Market Overview – July 2024 – SA

In July, global financial markets experienced a blend of mixed central bank policies and divergent regional economic data. Major central banks, including the US Federal Reserve (Fed) and the South African Reserve Bank (SARB), kept interest rates unchanged, reflecting a cautious but stable approach to monetary policy. In contrast, Japan's central bank unexpectedly increased its policy rate by 25 basis points, while China opted for a rate cut in response to weaker economic conditions.

In the US economy, indicators presented a mixed picture. CPI fell to 3% year-on-year, slightly below expectations, while core CPI printed at 3.3%. Despite stronger-than-expected GDP growth of 2.8% (annualised, q/q), the labour market showed signs of strain, with the unemployment rate rising to 4.1%. This data led to heightened speculation that the Fed would cut rates in September.

Global equity markets showed varied performance in July. The S&P 500 posted a modest gain of 1.2%, while the Nasdaq experienced a decline of -0.7%. Notably, small-cap stocks outperformed large caps. Global bond markets rallied as investors shifted capital into bonds, benefiting from expectations of future rate cuts.

Commodities faced significant headwinds with declines in Zinc (-9.8%), Aluminium (-9.4%), Lead (-6.3%), and Palladium and Copper (both -4.9%). Gold, however, gained 3.9% due to weaker economic data from China and rising geopolitical tensions in the Middle East.

In local markets, South African assets demonstrated robust performance in July, with local markets outperforming their global peers (in US$).

The JSE All Share Index gained 3.9% (in rands). Resource stocks led with a 5.7% return, largely driven by strong performance in gold stocks. Financials also performed well, with a 5.4% increase. Industrials however, lagged with a 2% return. Notably, South African equities have continued to show resilience, supported by positive sentiment towards income-earning sectors.

Local bonds also saw favourable returns, with the All-Bond Index rising 4.0%. The short-dated R186 bond yield decreased by 43 basis points, while the longer-dated R209 bond yield fell by 49 basis points. The yield curve flattened slightly to 2.67%, and the 10-year R2035 bond yield strengthened to 10.895%. Inflation-linked bonds posted a modest positive return of 1.7%.

The rand ended the month flat against the US dollar at just below R18.20/$ but weakened against the euro and pound sterling. SA CPI fell to 5.1% y/y in June, remaining within the SARB’s target range.

In conclusion, July was a period of mixed economic signals from major economies, and a positive yet volatile performance in local markets. As global uncertainties persist, maintaining a diversified investment approach while monitoring both local and global macro environment is key to managing investment strategies effectively.

Looking ahead, market volatility is expected to persist amid ongoing global economic uncertainties. Investors should stay vigilant but open to opportunities in both domestic and global markets. Leveraging strong performance in domestic equities and bonds while monitoring global developments will be key for navigating this landscape.