Written version
- Markets rallied in October on hopes that major central banks would begin to slow the pace of interest rate hikes because data showed that economic conditions were deteriorating. Equities were also lifted by optimistic traders taking advantage of a market that was battered in September and trading in oversold territory. Consequently, the Morgan Stanley Capital International (MSCI) All Country World Index ended October up 6.0%. The MSCI Emerging Markets Index lost 3.2%, largely due to the severe drop in China which makes up over 30% of the index, whereas the MSCI World Index gained 7.1%.
- Manufacturing activity in the US unexpectedly fell in September, with the Institute of Supply Management’s Manufacturing Purchasing Managers Index (ISM Manufacturing PMI) dropping to 50.9, the lowest level since 2020. New orders contracted, highlighting the fact that many companies are beginning to brace for lower demand by reducing stocks. On the other hand, the services sector remains resilient, with the ISM Services PMI pointing to growth after coming in at 56.7 in September.
- The US economy posted its first period of positive growth in the third quarter, with GDP expanding at an annual rate of 2.6%. While the advance has more than offset the decline in the first two quarters of the year, economists are still expecting a mild recession to come as demand continues to be eroded away by high inflation and rising interest rates.
- Inflation in the US remains elevated with CPI data showing prices rose by 8.2% (year-on-year) in September, beating forecasts for a drop to 8.2%. The sticky components of inflation continue to rise, with annual core CPI jumping to 6.6% in September, as compared to 6.3% the month before. The inflation report highlights the fact that the Federal Reserve will likely need to raise rates by 75 basis points for the fourth consecutive time at their meeting in November.
- Chinese President Xi Jinping secured his third term as president in October and introduced a new leadership team full of loyalists. This has raised concerns regarding what stance he will take regarding the private sector, as many worry that he could introduce policies that will further hamper growth. Apart from this, the Chinese economy continues to slow as the housing market and zero-Covid policy hamper demand, highlighted by the fact that the Caixin China General Composite PMI fell to 48.5 in September from 53.0 in August.
- The United Kingdom’s run of political instability continued in October after they made a historic policy U-turn after Jeremy Hunt, the new finance minister, scrapped Prime Minister Liz Truss’s economic plan. Hunt, who replaced Kwasi Kwarteng, stated that it is “not right” to fund tax cuts with increased debt at a time when the UK is already dealing with a large current account deficit, a weakening currency, high inflation, and a looming recession. This subsequently forced Truss to step down and make way for Rishi Sunak to take control. The new prime minister will have to deal with an economy full of uncertainty and on the brink of a major recession.
- The South African economy continues to struggle as intensifying power cuts continued in October with no end in sight. Our reliance on commodity exports to China is also likely to hurt economic growth as the Chinese economy slows. Consequently, the National Treasury has revised the GDP growth forecast for 2022 to 1.9% from 2.1%.
- Adding to the struggle is the fact that annual inflation remained elevated at 7.5% for September. While down from 7.6% in August, the sticky components continue to advance, with annual core inflation jumping to 4.7% in September from 4.4% the month before. Retail sales also decreased by 1.8% in August as rising prices and interest rates continued to squeeze consumer demand.
- South African equities rebounded in October with the JSE All Share index advancing 4.6%. All sectors ended in the green with financials, resources, and industrials returning 12.7%, 3.9%, and 1.6% respectively. South African listed property broke its losing streak after finishing the month up 9.8%.
- One-month index movements:
- JSE All Share Index: 4.62%
- S&P 500 Index (U.S.): 7.99%
- FTSE 100 Index (UK): 2.91%
- Hang Seng Index: -14.72%
Source: Investing.com and Trading Economics