Advice & Comments
14 Oct 2024
The S&P 500 and the Dow scored record closing highs this week, buoyed by a positive start to the third-quarter earnings season and expectations for...
The S&P 500 and the Dow scored record closing highs this week, buoyed by a positive start to the third-quarter earnings season and expectations for a U.S. Federal Reserve rate cut in November. Shares of JPMorgan Chase and Wells Fargo rose on Friday after both banks reported smaller-than-expected declines in third-quarter profits.
On Thursday, the Labor Department reported modest surprises in both headline and core inflation. In September, headline inflation rose 0.2% month-over-month and 2.4% year-over-year, while the core rate increased by 0.3% from the previous month and 3.3% from a year ago. Significant price increases in medical care (up 0.7%) and transportation services (up 1.4%) offset a 1.9% drop in energy prices. Additionally, the Labor Department reported a surprise rise in weekly jobless claims to 258,000, the highest level in 14 months.
Following the inflation report, the producer price index released on Friday remained flat for the month but increased by 1.8% year-over-year, contrary to economists' expectations of a 0.1% monthly gain after a 0.2% rise in August. Long-term bond yields ended the week higher, with the yield on the benchmark 10-year U.S. Treasury note reaching its highest intraday level (4.12%) since July 31.
Florida residents woke up to the devastation caused by Hurricane Milton on Thursday morning. The combined impact of Milton and Helene has claimed around 250 lives, displaced thousands from their homes, and left millions of Floridians and businesses without power, with many facing extended outages that could last for weeks.
In Europe, the pan-European STOXX Europe 50 Index rose by 0.99% on hopes that the European Central Bank (ECB) might cut interest rates sooner, alongside expectations of increased economic stimulus from China. However, the UK’s FTSE 100 Index dipped by 0.33%.
The ECB indicated that it anticipates inflation will trend toward its 2% target by year-end, suggesting that a gradual reduction in borrowing costs may be appropriate if upcoming inflation data aligns with its forecasts.
In Asia, Japanese stock markets gained over the week, with the Nikkei 225 Index rising 2.45%, supported by a weaker yen that enhanced profit prospects for exporters. In contrast, Chinese equities declined in a holiday-shortened week as optimism about Beijing's stimulus measures faded. The Shanghai Composite Index fell by 3.56%, while the benchmark Hang Seng Index in Hong Kong dropped by 6.49%. At a press conference on Tuesday, the National Development and Reform Commission of China announced plans to accelerate countercyclical measures to support growth, reiterating its commitment to boost investment and provide direct support to low-income groups and new graduates.
The dollar gained strength for a second week in a row, while gold prices saw a slight increase, remaining well-supported around the $2,600 mark. Brent crude closed the week at $78.67 per barrel, rising by nearly 1% amid ongoing tensions in the Middle East.
Market Moves of the Week:
In local news, South African Reserve Bank Governor Lesetja Kganyago stated that inflation could drop below 4% in the coming months, providing more opportunities for action following the interest rate cut in September. “We expect the next two or three reports could show a three-handle, which gives us policy space,” Kganyago remarked on Thursday. He noted that the decline in headline inflation is largely due to waning global supply shocks.
The central bank forecasts consumer price growth to settle at 3.6% in the final quarter of this year, with an average of 4% anticipated for 2025. Core inflation, which excludes food and energy costs and slowed to 4.1% in August, indicates that “the disinflation process is firmly underway,” according to Kganyago. He expressed optimism about South Africa’s economic outlook, suggesting that the economy likely continued its recovery in the third quarter, following a 0.4% expansion in the previous three months.
The South African Revenue Service (SARS) has received over 1.2 million applications for tax directives related to pension fund withdrawals under the two-pot system, totaling R21.4 billion in payouts so far. In a statement released late Friday, SARS reported that of the 1,213,646 applications, 1,148,729 tax directives were approved for fund releases. The two-pot retirement system, implemented at the beginning of September, divides pension fund contributions into a one-third savings pot and a two-thirds retirement pot. Members can withdraw from their savings pots once a tax year, while contributions to the retirement pot remain preserved.
On Friday, the South African rand continued to gain ground, following U.S. data that bolstered expectations for a Federal Reserve interest rate cut next month. Year-to-date, the rand has strengthened by 5.1%.
On the stock market, the JSE All Share Index closed the week slightly lower (-0.21%), primarily due to losses in resource counters (-1.99%), while the banking and financial sectors saw robust gains (+1.5%).
Chart of the Week:
Inflation decreased in September, as falling gasoline prices and diminishing price pressures in areas like housing provided some relief for consumers, according to the U.S. Bureau of Labor Statistics. The consumer price index, a key measure of inflation, rose by 2.4% last month compared to September 2023, down from 2.5% in August, indicating a slowdown in price growth. This marks the lowest annual rate since February 2021. Inflation has significantly decreased from its pandemic peak of 9.1% in June 2022, approaching policymakers' long-term target of around 2%.