July 2018 market overview

The US economy performed well in July, with most sectors seeing increased performance especially in the technology and pharmaceuticals industry. As companies released their second quarter earnings, results were generally positive and big names such as Microsoft stood out with a 17% increase in sales. But, investors remained tense as Donald Trump took to Twitter berating the Fed for continuing to raise rates, albeit gradually.

European indices increased rapidly during the first week of July, as Germany’s political climate stabilised following the ruling coalition’s agreements on further talks of migrant issues. However, news concerning falsified emission data from Nissan, and then Sanoffi’s failure to comply with pollution standards in factories, saw a decline in the auto sectors. Investors later settled again following a positive outcome from talks between Angela Merkel and Donald Trump regarding trade tariffs. Interestingly, Trump has agreed to reduce tariffs on imports from Europe, excluding the auto industry, which was previously in the spotlight.

The Asian economy dipped in July after China GDP results showed slow domestic growth. The markets later felt brief relief as the Renminbi increased against the Dollar, following a statement from the Chinese central bank concluding not to use currency depreciation to counter the effects of the US trade tariffs, after duties to the value of $34bn were instated on 6 July. But, after the US added a further $200bn to trade tariffs, the US-China trade war reached a stagnation period, as China’s imports only amount to a total $130bn. Japanese markets faltered alongside Chinese markets throughout most of the month.

Emerging markets had a better month overall. While Andres Obrador became president of Mexico with a parliamentary majority and reassured investors that the leading advisers will take a cautionary approach to budgeting, Brazil’s national congress approved the request to rapidly privatise Electrobras, the tenth largest electric utilities company in the world. Though Argentina’s economy is slowing down with dips in construction, industrial production and car sales, Columbia enjoyed growth in manufacturing and retail sales.

Locally, the markets took a down turn. In direct contrast to the US protectionist actions, President Ramaphosa pushed for globalisation and free trade on his official visit to Nigeria. Eskom and unions locked heads over wage disputes, with relationships further strained as unions asked to bring in Finance Minister Nene. Overall, the South African economy dropped, in line with general emerging market trends.

During July 2018 the FTSE/JSE All Share Index (ALSI) lost 0.25% on a total return basis, while bonds gained 2.42%. The SA Listed Property Index (SAPY) lost 0.5% in July. Cash returned 0.59%. Internationally, the MSCI World Index gained 3.12% in dollar terms and the MSCI Emerging Markets Index ($) gained 2.28%. In July the rand strengthened 4.64% against the greenback and gained 4.41% against the euro.

For the year to date index measures, the ALSI and listed property returned -1.95% and -21.76% respectively. The ALBI returned 6.48% and cash 4.15%. Internationally, the MSCI World Index rewarded offshore investors with 3.57% while declining in the MSCI Emerging Markets Index ($) by 4.51%. This was mainly due to the rand weakening against the euro and weakening even further to the dollar by 5.49% for the year to date.