africa climbed by 4.7% y/y in September, accelerating sharply from a 0.3% increase in August. The S&P Global South Africa PMI fell to 50.6 in October, down from a 13-month high of 51 in September, indicating continued but slower private sector growth. Manufacturing PMI fell to 52.6 in October 2024, compared to a revised 53.3 in September. Annual consumer price inflation (CPI) fell for the fifth straight month in October, hitting a near four-year low of 2.8%, down from 3.8% in September, and below market forecasts of 3.1%. The SARB reduced its key interest rate by 25bps to 7.75% on 21 November, as anticipated, bringing borrowing costs to their lowest level since April 2023. Policymakers stressed that while inflation is well-contained in the short term, the medium-term outlook carries significant uncertainties and potential for upside risks.

Outlook

Local

• The global environment has become more precarious as a second term of Donald Trump in the White House could present further challenges to global trade, inflation, and fiscal policy given his touted policy changes. Until we have more clarity on actual policy changes, the outlook remains fluid and should sustain volatility in emerging market currencies.
• The best way to weather the global storm is for emerging markets to gain traction on structural reforms, enabling these countries to be less vulnerable to external shocks.
• SA’s structural reform agenda continues to gain traction and should support growth in the medium-to-long term. We anticipate growth to average 1.0% this year, 1.9% in 2025 and 2026, and surpass 2.0% in 2027. The most pressing risk to economic activity is local government’s inability to deliver basic services.
• Inflation has continued to slow, recording 2.8% in October – below the inflation target range. We see inflation remaining below 4.0% until the middle of 2025, where the weakening of positive base effects and rising domestic demand should support a lift in inflation. Risks to inflation will be the performance of the rand given prevailing dollar strength.
• Nevertheless, benign inflation over the medium term, with the SARB expecting it to remain anchored around the target midpoint, supports a continuation of the cutting cycle. We maintain our call that interest rates will be cut by increments of 25bps at each meeting until May 2025, bringing the repo rate to 7.0%.
• Lower interest rates, slower inflation, and the retirement savings innovation will support household cashflows and balance sheets, supporting consumer spending. This, alongside improved foreign sentiment towards SA assets, will be positive for the recovery in the housing market.

Global

• US growth continued to show resilience as 3Q24 GDP came out at 2.8%, still well above potential growth, despite the aggressive interest rate hiking cycle. Consensus estimates for 2024 growth has been revised higher to 2.7%, and 2025 growth to 2%. The long and variable lags of monetary policy are in progress, but thus far the impact has been relatively small (as most companies/individuals previously locked-in low rates). Our house view is for US growth to underperform consensus in 2024 and 2025.
• This month core PCE came in on expectations at 2.8%, still way above the 2% target of the Fed. Shelter inflation and core services should continue to trend lower; causing overall inflation to move down towards target, but risks remain that inflation proves ‘stickier’ than expected.
• The Fed’s interest rate cutting cycle started in September 2024 with a bigger than expected bps cut. The Fed has clearly indicated that labour market conditions will dictate the pace of future cuts. Since the rate cut, economic data has been quite strong, and the aggressive cutting cycle has been pared back. Three cuts of 0.25% have been removed for 2025, indicating a terminal rate of 3.75% versus 2.7% just two months ago. The ‘soft’ landing narrative is based on the Fed cutting rates fast enough, so real rates don’t become too restrictive on the economy.
• In emerging markets, Chinese macroeconomic data improved in November. Authorities launched the biggest stimulus package so far this year. Most of the announcements to date have been around monetary policy (lower interest rates) and measures to stop the property market from collapsing further. Fiscal policy is what is needed to structurally get China out of their deflationary slump and to restore confidence. Fiscal policy announcements are expected over the next few weeks; the magnitude of which will dictate market movements. Expect some announcements early next year as the US is expected to introduce more trade tariffs on China.
• The US dollar had another strong month. Reasons include stronger economic data from the US versus peers, interest rate differentials (as US cuts are priced out) as well as the red sweep victory of the Republican party that is expected to introduce policies that should support the currency over the short-to-medium term.
• Gold corrected lower after a decent year, as the dollar strengthened, and rumours of an end to the Russian/Ukraine war and a possible ceasefire between Israel and Hezbollah built.
• Given all the above uncertainties, we are closely aligned to our strategic asset allocation benchmarks, with a slight defensive twist. We slightly favour fixed income over equities.