International

In the final quarter of 2024, Global markets and investor sentiment were significantly influenced by political developments and actions taken by central banks. November was marked by the US presidential election, beginning with the anticipation leading up to Election Day, followed by the announcement of the results and subsequent appointments for key government positions. Donald Trump’s victory spurred further appreciation of the US dollar and a robust rally in US equity markets. Central banks worldwide continued to adjust their monetary policies through December. Several institutions, including the US Federal Reserve (Fed), European Central Bank (ECB), and central banks in Canada, Switzerland, Mexico, and Turkey, announced rate cuts. Conversely, the Bank of England (BOE) and the Bank of Japan (BOJ) maintained their interest rates. The Fed’s rate reduction, delivered alongside a hawkish outlook, signaled that further cuts might not occur soon, prompting a predictable market sell-off. Meanwhile, China’s stimulus package, introduced in September, fueled ongoing volatility in equity markets throughout the quarter. Equities in both developed and emerging markets experienced declines in the fourth quarter. Developed markets (MSCI World) posted a modest loss of 0.2%, while emerging markets (MSCI EM) faced a sharper decline of 8.0%. In emerging markets, sentiment was negatively affected by President Trump’s election victory, which heightened worries about potential trade tariffs, particularly targeting China. Despite this, for 2024, the MSCI Emerging Market Index added 7.5%, though it lagged the MSCI World’s 18.7% return, primarily due to the stellar performance in US markets. 

In the US, inflation rose to 2.9% year-on-year in December, up slightly from 2.7% in November, aligning with market expectations. However, excluding food and energy, the core CPI annual rate was 3.2%, a notch down from the month before and slightly better than the 3.3% forecast. The Federal Reserve lowered interest rates by 25 basis points in both November and December, bringing the target range to 4.25%-4.50%. Meanwhile, US economic growth in the third quarter reached 3.1%, slightly surpassing the second quarter’s 3.0%, supported by robust consumer spending. Although US equities surged in November following the election outcome, the rally lost momentum in December as the Federal Reserve tempered its outlook for further rate cuts, citing slower progress in inflation control and uncertainty surrounding future policy direction. Meanwhile the US Commerce Department announced that the economy grew at a solid 2.8% in the third quarter, slightly below the 3.0% growth recorded in the previous quarter but still indicating strong performance. Consumer spending, which accounts for nearly 70% of US economic activity, increased by 3.5% year-over-year, up from 2.8% in the prior quarter. Additionally, weekly initial jobless claims dropped to their lowest level since April. However, some areas of concern emerged, particularly in the housing market, where new home sales declined due to rising mortgage rates and high property prices.

European markets had a challenging quarter as concerns about trade tensions weighed heavily on investor sentiment in this export-reliant region following the US elections. Third-quarter Eurozone GDP growth showed modest improvement, rising to 0.4% quarter-on-quarter from 0.3% in the previous quarter, exceeding the anticipated 0.2%. Annual inflation in the euro zone rose for a third straight month to reach 2.4% in December. The preliminary reading was in line with the forecast of economists polled by Reuters and marked an increase from a revised 2.2% print in November. Despite the inflation uptick, the European Central Bank (ECB) unanimously decided to cut interest rates by an additional 25 basis points in December, bringing the deposit rate down to 3.0%. The ECB also indicated that further rate reductions are likely in 2025.

In the UK, the most notable market development was the announcement of the first Labour Budget in 14 years. Chancellor Reeves revealed plans for significant borrowing, prompting traders to anticipate a slower pace of interest rate cuts over the next year, which weighed on the equity market. Adding to the cautious sentiment, the Office for National Statistics revised third-quarter GDP growth down to 0% from an earlier estimate of 0.1%. The Bank of England reduced interest rates to 4.75% in November but left them unchanged in December, citing increased economic uncertainty. However, the Bank’s governor indicated that rates are likely to trend downward in 2025.

US equities posted gains in the fourth quarter, capping off a strong year for the S&P 500 index. The market was bolstered by Donald Trump’s presidential election victory and the accompanying “Red Sweep,” which gave Republicans control of Congress. Investors were optimistic that Trump’s policy agenda would boost economic growth, reduce taxes, and ease regulatory burdens.  US equities ended the quarter on a strong note, with the Nasdaq leading the gains at 6.4%, followed by the S&P 500 at 2.4%, and the Dow Jones at 0.8%. During the fourth quarter, the communication services, information technology, and consumer discretionary sectors led the gains, with several of the “Magnificent Seven” stocks delivering strong performances. In contrast, the materials sector was the weakest performer. For the year, US stocks delivered impressive returns across all major indices, with the Nasdaq up 29.6%, the S&P 500 rising 25.0%, and the Dow Jones gaining 14.4%. In contrast, bonds encountered a more difficult quarter. 

European equities fell to their lowest level relative to other regional indices since 2010, driven by recession fears and political instability. Automakers came under significant pressure, though concerns spread across various sectors after President-elect Trump warned that the EU might face trade tariffs on its exports to the US unless member states increased their imports of American oil and gas. Adding to market instability, France experienced political turmoil as its government collapsed following the failure to pass the 2025 budget and a subsequent loss in a no-confidence vote. Meanwhile, German stocks outperformed, with the ZEW economic research center suggesting that snap elections could usher in a new government and greater stability.  UK equities softened in December and over the broader quarter, although they outperformed European peers. France’s CAC 40 declined 3.2% during Q4, while Germany’s DAX delivered a 3.0% return. UK equities edged lower with a 0.2% decline for the quarter. For the year, the France’s CAC 40 edged 0.2% higher, while Germany’s DAX delivered a 18.9% return. UK equities rose 9.7% for the year.

