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• Risk sentiment improved in July, leading to higher performance in most global stock indices. The renewed optimism came after data pointed to a sustained slowdown in global inflationary pressures. Particularly noteworthy was the US CPI report, which surprised to the downside. With inflationary pressures easing and the labour market holding up well, investors have become more confident in the likelihood of a soft landing for the world’s largest economy. Moreover, Asian markets saw an uplift as expectations of additional Chinese stimulus outweighed the otherwise dull outlook for the economy. Consequently, the Morgan Stanley Capital International (MSCI) All Country World index concluded July with a 3.6% increase. Both developed and emerging markets ended in positive territory, with the MSCI World and emerging markets indexes up 3.3% and 5.8%, respectively.

• Further divergence was seen between the manufacturing and services sectors in the US. The manufacturing sector fell further into contraction with the Purchasing Managers Index (PMI) showing a decline to 46 in June. To the contrary, the services sector continues to be lifted by the tight labour market and strong wage growth, with the services PMI advancing to 53.9.

• The US economy added 209 000 jobs in June, which was below expectations but still significantly higher than the levels needed to restore balance in the labour market. On the inflation front, the June CPI report showed a welcomed decline in the annual CPI to 3.0% from 4.0% the previous month. Core inflation, which excludes volatile items such as food and energy, also decreased to 4.8%.

• Despite the easing inflationary pressures, the Federal Reserve raised interest rates by 25 basis points at their meeting in July. While in line with expectations, the market now believes that the Fed is likely done hiking interest rates, and with the labour market still strong, has raised the probability assigned to a soft landing. While this narrative has lifted markets, it is still unknown how long the Fed will keep interest rates elevated which raises the risk that the monetary policy lags will seep into the economy.

• China’s economic woes have persisted in July, and the economy is now on the brink of consumer deflation. The June inflation report indicated that CPI contracted by 0.2% month-on-month, and the annual figure remained flat. Other economic data releases have also portrayed a gloomy picture, with both manufacturing and services activity experiencing a slowdown. Given the economy’s struggle for traction, many believe that the People’s Bank of China will need to implement monetary and fiscal stimulus to revive growth in the region.

• Not much has changed when looking at the UK, as it continues to battle inflation and an economy struggling to keep up with the increased cost of living. Some relief was felt following the release of its June CPI report, which showed a decline in pressures. Headline CPI dropped to 7.9% year-on-year from 8.7% in May, while the core figure also declined to 6.9%. Although the drop was welcomed, with inflation still running well above the target, the Bank of England will likely raise rates by another 25 basis points when it meets early in August. As rates head higher, the risk of further deterioration in consumer and business sentiment is high and does not bode well for the economy.

• Locally, CPI fell back into the South African Reserve Bank’s (Sarb) 3%-6% target band for the first time since April 2022, declining to 5.4% in June. The drop in inflationary pressures enabled the Sarb to keep interest rates unchanged at its July meeting. However, Reserve Bank Governor Lesetja Kganyago stated that future policy decisions would be data-dependent and would take into consideration risks to the inflation outlook.

• The rand posted a strong recovery in July as investors began to see the end of the road for global interest rate increases. Being a higher-risk currency, the rand also benefited from the increased risk sentiment in July. Consequently, the rand gained 5.6% against the dollar, 4.5% against the pound, and 4.5% against the euro, respectively.

• South African equities also benefited from the improved market sentiment, with the JSE All-Share Index returning 3.9% in July. All sectors contributed positively, with financials, resources, and industrials up 7.9%, 3.7%, and 2.5%, respectively. Additionally, South African listed property advanced for the second consecutive month, rising by 2.3%.

• One-month index movements:

• • JSE All-Share Index: 3.88%
  • S&P 500 Index (US): 3.11%
  • FTSE 100 Index (UK): 2.23%
  • Hang Seng Index: (Hong Kong): 6.08%

Source: Investing.com and Trading Economics