The focus areas during the week included

• The S&P 500 index fell by 0.1% on Friday, after oscillating between small gains and losses throughout the week, including a negative reaction to the weaker-than-expected US consumer confidence data. Investors celebrated the new stimulus measure in China, resulting in the S&P 500 ending the week with a gain of 0.6%, having reached a record high on Thursday. The S&P 500 has risen in each of the past three weeks and is up 20.3% in the year to date.

• Understandably, Chinese equities surged after Beijing unveiled a slew of measures to bolster the economy. The Shanghai Composite Index climbed 12.8%, while the blue-chip CSI 300 soared 15.7%. The rally marked the biggest weekly gain for the benchmark CSI 300 since 2008, when Beijing unveiled a massive stimulus package during the global financial crisis. As recently as 13 September, the Shanghai equity index was down 8.7% in the year to date. It is now up 4.2% in the year to date.

• SA’s All Share Index gained a very welcome 4.5% to end the week at a record high. The index is up 13.9% year-to-date and has risen by 14.2% since the National Election at the end of May.

• The yield on the benchmark US 10-year government bond ended the week fractionally higher at 3.75%, while the two-year bond was unchanged at 3.55%. The yield gap (2/10) remains positive at 0.2%.

• The rand gained a further 2.4% against the dollar and was the second best-performing emerging market currency after the Chilean peso, which gained 3.5% against the dollar. In the year to date, the rand is up an impressive 6.9% against the dollar and is now considered overvalued. (It is worth highlighting that the emerging market currency index is down -0.5% year to date against the dollar, while the dollar has weakened by 4.1% against the euro since the middle of 2024). On a trade-weighted basis, the rand gained a slightly more modest 1.9% last week but is up 7.2% in the year to date, highlighting the fundamental improvement in its value, though from an oversold position. The rand continues to be buoyed by the positive sentiment that has emerged since the National Election, as well as the fact that the Reserve Bank has adopted a very conservative approach in setting monetary policy. Weekly data from the JSE suggests that there has been an increase in net foreign purchases of South African bonds in recent weeks, although this data is subject to significant adjustment by the Reserve Bank.

• In September, at least 24 central banks cut interest rates, while only three central banks increased rates, namely Russia, Nigeria, and Brazil. The global interest rate cutting cycle continued to broaden in September and has gained significant momentum over the past year. The central banks that cut rates in September included Switzerland, Mexico, Czech Republic, Sweden, Hungary, SA, Indonesia, the US, Peru, Denmark, the Eurozone, Canada and Chile. Many central banks have cut rates on multiple occasions during the past 12 months.

• In an unexpected move, the People’s Bank of China (PBoC) and Chinese government unveiled a number of stimulus measures designed to pull the Chinese economy out of deflation, bolster the property market and achieve the government’s 5% GDP growth target. The announcement follows a range of disappointing economic data for August that raised concerns about a more meaningful economic slowdown. In particular, the PBoC cut its reserve requirement ratio by 50 bps for most banks, its second cut in the banks’ required reserves this year, and it reduced its seven-day reverse repo rate – a key short-term policy rate – by 20 bps to 1.5%. It cut the medium-term lending facility rate by 30 bps to 2%, marking the largest-ever cut to the monetary policy tool since the central bank began using it to guide market rates in 2016. Other measures unveiled by the PBoC included a rate cut for existing home mortgages and slashing the nationwide down payment ratio for second home purchases to 15% from 25%. While, on their own, the broader-than-expected policy measures will not be enough to solve China’s structural issues, they are a significant step in the right direction in slowing the decline in economic activity this year. They show that authorities are willing to implement non-traditional policies to help bolster the economy. These announcements should boost market confidence, provide ample liquidity for the real economy and place it on a firmer footing in 2025. Given persistent deflationary pressures and weak economic activity, there is still room for further monetary policy easing, with policy rates likely to be cut further this year.

• US core PCE inflation rose by only 0.1% m/m in August, slightly below market expectations for an increase of 0.2% m/m. Despite the moderate monthly increase, on a year-on-year basis core PCE inflation rose to 2.7% y/y from 2.6% y/y in July. This was in line with market expectations and within sight of the Federal Reserve’s inflation target of 2%. Importantly, personal incomes and personal spending both surprised on the downside in August, also suggesting a moderation in inflationary pressures. A breakdown of the PCE inflation data reveals that goods prices are in deflation: they fell by 0.2% m/m in August and declined for the fourth consecutive month. Services prices rose by 0.2% m/m in August, with housing inflation continuing to remain stubbornly high at 0.5% m/m. Overall, the PCE price data suggests that inflation continues to move in the right direction, which is consistent with the Fed’s decision to shift its focus to the employment side of its dual mandate.

