September proved to be a resil

September proved to be a resilient month for equity markets

Global equity markets posted fair gains in the face of a string of negative news.

September proved to be a resil

Escalating trade-war tensions between the US and China, impeachment charges against President Trump, Brexit uncertainty in the UK and political instability in Europe (particularly in Italy), were not enough to dampen investor sentiment as developed and emerging markets both closed the month in the black. And despite further monetary stimulus by key central banks, global bonds ended softer amid investor disappointment at the absence of more aggressive stimulus. In South Africa, the JSE ended September largely flat as gains made in the first half of the month were offset on the back of poor local economic data and a move towards safe-haven assets.

South Africa

The JSE closed the month relatively flat after gains posted earlier in the month were offset due to rising trade-war tensions between the US and China. 

GDP growth for Q2 2019 surprised on the upside following a contraction of 3.1% q/q in Q1 2019. Preliminary results showed that GDP had expanded 3.1% q/q for the second quarter of 2019, well above market consensus of 2.5% q/q.

The SARB meanwhile kept interest rates on hold at 6.5% in line with market expectations, and its latest quarterly projection model pointed to no interest rate changes at all through year-end. The growth outlook for 2020 and 2021, however, was revised down from 1.8% to 1.5%, and from 2.0% to 1.8% respectively. With inflation under control at 4.3% y/y in August, the SARB also lowered its inflation forecast for 2019 to 4.2%, from 4.4% previously. Ratings agency Moody’s announced that it would keep SA’s growth forecast for 2019 at 0.7%, after revising it down from 1.1% in June. Moody’s is currently the only credit-ratings agency that has not downgraded SA to sub-investment grade.

In a string of poor economic data, retail sales dropped from 2.4% y/y in June to 2.0% y/y in July; the Absa Purchasing Managers’ Index declined to 45.7 in August from 52.1 in July (well below the 51.4 market consensus); and manufacturing production contracted 1.1% y/y in July from +3.6% y/y in June. The government’s gross loan debt increased to 58.3% of annual GDP for Q2 2019, surpassing the February 2019 budget’s projection of 56.2% for the full 2019/2020 fiscal year. 

United States

In the US, the trade war between the US and China intensified after President Trump’s administration announced that it was considering delisting Chinese companies from US stock exchanges. The move formed part of a broader effort to limit US investment in Chinese companies.

The US Democrats began proceedings to impeach Trump, after allegations surfaced that he attempted to coerce Ukrainian president Zelensky into launching an investigation into former US vice-president Joe Biden and his son.

In keeping with market expectations, the US Federal Reserve cut interest rates by 25 basis points to a range of 1.75% – 2.0%, citing the prolonged US-China trade war and weak global economic growth as ongoing risk factors. Markets however, were disappointed as the Fed downplayed expectations of further interest rates cuts. The latest Fed inflation-rate forecasts showed no changes for the rest of 2019 and 2020, although Fed policymakers were divided in September: 7 members wanted at least one more cut in 2019 versus 10 advocating against.

UK and Europe

In Britain, the UK Supreme Court ruled Prime Minister Johnson’s move to suspend Parliament was illegal, triggering calls from opposition parties for him to step down. In a further blow to his Brexit strategy, Johnson was outvoted in Parliament in a bid by MPs to avoid a no-deal Brexit. In response, Johnson expelled the 21 Conservative Party members who voted against him and announced that he would push for an early general election.

Meanwhile, outgoing ECB president, Mario Draghi, announced that the central bank would cut interest rates by 10bps to -0.5% (below market expectations of a 20bp cut) and would continue to keep rates at accommodative levels until inflation showed signs of approaching the 2.0% target. The ECB will also resume buying up to EUR20bn in corporate bonds per month, starting 1 November. From 1 November 2019, Draghi will be replaced as ECB president by the former MD of the IMF, Christine Lagarde.

Elsewhere in Europe, Italy’s new coalition government looked set to reignite tensions with the European Commission after Finance Minister Roberto Gualtieri announced plans to raise the country’s deficit target for 2020. In Germany, manufacturing PMI for September dropped to 41.7, its steepest contraction in 10 years. A closer look at the individual indices that make up the PMI showed that output shrank to its lowest levels since July 2012, new orders to its lowest levels since April 2009, and employment to its lowest since January 2010.


China filed a lawsuit with the World Trade Organization after the US imposed an additional 15% tariff on US$300bn worth of Chinese imports from 1 September. China’s Ministry of Commerce confirmed that the tariff action had violated the consensus reached between the two nations at the G20 summit held in Japan earlier this year. In retaliation to the tariff increase, China levied new duties of between 5-10% on US$75bn worth American imports, including crude oil.

The Hang Seng rallied following reports that the extradition bill, which would have allowed for Hong Kong residents to be extradited to China, had been formally withdrawn. The controversial bill had been the source of nation-wide protests over the past few months.

In Japan, the BoJ left its key short-term interest rate unchanged at -0.1%, as widely expected, stating that it would keep a close watch on economic developments and implement stimulus if necessary. Meanwhile, the unemployment rate remained unchanged at 2.2% in August, the lowest level since October 1992 and below market expectations of 2.3%.

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