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Monthly Update

February 2024

In February, equity market optimism persisted amidst economic resilience in the U.S., despite the market’s deferral of anticipated rate cuts. The month was characterized by a return of negative correlations between government bonds and risk assets. Developed market equities (MSCI World; +4.3% m/m) moved higher – fuelled by positive earnings results in the U.S. (nearly three quarters of companies in the S&P 500 beat analysts’ earnings forecasts). Emerging market equities (MSCI EM; +4.8% m/m) caught a much needed bid, boosted by Chinese stocks rallying on the back of supportive government interventions. Growth stocks (MSCI World Growth; +6%) surged, outpacing their value counterparts (MSCI World Value; +2.5%).

Fixed income assets were broadly down, with the Bloomberg Global Aggregate index losing -1.3% over February. More specifically, the U.S. 10-year government bond yield comfortably surpassed the 4% handle, closing the month with a +0.35% increase, settling at 4.25%. Among commodities, the anticipated extension of production cuts by OPEC+ and the ongoing conflict in the Middle East helped push oil prices higher. Brent crude, specifically, rose by 2.3% m/m to reach US$84 per barrel.

In February, equity market optimism persisted amidst economic resilience in the U.S., despite the market’s deferral of anticipated rate cuts. The month was characterized by a return of negative correlations between government bonds and risk assets. Developed market equities (MSCI World; +4.3% m/m) moved higher – fuelled by positive earnings results in the U.S. (nearly three quarters of companies in the S&P 500 beat analysts’ earnings forecasts). Emerging market equities (MSCI EM; +4.8% m/m) caught a much needed bid, boosted by Chinese stocks rallying on the back of supportive government interventions. Growth stocks (MSCI World Growth; +6%) surged, outpacing their value counterparts (MSCI World Value; +2.5%).

Fixed income assets were broadly down, with the Bloomberg Global Aggregate index losing -1.3% over February. More specifically, the U.S. 10-year government bond yield comfortably surpassed the 4% handle, closing the month with a +0.35% increase, settling at 4.25%. Among commodities, the anticipated extension of production cuts by OPEC+ and the ongoing conflict in the Middle East helped push oil prices higher. Brent crude, specifically, rose by 2.3% m/m to reach US$84 per barrel.

Surpassing expectations, January inflation in the U.S. stood at 3.1% y/y, leading to a diminished outlook for Federal Reserve interest rate cuts in 2024. Additionally, resilient economic data was evident. The U.S. added 353,000 jobs in January (almost double consensus expectations), indicating that the U.S. labour market is still formidable. The release of the core PCE price index, the Federal Reserve’s preferred inflation measure, also contributed to February’s bullish sentiment. The print met market expectations, showing a 2.8% y/y increase in January, alleviating investors’ concerns about a potential upside surprise. However, it remains above the Fed’s goal (which targets a 2% annual inflation rate).

U.S. corporates concluded their 4Q23 earnings feedback, revealing an 8% y/y increase, surpassing expectations for minimal growth. Nonetheless, key tech companies shaped market direction in February. Nvidia’s results surpassed expectations, contributing 1.1% to the S&P 500’s performance. Meta (+26% m/m) and Amazon (+14% m/m) also outperformed, collectively adding 1% to the S&P 500’s performance. All three major U.S. indices ended February in the green. The S&P 500 index climbed +5.3%, the Nasdaq Composite gained +6.1%, both reaching an all-time high, while the Dow Jones rose +2.2%.

In February, inflation in the eurozone eased less than anticipated, dipping from 2.8% to 2.6% at the headline level but remaining above the expected 2.5% rate. In terms of economic health, a larger-than-expected surge in the eurozone composite PMI to 48.9 in February likely indicated that the worst of the continent’s growth weakness is likely over. European stocks rose +4.93% over the month (Euro Stoxx 50). 

Elsewhere in the region, the UK and Sweden recorded two consecutive quarters of negative GDP growth. On the market front, the FTSE 100 ended the month flat (-0.01%) as recent financial results from UK companies fell short of expectations, prompting analysts to lower their estimates for the year 2024.

China’s stock market faced challenges in February but closed the month with gains as investor sentiment stabilised, driven by potential stimulus, tighter regulations, and positive property market measures. The economy remains in deflationary territory, while China’s annual GDP growth rate for 2023 marked the lowest since 1990. Hong Kong’s Hang Seng Index rose by +6.6%, its best since January 2023, while the Shanghai Composite Index jumped +8.1% m/m.

Japan’s stock market continued to outperform, with the Nikkei 225 (+7.94%) Index reaching a new all-time high for the first time in over 30 years. Japan’s core CPI cooled to 2% y/y in January, beating estimates and supporting the case for the Bank of Japan (BOJ) to continue moving toward ending its negative interest rate policy in April. Inflation has matched or exceeded the BOJ’s target for 22 months.

In South Africa (SA), Finance Minister Enoch Godongwana delivered the 2024 budget speech during the month. In addressing a slow economy and limited tax growth, Godongwana revealed a plan to release R150bn from the South African Reserve Bank’s Gold and Foreign Exchange Contingency reserves over three years, aiming to ease the government’s debt burden. The budget speech additionally highlighted key tax reforms, including a two-pot retirement system and incentives for local electric vehicle and renewable energy initiatives. Notably, no further financial aid for Transnet or the Post Office was granted, signalling increased private sector involvement in infrastructure funding.

SA experienced an uptick in its inflation rate in January, marking the first such increase in three months. CPI rose from 5.1% in December to 5.3% in January. Core inflation, excluding food and energy, remained steady at 4.5% y/y. Reserve Bank Governor Lesetja Kganyago affirmed that there will be no interest-rate cuts until inflation is effectively managed. The Monetary Policy Committee will deliver one more rate decision before the elections when it gathers at the end of March.

Unlike prevailing global market trends, the JSE All-Share Index fell over the month, declining by -2.45%. Shareholders received mainly disappointing news as a slew of earnings announcements and trading updates were released. The property sector outperformed for a third month running, with the SA Listed Property Index rising 0.83% in February, while Resources (Resource 10) once again lagged, declining by -7.17% m/m. The rand depreciated against the U.S. dollar in February, weakening by -2.7% m/m.

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