End of Year Markets Review
International Markets
In November, international markets closed in the black for the second successive month, as lower US inflation, coupled with a weaker dollar and decent earnings buoyed the markets.
The US Federal Reserve raised rates again by a further 0.75%, the fourth hike in a row, having increased a total of 3.75% since March. The message coming out of the Fed remains consistent, rates in the US will remain higher for longer, with cuts only expected later in 2024. Fed Chairman, Jerome Powell’s, comments at the tail end of November hinted at the possibility of smaller rate hikes from December and that the restrictive monetary policy may remain in place until there is evidence of progress on inflation. This sentiment boosted US markets as the S&P 500 rose by 5.4%, the Dow up 5.7% and the Nasdaq up by 4.4%.
Inflation data for October came in better than expected as CPI slowed, with headline CPI coming in at 7.7% YoY, whereas consensus expectation was for a decline from 8.1% to 7.9%. Core CPI, which excludes food and energy, also came in lower at 6.3%, vs a previous reading of 6.6% in September and consensus of 6.5%.
The UK market gained a robust 6.7% for the month, despite that country’s inflation reaching a 41-year high of 9.6% vs the previous reading of 8.8%. Food prices also hit a new high of 12.4%, with basic food prices (eggs, dairy products, coffee) rising significantly.
European markets followed suit, with the Dax closing the month higher by 8.6%, and the Cac up by 7.5%. Inflation numbers in Germany cooled slightly in November to 11.3% vs the previous reading of 11.6%, still staying close to its record highs. Meanwhile, French inflation numbers remained unchanged at record highs of 6.2% year-on-year.
Inflation in the Eurozone slowed more than expected in November, coming in at 10.0%, vs the revised October reading of 10.6%, which is five times the European Central Bank’s inflation target of 2%, as energy and food contributed to the high inflation readings. Notably, ECB President, Christine Lagarde, reported to the EU parliament that she believed inflation in the zone had not peaked yet.
Asian market news was driven mid-month by protests against China’s draconian and costly zero-covid policy curbs instituted by the government to stem the spread of the virus. Visuals of the heavy police presence and strict enforcement by the government weighed on the markets. Towards the end of the month, however, indications of policy relaxation and progressive reopening. Despite the domestic turmoil, the Hang Seng had a strong month, closing 26.6% higher, while the Shanghai composite index up by 8.9%.
On the economic front, Chinese PMI numbers fell to 48 in November vs the 49.2 print of October, which came in lower than consensus expectation of 49. Similarly, the non-PMI reading, which is a measure of business sentiment in the construction and services sectors, came in at a disappointing 46.7 for November vs a reading of 48.7 the previous month. A reading above 50 indicates expansion and one below indicates contraction. A large contributor to the poorer readings was the resurgence of Covid cases together with the strict zero-covid policies of China, which muted market activity.
In Japan, the Nikkei closed higher by 1.4% for November, as economic data unexpectedly shrunk in the third quarter of 2022, with GDP sliding 1.2% YoY on an annualised basis, whereas consensus had expected GDP to grow by 1.2%.
Local Market
The local market followed the international markets firmer with the All-Share index closing higher by 12.2% for November, as a potential Chinese reopening boosted sentiment. The resources sector was the star performer, with the index up by 17.3% for the month, followed by industrials up by 15.1%. Financials and property also ended the month in positive territory, up 5.5%, and 5.2% respectively. Prosus was up by 39% for the month, Naspers up 38.7%, Anglos 23.8%, Amplats 17.5%, Richemont up 22.4%, and BHP up by 19.1%.
CPI surprised on the upside, coming in at 7.6%, vs the September reading of 7.5%. The unexpected rise in the core CPI number was broad-based, stretching beyond energy and food prices and becoming more broadly entrenched. Further to this, Stats SA data indicated that retail sales had declined by 1.9% in the third quarter of 2022, pointing to the economy tipping into recession and exacerbated by the increasing rolling electricity blackouts.
As expected, with inflationary fears still weighing and erring on the side of caution, the SARB hiked interest rates by a further 75 basis points at its final Monetary Policy Committee meeting of 2022, taking the repo rate to 7.0%. On a marginally positive note, data indicated that the official unemployment rate declined to 32.9% in the third quarter, vs 33.9% in the second, while the number of unemployed stood at 15.8 million.
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