Markets In Focus: August 2024 market snapshot

Global financial markets took a hit at the start of August due to negative US economic data and a change in Japanese monetary policy, but those losses were recouped by month-end.

Concerns were raised when the US Bureau of Labor Statistics reported that the unemployment rate had ticked up to 4.3% in July from 4.1% in June, suggesting a potential recession. Sentiment worsened after the Bank of Japan raised interest rates, triggering a strong yen and an unwinding of the yen/US equities carry trade. Consequently, the S&P 500 index dropped by about 6% in three trading days in the first week of the month.

Subsequent news on the US economy soothed fears. US retail sales grew by 1.1% month-on-month in July, marking their biggest increase in 18 months, while the consumer inflation rate eased to 2.9% from 3% in June. At the Jackson Hole symposium mid-month, US Federal Reserve Chair Jerome Powell indicated a policy adjustment was imminent, suggesting an interest rate cut in September. By the end of August, the S&P 500 had gained 3.7% for the month.

In other developed markets, European services output was boosted by the Paris Olympics, although manufacturing continued to struggle. Eurozone consumer inflation eased to 2.2%, strengthening calls for another rate cut by the European Central Bank. In China, July industrial production fell to 5.1% year-on-year from 5.3% in June.

In South Africa, positive sentiment following the formation of a Government of National Unity (GNU) continues to spark hope of economic upturn. Consumer inflation for July slowed to 4.6% from 5.1% in June, though Q2 2024 unemployment rose to 33.5%. The South African Reserve Bank is expected to follow the Fed’s lead in cutting interest rates in September.

The JSE All-Share Index has gained 11.41% in the year to date, despite weakness in commodities shares. The SAPY index gained 8.25% in August, boosted by corporate activity and expectations of lower interest rates, bringing its one-year return to 38.2%. US dollar weakness benefited the rand, which firmed by 2.4% to around R17.8/$. This took the edge off some of the MSCI World Net returns in rands, which were 0.18% for the month. However, over five years, offshore diversification would still have been the best strategy, with the MSCI World Net in rands delivering 16.7% against 9.12% for domestic bonds and 12.82% for the ALSI.

Table 1: Total returns to 31 August 2024