Prowess Investments Market Update 14th – 21st October 2024

Last week, Fed speakers continued to caution against expectations of aggressive US rate cuts, as the future path of monetary policy will be driven by incoming data and the economy’s performance. Locally, SARB Governor Lesetja Kganyago presented an argument to lower South Africa’s 3-6% inflation target, while this week, the IMF’s annual meeting takes place in Washington, as it releases its World Economic Outlook.

International Market Developments

Fed speakers continued to call for caution around the expectation path of monetary policy. Minneapolis Fed President Neel Kashkari commented that the US economy is in the final stages of steering inflation back to the Fed’s 2% target. He noted that while monetary policy is still in restrictive mode, it is unclear how restrictive monetary policy is, with the future path of monetary policy being driven by incoming data and the economy’s performance, with “modest” reductions in the Fed funds rate in the coming quarters most likely.

Atlanta Fed President Raphael Bostic noted that while the US economy is likely to slow this year, it is expected to remain robust and for growth to come in at about 2% in 2025. He further added that the inflation slowdown could experience more bumps along the way as it moderates towards the Fed’s 2% inflation target.

The Chinese economy expanded 4.6% YoY in Q3 of 2024, compared with market forecasts of 4.5% and a 4.7% rise in Q2. It marked the slowest annual growth rate since Q1 2023, amid persistent property weakness, shaky domestic demand, deflation risks, and trade frictions with the West.

Local Market Developments

Locally, the South African Chamber of Commerce and Industry (SACCI) business confidence index slipped to 110.2 in September, from 111.5 in August. The slippage came on the back of fewer new vehicles sold, struggling retail sales volumes and the decreased real value of building plans passed. SACCI further noted that rising overseas tourist numbers, higher global precious metal prices, lower inflation, the stable supply of electricity and cheaper fuel at the pump had all been positive contributors to BCI in September.

SARB Governor Lesetja Kganyago presented an argument to lower the 3-6% inflation target that has been in place for more than two decades. The Governor noted that the SARB has an “opportunity to achieve permanently lower inflation and therefore permanently lower interest rates”. He also noted that this could be achieved at “little cost” to the economy.

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