Last week saw markets digest the impact of monetary policy rate cuts by Central Banks. The focus has now shifted from when the cuts will take place to how much lower monetary policy rates will go. The global economy is starting to turn the corner, with declining inflation and robust trade growth according to the Organisation for Economic Cooperation and Development, as global growth is revised higher.
International Market Developments
Several Federal Reserve officials commented on their support for the recent 50 basis points rate cut, citing concerns over a weakening labor market, and easing inflation. Fed Chair Jerome Powell emphasized that the substantial 50 basis point rate cut was aimed at protecting the labor market amidst slower hiring and diminishing price pressures. Richmond Fed President Thomas Barkin expressed cautious support for further rate cuts, acknowledging the economy’s strength, but emphasizing the need for vigilance on inflation. This Friday’s jobs data will provide more indication as to the strength of the economy and how much the Fed will cut interest rates at its November meeting as their try to engineer a soft landing. The market is currently pricing in a further 50 basis point cut at the Fed’s November meeting. This follows Core Personal Consumption Expenditure (PCE) prices, the Fed’s preferred inflation gauge, rising by 0.1% month-on-month in August, further validating the Fed’s recent rate cut decision.
The US economy displayed robust performance in the second quarter of 2024, with GDP growth surpassing expectations and recording a strong 3.0% q/q annualised increase, consistent with the previous estimate and significantly higher than the 1.4% q/q growth observed in the first quarter.
The Organisation for Economic Co-operation and Development’s (OECD) interim Economic Outlook report revised the global growth forecast for 2024 to 3.2% from 3.1%, maintaining 3.2% growth for 2025. The US GDP growth forecast remains unchanged at 2.6% for 2024, with a slight downward revision to 1.6% for 2025. China’s growth forecast is at 4.9% for this year and 4.5% for 2025, with additional policy stimulus expected to counter subdued consumer demand and challenges in the real estate sector. South Africa’s growth is forecasted at 1.0% for 2024 and 1.4% for 2025.
Local Market Developments
Headline PPI inflation fell to 2.8% y/y in August from 4.2% in July, much lower than the expected level of 3.4%. The easing in price pressures is largely due to a stronger exchange rate and reduced reliance on expensively run backup power generation.