October 2023 Update

Making The News

The risk-off environment was once again prevalent during October where global equity markets were down for the third consecutive month since July. The three-month sell-off in stocks coincides with a 1% increase in US 10-year government bond yields (briefly touching 5%) during October. Strong US economic data continued to defy expectations of a slowdown as retail sales (+0.7% MoM) and 3Q23 GDP growth (+4.9% QoQ annualised) beat expectations. To add “fuel to the fire” was the war in Israel (i.e., Hamas launching an assault from the Gaza strip) and the ongoing geopolitical tensions between US & China (i.e., US administration keeping advanced chips out of China). With the tensions brewing, negative sentiment was heightened after the gathering in Beijing between Russia and China’s Presidents met to affirm their solidarity.

It was 3Q23 earnings season in October with c.60% of S&P500 companies reporting aggregate growth of 3% YoY. While the growth was ahead of expectations, it could not negate, nor cushion, the negative sentiment which caused markets to lose value in October. EM underperformed DM in the month, with Chinese companies being the worst performer. Brent crude oil rallied c. 30% from July to September, mainly as Russia and Saudi Arabia committed to keep supply tight. Still, concerns around weak US gasoline demand and inventory builds helped reverse some of the strength, leaving the commodity down -8% in October.

The JSE was also down for a third consecutive month (-3.4%), dragging the index into negative territory YTD (-1.3%). Losses were broad-based but gold miners (+21% MoM) bucked the trend as they followed the gold price higher in October (+7.3%).

SA’s headline inflation (+5.4% YoY) accelerated (in line with expectations) as rising food and energy prices continued to take their toll. In comparison, core inflation slowed to 4.5% YoY, coming in below expectations (4.7% YoY). The US dollar has been strong for the past few months, buoyed by higher US rates and general risk aversion. However, the Rand held up relatively well, finding itself amongst a small grouping of currencies to strengthen against the US dollar in October (+0.5%). SA government’s long-term bond yields also defied the global trend in October, by falling in the face of generally higher global bond yields.