US Equities Advance Despite Hawkish Fed and Trade Tensions
US equities continued to perform well in August, with the S&P 500 gaining 2.7% MoM (+13.1% YTD), despite a more hawkish stance from the Federal Reserve. Fed Chair Kevin Warsh refrained from providing forward guidance, while inflation remained above target, with headline and core PCE inflation at 3.7% and 3.3%, respectively. Markets subsequently increased their expectations for further monetary policy tightening, with futures pricing in approximately 2.4 rate hikes over the next year. Encouragingly, durable goods orders and labour market data point to Q3 GDP growth of approximately 3%, highlighting the resilience of the US economy. However, escalating trade tensions with Canada and renewed sanctions pressure involving Iran and China could introduce further volatility in the months ahead.
Emerging Markets Deliver Strong Performance as Sentiment Improves
Emerging market equities outperformed their developed-market peers in August, with the MSCI Emerging Markets Index returning 3.4% MoM (+24.1% YTD). Chinese equities advanced 1.4% MoM (+5.6% YTD), while emerging markets more broadly benefited from improving risk appetite and a weaker US dollar. Investor sentiment was further supported by signs of strengthening activity in Europe, where improving business confidence and stronger German economic data raised hopes that the region may be emerging from a prolonged period of stagnation.
South African Equities Rebound
South African equities rebounded strongly in August, with the JSE ALSI gaining 4.6% MoM (+2.8% YTD), supported by improving domestic sentiment, easing financial conditions and renewed infrastructure investment. Local bonds also advanced by 0.7% MoM (+3.5% YTD), while cash returned 0.6% MoM. Inflation remained contained at 4.2%, while the rand strengthened against the US dollar, with USD/ZAR declining by 2.5% MoM and 2.6% YTD, reflecting improved capital flows. Further supporting the outlook, South Africa secured US$405 million in funding from the New Development Bank for healthcare and water infrastructure projects, is preparing to issue its first sovereign green bond, and introduced a revised electricity pricing framework aimed at accelerating Eskom’s unbundling and encouraging greater private-sector participation.