Global bonds were among the poorest-performing asset classes, with the Bloomberg Global Aggregate Index falling 5.1% during the quarter and 1.7% over the year. This was surprising given the onset of a rate-cutting cycle. However, expectations of a modest pace of rate cuts, combined with concerns about persistent US inflation remaining above the 2.0% target, weighed on bond performance. The Fed’s ‘dot plots’ now indicate only two rate cuts in 2025, down from the four projected during its previous meeting. Key government bond markets, including US Treasuries and UK Gilts, experienced significant selloffs. The 10-year Treasury yield experienced a notable rise, finishing the year at 4.57%. The US dollar maintained its recent strength against a global basket of currencies, supported by the Fed’s hawkish approach.

The Japanese equity market saw gains in the fourth quarter, driven largely by developments in the US. The yen’s weakness toward the end of 2024 improved the earnings outlook for large-cap exporters, helping the market close the year on a strong note. During the quarter, most Japanese companies released their semi-annual earnings, which showed mixed performance across sectors. At its December policy meeting, the Bank of Japan (BOJ) opted to keep interest rates unchanged, with Governor Ueda taking a less hawkish stance compared to his remarks in July. While macroeconomic conditions have not been strong enough to boost domestic demand significantly, there has been a steady improvement in business sentiment. The Nikkei Index gained 5.4% in the fourth quarter and finished the year with an 21.3% gain.

China’s equity markets saw a boost in early November, driven by a stimulus package announced in late September to support the economy and the struggling property sector. However, some of these gains were reversed by the end of the quarter. Deflationary pressures persist in China, with the Consumer Price Index (CPI) slowing to 0.1% year-on-year in December, down from 0.2% in November. The People’s Bank of China (PBOC) kept its benchmark lending rates steady, holding the one-year loan prime rate at 3.1% and the five-year rate at 3.6%. China’s economy, however, expanded by 5.4% in the fourth quarter exceeding the market’s expectation as a flurry of stimulus measures powered the economy to meet Beijing’s growth target. That last-quarter sprint helped lift China’s full-year GDP growth to 5.0% in 2024, in line with the official target of “around 5%.” In recent months, the government has introduced various measures to stabilize the economy, including a shift to a more accommodative monetary policy in December, tax incentives for the property market, and a 10 trillion-yuan debt package. The Hang Seng Index dropped 4.9% in the fourth quarter but posted a strong 22.7% gain for the year, while the SSE Composite (China) index delivered a 0.5% gain for the quarter and a 12.7% gain for the year.

Local

South African financial markets faced significant challenges in the fourth quarter of 2024, with December marking the third straight month of declines in equity markets. Global factors played a key role in driving risk-averse behavior, particularly in the United States, where uncertainty surrounding monetary policy and the potential for a Federal Government shutdown intensified. Adding to investor concerns were reports suggesting that South Africa’s participation in the African Growth and Opportunity Act (AGOA) trade program might be reassessed, further dampening sentiment. 

In December, South Africa’s consumer price index (CPI) increased by 3.0% year-on-year, slightly higher than the 2.9% recorded in November. Despite this modest rise in inflation, the South African Reserve Bank’s (SARB) Monetary Policy Committee opted to lower the policy rate by 25 basis points to 7.75%. The country’s GDP contracted by 0.3% in the third quarter, largely driven by reduced agricultural output, following a revised 0.3% growth in the second quarter. Both local equity and bond markets experienced minor declines, with the rand’s depreciation being the most significant contributing factor. A notable development during the quarter was October’s Medium-Term Budget Policy Statement, which highlighted progress toward increased private sector involvement in infrastructure projects and enhancements to fiscal rules. However, Finance Minister Enoch Godongwana cautioned that fiscal deficits and national debt are projected to grow over the next three years. This dampened some investor optimism and added pressure on the rand, leading to further weakness. Over the quarter, the rand weakened by 8.5% against the US dollar, 2.3% against the British pound, and 1.6% against the Euro. The US dollar’s dominance was driven by a post-election rally and strong economic performance, particularly in comparison to the UK and other developed markets.

The FTSE JSE All Share Index delivered a strong annual return of 13.4%, despite a 2.1% decline in the fourth quarter. Among the sectors, industrials edged 0.5% lower, while financials and resources declined by 1.8% and 10.1%, respectively. South African listed property also saw a marginal decline of 0.8% during the fourth quarter but achieved impressive annual returns of nearly 28.9%. 

The FTSE All Bond Index (ALBI) delivered a 0.4% return for the fourth quarter, while inflation-linked bonds (ILBs) achieved a slightly higher return of 0.8%. For the full year, South African bonds posted an impressive gain of 17.2%, with ILBs delivering a solid 7.8%. The nominal bond market experienced notable volatility throughout the year, with the 10-year bond yield reaching a peak of 12.50% in April before easing to approximately 10.30% by the end of the year.

Source: 2IP, I-Net Bridge, BER, RMB Global Markets, Bloomberg, Stanlib Asset Management, Schroders, Stats SA, M&G, Ninety-One

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