• Equity markets rebounded off lows hit in September as concerns over prolonged inflation coupled with slowing growth were overweighed by a robust start to the third-quarter earnings season. This spurred appetite for riskier assets that led the MSCI All Country World Index to gain 5.12% (in USD) in October. Developed markets slightly outperformed their emerging counterparts with the MSCI World Index printing 5.35% against 3.43% from the MSCI Emerging Markets Index.
  • Data coming from the US showed signs of slowing growth with the Manufacturing PMI coming in at 59.2 for October, down from 60.7 the month before. This is the third consecutive drop and marks the lowest level seen since March. Whilst still above the expansionary 50 level, the drop off is largely due to ongoing logistical issues and supply shortages globally.
  • The US labour market gave slightly mixed signals with non-farm payrolls coming in at 194 000 in September, missing forecasts of 500 000 and marking the second consecutive drop since the peak in July. On the other hand, weekly Initial Jobless Claims, which shows the number of Americans filing new claims for unemployment benefits, fell to 290 000 last week. Despite the progress made, non-farm employment is still roughly 5 million jobs below its pre-pandemic level.
  • The US personal consumption expenditures index (the Federal Reserves preferred inflation measure) printed 3.6% for September, marking the sixth consecutive reading above the 2% target. This rise in inflation further supports the narrative of the Fed tapering bond purchases before the end of the year and the possibility of rate hikes happening sooner than expected.
  • China’s GDP growth continues to slow, printing a mere 0.2% (q/q) for the third quarter, down from 1.2% in Q2 and marking the weakest growth since the start of the pandemic. The slowdown in economic growth is due to a combination of factors, including power shortages, troubles in their property sector, regulations on sectors from technology to education and Covid-19 outbreaks.
  • The United Kingdom grew GDP by 0.4% (m/m) for August, slightly below forecasts of 0.5%, however, returning to growth after GDP declined by 0.1% in July. The slight uptick in economic activity can be attributed to bars, restaurants and festivals enjoying the first full month without any Covid restrictions. Growth in the UK could, however, continue to be slowed by global supply chain issues which have been exacerbated by post-Brexit trade and immigration restrictions.
  • Annual CPI inflation in the UK edged slightly lower to 3.1% (y/y) in September, off from a nine-year high of 3.2% in August. With inflation continuing to print well above the 2% target, the Bank of England seems set to be among the first major central bank to raise interest rates.
  • Locally, we had a quiet month on the data front with the inflation reading coming to the fore. The CPI inflation rate remained elevated above the midpoint of 4.5%, coming in at 5.0% for September. The main drivers for the rise were transport, food, non-alcoholic beverages, housing and utilities.
  • Core CPI (which excludes food and energy) remained relatively stable at 3.2% (y/y), suggesting that South Africa is still struggling to spur demand following the deep contraction from the pandemic.
  • The South African Reserve Bank has stated that the sustained increase in inflation prompts the need for interest rates to start normalising, implying a rate hike of 25bps in the last quarter of 2021 and one in every quarter next year.
  • A hawkish shift from the Federal Reserve has caused the rand to weaken and end above the psychological 15-level against the greenback for two consecutive months. For October, the rand lost 0.76% against the dollar, 0.59% against the euro, and 2.40% against the pound.
  • The South African stock market tracked global stocks higher with the FTSE/JSE All Share Index returning 5.97% in October. This gain was on the back of stronger commodity prices lifting the shares of miners, as such Resources delivered 8.44% followed by Industrials with 6.73%. Financials and Listed Property both lost ground in October, printing -4.56% and -3.21% respectively.
  • One month index movements:
    • JSE All Share Index: 5.97%
    • S&P 500 (US): 6.91%
    • FTSE (UK): 2.13%