Fast view
- Developed market equities advanced on optimistic expectations of up to six rate cuts in 2024.
- The Fed and ECB held rates steady in January, indicating cuts will be later in 2024.
- The rate-cutting narrative saw fixed-income assets, particularly in developed markets, struggle to make gains in the month.
- The SARB held rates at 8.25%, while the IMF downgraded SA’s growth forecast.
- Poor economic data, the liquidation of Evergrande, and negative sentiment saw Chinese stocks fall back, despite some policy stimulus.
- The BoJ provided stronger signals that it is getting ready to raise rates.
United States
In the US, all the excitement was saved for the last day of January, when the US Federal Reserve (Fed) updated the market on the future path of monetary policy. Recognising that market expectations were running ahead of the central bank, Fed Chair Jerome Powell made it clear that a rate cut was unlikely in March, stopping equities in their tracks. Cuts remain on the table, but more likely towards the back end of the year. Despite this somewhat abrupt end to January, US equities finished up for the month, while treasuries fell in the period. US data remained strong, with GDP up 3.3% in the fourth quarter, while unemployment remained low, further feeding the narrative of a US soft landing. January was also reporting season, including for many of the US tech giants, which have been dragging markets upwards on their own. However, reporting season was mixed, in partial recognition that most of these tech stocks are priced for perfection. Results that do not match lofty expectations are considered disappointing.
January also saw geopolitical temperatures rise. In domestic US politics, former President Donald Trump looks all but certain to take the Republican nomination, while current President Joe Biden’s appetite for deeper engagement in the Middle East was tested following an attack on a US air base in Jordan. Houthi rebel attacks on commercial shipping in the Red Sea continued to disrupt supply chains, which prompted joint military responses from the US and UK governments.
South Africa
The correlation between movements in the Chinese economy and South African share markets became increasingly evident throughout the month, with resource companies in SA racking lower on the back of weaker Chinese data. The rand weakened against the dollar during the month, as uncertainty surrounding the timing of rate cuts pushed the exchange rate through the R19/$ barrier. The International Monetary Fund (IMF) downgraded its growth forecast for the South African economy in 2024 to 1%, warning that disruptions in the energy sector and logistics are drags on growth. This is significantly lower than the forecast of 1.8% made in October 2023.
The South African Reserve Bank (SARB) kept its key interest rate unchanged at 8.25% in January, stating that future rate decisions would be based on incoming data. Annual inflation continued to show signs of moderating towards the midpoint of the SARB’s 3-6% target, falling to 5.1% in December, while core inflation fell to 4.5%. Manufacturing PMI rose to 50.9 in January, marking the first expansion in factory activity in eight months, supported by a steadier supply of electricity. Mining production surged to 6.8% year on year (y/y) in November, significantly outpacing market expectations of a 3% rise.
Europe and United Kingdom
European equities had a positive start to the year, with the Stoxx 600 ending the month near its highest level in two years, powered by impressive earnings from luxury giant LVMH and the region’s two biggest tech stocks, ASML and SAP. The blue-chip Stoxx 50 index reached a 23-year high as a result. This helped European shares recover from the cautious start to 2024, which was attributed to the uncertainty around central bank monetary policy, with worries that the end-of-2023 rally fueled by rate-cut hopes may have been premature. Swedish equities were a notable laggard, held back by mega caps including H&M and Ericsson.
UK equities underperformed after figures showed inflation unexpectedly quickened in December, adding to investor concerns about how long the Bank of England could wait to cut interest rates in the future. This weighed on retail and discretionary stocks, with the former compounded by weak retail sales over the Christmas period. Weakness across the commodities space hampered the miners over the month.
China
The changing of the year did little to brighten the prospects for China’s stock market, with the MSCI China All Share down 9.9% in January. Concerns over regulatory involvement in the Chinese gaming sector seeped into January from late December, which seemed to set the tone for the month. China’s president Xi Jinping called for “more forceful and effective measures to stabilise the market and boost confidence” at a meeting of world leaders in Davos earlier in the month, but this sentiment did not deliver much over the month. The PBoC did announce a deep cut to bank reserves which is expected to free up approximately US$140 billion in additional liquidity across the banking system. In addition, the government did move to officially limit short selling on Chinese equities, but these measures fell short of the stimulus needed to calm markets.
