Prowess Investments Market Update 2nd – 9th September 2024

Last week, the US non-farm payrolls (NFP) for August disappointed, with July’s figure revised downward too, further fueling the debate over how much, and not whether, the FED will cut rates in September. Locally, the South African economy showed signs of recovery as GDP numbers rose in the second quarter of the year.

International Market Developments

US hiring rose in August but fell short of forecasts after downward revisions to the prior two months, a development likely to fuel the ongoing debate over how much—and not whether—the Federal Reserve should cut interest rates in the upcoming September FOMC meeting. Nonfarm payrolls rose by 142,000 in August, weaker than expectations but a welcome bounce back from July. While better than the previous month’s report, August’s isn’t great. Revisions to previous months were significant and negative. Job growth was revised down by a combined 86,000 in May and June. Things looked good in the household survey. The unemployment rate took a step down from 4.3% to 4.2% as job growth outpaced a milder increase in labor supply.

The most recent jobs report further affirmed expectations for a cut, so the big question now is how much. For Fed Governor Christopher Waller, “the balance of risks has shifted toward the employment side of our dual mandate,” adding that “policy needs to adjust accordingly.”

Looking ahead, US CPI inflation data for August is due out on Wednesday. CPI inflation is expected to have decelerated to 2.6% year-on-year in August, from 2.9% year-on-year in July. In month-on-month terms, CPI inflation likely remained at 0.2% in August, in line with July’s reading.

Over in Europe, the European Central Bank (ECB) will meet on Thursday and is expected to deliver another 25 bps cut to key policy rates.

Local Market Developments

South Africa GDP growth in Q2 came in at 0.4% quarter-on-quarter, after having registered an upwardly revised 0.0% quarter-on-quarter in Q1 (previously -0.1% quarter-on-quarter). Seven industries recorded positive growth in Q2; finance, trade, utilities, and manufacturing posted notable increases in Q2, adding a cumulative 0.6 ppts to growth. The transport sector was the main negative contributor to growth in Q2. Household consumption increased by 1.4% quarter-on-quarter in Q2 and added 0.9 of a percentage point to total growth. Gross fixed capital formation decreased by 1.4% quarter-on-quarter. Government consumption and inventories added a cumulative +0.3 of a percentage point to growth. Net exports contributed -0.6 of a percentage point to growth in Q2.

Looking ahead, the Bureau for Economic Research (BER) is scheduled to release South Africa inflation expectations survey results for the third quarter of 2024 ahead of the MPC meeting later this month. 

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