• US weekly jobless claims are showing no signs of increasing, suggesting that companies are in a holding pattern. Effectively, companies are hiring fewer people but also not reducing the number of their employees. There is some evidence to suggest that US companies have become increasingly reluctant to take on additional staff ahead of the presidential election.

• The US Conference Board’s consumer confidence index surprised to the downside in September, reflecting growing concerns about the labour market. Households are increasingly losing confidence in their ability to find a job. The spread between the Conference Board’s expectations and current conditions indices is rebounding. This is typically seen at the onset of a recession.

• The US S&P Flash Composite Purchasing Managers’ Index (PMI) eased to 54.4 in September, slightly above market expectations for the index to moderate to 54.3 (Bloomberg). The services component, which represents most of the composite index, edged down to 55.4 but beat estimates for 55.2. The manufacturing component dropped to 47, below expectations for 48.6. Although the services sector is still growing, the rate of expansion has slowed, while the manufacturing sector is contracting. The data is consistent with a slowing economy but not a recession.

• The US 30-year mortgage rate has declined for eight consecutive weeks. In the week, mortgage applications exceeded the previous year’s level for the first time in more than three years, while the mortgage refinancing index has risen to its highest level since April 2022. Fortunately, the decline in the mortgage rate is encouraging more homes to be put on the market, which is helping to moderate price increases and should contribute to a further slowdown in rental inflation.

• According to the Atlanta Fed wage tracker, US wage growth has slowed to 4.6% y/y in August 2024, which is its lowest level since December 2021. Importantly, the wage differential between job switchers and job stayers has turned negative. In other words, it is no longer advantageous to switch jobs from a wage perspective. This should also help to control wage inflation.

• US personal savings data was revised significantly higher, including the savings rate. Savings data is extremely difficult to estimate and can be revised significantly on a regular basis.

• In Q2 2024, the South African economy added 42 000 jobs in the formal sector, although almost all were added in the public sector. These included jobs added as a result of the National Election at the end of May 2024. Unfortunately, every other economic sector lost jobs in the quarter, including manufacturing, with a decline of 16 000, and business services, with a drop of 14 000. One exception was the electricity sector, which kept its level of employment unchanged. Over the past year the formal sector has lost a total of 144 000 jobs, which is extremely disappointing, given the already high level of unemployment and a sustained substantial increase in the labour force.   

• In August 2024, SA’s producer price index (PPI) fell for the third consecutive month. It fell by 0.3% m/m, largely because of a further drop in the fuel price. The decline in PPI was well below market expectations for an increase of 0.3% m/m (Bloomberg). Consequently, on an annual basis, producer inflation slowed sharply to 2.8% y/y in August 2024, down significantly from 4.2% y/y in July, and below market expectations for producer inflation to decelerate to 3.5% y/y. Overall the PPI data supports our view that the Reserve Bank can continue to cut interest rates well into 2025.

• Business activity in the Eurozone unexpectedly contracted in September, due to a significant decline in the new orders component of the composite PMI. The overall PMI index fell to 48.9 in September from 51 in August. Services activity came close to stalling as the boost from the Paris Olympics faded, while manufacturing contracted at a faster pace. Interestingly, German business activity declined the most in seven months, signalling that the economy may be on track for a second quarterly drop in output.

• Sweden’s Riksbank cut its policy rate by 25 bps to 3.25% and indicated that, if the outlook for inflation and economic activity remains unchanged, further reductions could be likely in the two remaining Executive Board meetings this year. The Swiss National Bank also lowered borrowing costs by 25 bps to 1%, as expected. Governor Thomas Jordan signalled that the bank was ready to cut interest rates again as inflation pressures had decreased markedly.

• After Japan’s markets closed on Friday, Shigeru Ishiba won the Liberal Democratic Party’s leadership contest, which means he will become Japan’s next prime minister. Ishiba, a former defence minister, defeated Economic Security Minister Sanae Takaichi in a closely-contested run-off vote. Ishiba’s monetary policy views are considered slightly hawkish, and the market’s perception is that he is unlikely to resist efforts by the Bank of Japan (BoJ) to normalise monetary policy. His government is likely to continue to take actions to eliminate deflation.

• BoJ Governor Kazuo Ueda said that the central bank has enough time to assess market and economic developments before adjusting monetary policy again, suggesting that it is in no rush to raise rates further. The yield on the 10-year Japanese government bond fell to 0.8% at the end of the week from 0.86% at the end of the previous week.

• The Tokyo area core consumer price index (CPI), considered a leading indicator of nationwide trends in inflation, rose 2% y/y in September, down from 2.4% y/y in August. The slowdown in consumer inflation was expected and largely attributable to the effect of renewed energy subsidies.

• Japan’s PMI data (collated by au Jibun Bank) showed that Japan’s private sector continued to expand in September, although the rate of growth slowed slightly from August. Business activity in the services segment drove the expansion, while manufacturing output contracted marginally.