September saw a pause in developed market central bank rate hikes, but also higher longer-term bond yields as investors priced in longer delays before rate cuts began. Bond prices consequently fell over the month, particularly in the US. The ‘higher interest rates for longer’ narrative also hit equities, with most regional markets falling in local currency terms. Oil prices continued to rise as Saudi Arabia and Russia agreed to extend their production cuts to the end of 2023. Greater uncertainty and higher US yields helped the US dollar to appreciate further against most other currencies.
Monthly Market Commentary – September 2023
LOCAL DRIVERS
SA GDP Upside Surprise
SA grew by 0.6% in the second quarter and 1.6% year-on-year at the end of June. Despite this being relatively tepid growth it actually surprised to the upside with analysts expecting worse growth numbers due to continued load-shedding amongst other issues. Better than expected growth illustrates the resilience of corporate SA in the face of a less than conducive operating environment. Business confidence also increased but remains well below the neutral level of 50, where it has remained since 2015.
Treasury Warns of Budget Pressure
Falling government revenues, influenced by adverse commodity prices (previously a tailwind), necessitate spending reductions. The Treasury warned government of this over the course of the month. However, senior ANC officials, Cosatu and SACP members have already pushed back on these potential cost containment measures as they look to woo voters for the 2024 elections. The Finance Minister once again finds himself in quite the bind for this months medium term budget speech.
SA Rates
The South African Reserve Bank (SARB) held rates steady at 8.25% for the second meeting in a row as inflation hovered just above the inflation target mid-point of 4.5% in August (4.8% reading). The hawkish tone of the governor left no doubt that the MPC still feels that upside risks to inflation remain even though the sources are largely out of their control. The primary mandate of the SARB is to protect the value of the currency and therefore the local interest rate environment is very much tied to the global environment.
ASSET CLASS TOTAL RETURNS – ZAR
GLOBAL DRIVERS
Good news is Bad News
In the US, expectations of rate cuts in 2024 reduced as there was a sense of ‘good news is bad news’. Broadly positive data points released during the month resulted in expectations that the Federal Reserve would need to keep rates higher for longer on the back of continued economic strength. Against this backdrop, the Federal Reserve held rates flat but the committee member’s forecast for future rates (‘dot-plot’) confirmed members anticipate rates remaining higher for longer.
Oil Supply Cuts
Saudi Arabia and Russia extended oil supply cuts until the end of the year. This pushed oil prices to peak just below $95 per barrel at the end of the month posing a risk to inflationary pressure globally.
China Continues to Languish
China, the emerging markets’ economic powerhouse, continued to disappoint on the data front. Very low inflation persisted, with prices rising 0.1% year-on-year in August, below expectations. Composite PMI continued to trickle down, falling to 50.9 in September, its lowest level since January 2023.
ASSET CLASS TOTAL RETURNS – USD
All information provided courtesy of Portfolio Metrix – adapted and published with permission. No copyright infringement intended.
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