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Week in Review: Volatility Marks the Start of the 4th Quarter

Financial markets began the fourth quarter on a volatile note, driven by a complex mix of global uncertainties. Last week, four key factors took centre stage: escalating tensions in the Middle East, the threat of U.S. port strikes, uncertainty surrounding the U.S. labour market, and the upcoming U.S. presidential election.

Concerns about a broader conflict in the Middle East escalated after Iran launched nearly 200 missiles at Israel, heightening fears of an extended war in the region. However, markets found some relief midweek when the worst-case scenarios didn’t materialise. Investors also had to contend with a major disruption to U.S. trade. The International Longshoremen’s Association initiated a strike that effectively shut down ports along the East and Gulf Coasts. These ports handle nearly half of the U.S.’s trade volume, sparking fears of broken supply chains and renewed inflationary pressures. But by Thursday, news of a temporary deal to delay the walkout until January calmed markets.

The U.S. labour market was another major focal point. The latest nonfarm payrolls report revealed a surprise surge in hiring, with 254,000 jobs added in September—nearly double the expected figure and the highest since March. This reinforced the resilience of the U.S. economy. Fed Chair Jerome Powell noted that interest rates will likely come down “over time” but stressed that future policy decisions would depend on incoming economic data.

Across the Atlantic, Europe faced its own challenges. Weaker-than-expected economic growth data and a decline in inflation to 1.8% in September—below the ECB’s 2% target—fuelled expectations for an interest rate cut at the European Central Bank’s next meeting. ECB officials hinted at a potential policy shift toward more aggressive easing. The Bank of England echoed similar sentiments, with Governor Andrew Bailey stating that the central bank could move more decisively to lower borrowing costs if inflation continued to cool.

In Asia, Japan’s markets saw a sharp drop early in last week following political developments. Shigeru Ishiba’s unexpected victory in the Liberal Democratic Party leadership race, making him the new prime minister, unsettled markets. Ishiba’s slightly hawkish stance on monetary policy briefly strengthened the yen, sending stocks lower. On the economic front, Japan’s unemployment rate fell to 2.5%, while manufacturing PMI data remained in contraction territory.

Meanwhile, China was last week’s standout, with its stock markets experiencing their largest rally in over a decade. The Hang Seng Index surged by more than 10%, and the Shanghai Composite gained over 8%, driven by optimism around Beijing’s expansive stimulus measures. This came despite continued weak economic data, including a fifth consecutive month of contraction in factory activity. The manufacturing PMI rose slightly in September but remained below the 50-mark, indicating contraction, while the non-manufacturing PMI dropped to a 21-month low. However, positive sentiment emerged after three of China’s largest cities relaxed home-buying restrictions in response to the government’s stimulus efforts, helping lift market confidence.

Global stock performances were mixed. U.S. markets posted modest gains, with the Dow Jones up 0.09%, the S&P 500 rising 0.22%, and the Nasdaq advancing 0.10%. European markets faced more pressure, as the Euro Stoxx 50 fell by 2.22%, and the FTSE 100 edged down 0.48%. In Asia, Japan’s Nikkei 225 slid by 3.00%, while Chinese markets outperformed significantly. Brent crude oil prices surged 8.32%, driven largely by geopolitical risks, while gold saw a slight decline of 0.18%.

Market Moves of the Week:

South Africa’s trade surplus narrowed sharply in August, falling to R5.63 billion from R17.07 billion in July. However, there was positive news on the economic front as the country’s Purchasing Managers’ Index (PMI) rose to 52.8 in September from 43.6 the previous month. This signals renewed momentum in the manufacturing sector, which benefited from increased demand and improved sentiment following an interest rate cut. According to the Absa-sponsored PMI survey, both domestic and export demand showed signs of recovery, and the rate cut has bolstered expectations for stronger consumer demand in the months ahead.

Despite some encouraging economic data, the South African market saw a pullback this week after several months of strong performance. The JSE All Share Index fell by 1.42%, with all major sectors experiencing declines. Industrials dropped 1.11%, Financials fell by 2.94%, and Resources slipped by 0.34%. Meanwhile, the yield on the 10-year South African bond increased by 0.41%, and the rand depreciated by 2.06% to R17.46 to the U.S. dollar.

Chart of the Week:

China’s stimulus packages, unveiled just before Golden Week, led to a sharp 25% rally in Chinese domestic stocks over six days, as of Monday’s close. While markets surged, the broader economic benefits will take time to materialise. Nevertheless, the sudden rebound is causing issues for emerging market managers who had positioned themselves underweight in China, as the trade swiftly turned against them. Source: Bloomberg

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