Activity on China’s factory floors remained in contractionary territory with January’s manufacturing PMI coming in at 49.2. This was an improvement compared to December 2023 but not enough to overcome negative sentiment. More positively, non-manufacturing PMI showed continued growth as the service sector improved to 50.7 in January from 50.4 in December.
While policymakers are stepping up efforts to support capital markets, a Hong Kong court ordered the liquidation of property giant China Evergrande Group which added further uncertainty within the troubled real estate sector. Stock markets slid back again as the month ended.
Global equities
Global equities shrugged off geopolitics and a shaky start to continue their upward march. US markets scaled record highs, while Europe’s blue-chip index touched its highest in 23 years and Japan’s Nikkei 225 scaled 35,000 for the first time in nearly 34 years. The catalysts were twofold: robust earnings and investors becoming more confident that the Fed would soon move towards cutting rates. Chair Powell tempered this enthusiasm, which may impact equity markets going forward. The IMF also raised its forecast for global growth this year on better-than-expected expansion in the US and fiscal stimulus in China, while warning of risks from wars and inflation.
As was the case in 2023, big tech did a lot of the heavy lifting amid signs that AIdemand was translating into profits, while the semiconductor industry showed evidence of recovery. Asian equities delivered a mixed performance, with Japan the bright spot. China brought up the rear as concerns about local government debt, non-performing bank loans and negative sentiment in the Chinese private sector lingered. The liquidation of property company Evergrande and continued weak macro data overwhelmed government measures to stimulate the economy.
South African equities were held back by weakness in the miners. Soft economic data from China weighed the JSE down to a two-month low during January, before recovering from positive news flow in the region. Equity markets weakened slightly further towards the end of month ahead of the Fed’s first monetary policy decision of 2024.
| Indices (net total return in USD) | |
| S&P 500 | 1.7% |
| Nasdaq Composite | 1.0% |
| MSCI ACWI | 0.6% |
| Nikkei 225 | 4.3% |
| EuroStoxx 600 | -0.5% |
| FTSE 100 | -1.6% |
| Hang Seng Index | -9.2% |
| SSE Composite | -7.1% |
| Indices (net total return in ZAR) | |
| FTSE JSE All Share Index | -2.9% |
| FTSE/JSE Financials Index | 5.8% |
| FTSE/JSE Industrials Index | 0.7% |
| FTSE/JSE Resources Index | 0.0% |
Fixed Income
The pushback by central bankers (notably Fed Chair Jerome Powell) on Q1 rate cuts, saw bonds struggle to generate a positive return for the month. US Treasuries ended the month down 0.2%, while their European counterparts were 0.6% in the red. While EM debt came into the new year basking in the afterglow of a thawing global bond market, the asset class similarly found the going tough in the end, down 1.2% for the month. The Bloomberg Barclays Global Aggregate Bond Index ended the month down 1.4%. In the investment-grade realm, spreads continued to narrow over the month, with spreads on blue-chip corporate bonds reaching their lowest levels since 2022. All returns are quoted in US dollars.
China’s bond markets have seen yields fall to lows last seen during the height of the pandemic (April 2020). The contraction reflects expectations of easier monetary policy and more government stimulus. A sentiment reflected in PBoC’s announcements as they cut the reserve rate. 10-year Chinese government bonds were yielding 2.45% at the end of January (compared to 2.6% at the end of 2023).
| Indices (net total return in USD) | |
| Bloomberg Global-Aggregate Total Return | -1.4% |
| FTSE/JSE ALBI | -1.4% |
| JPM CEMBI | -1.4% |
| STEFI | -1.4% |
Commodities
Commodities and natural resources equities were mixed in January, with the Bloomberg Commodity Index returning 0.4% for the month. The oil price rose on an improved demand outlook, buoyed by stronger-than-expected US economic data and Chinese stimulus. The risk of supply disruption in the Middle East added to upward price pressures. Among other commodities, gold declined in the month but held above US$2,000 per Troy ounce; iron ore prices retreated slightly after a strong run since last May; and copper was little changed.
Resources – January 2024 (US$) % change
Source: Bloomberg, as at 31 January 2024.
