TVC’s Economic Review of Quarter 1 2024

Disclosure: This article is posted to inform readers and not to provide financial advice.

What is an Economic Review?

The state of the economy impacts you in a tangible way – even more so if you invest. A quarterly economic review offers a retrospective on significant events that took place over that time, as well as how industries did both globally and locally and how this affected the various asset classes. 

The first quarter can set the tone for the year, and reflecting back on the months of January, February and March of 2024 can offer insights into key areas of economic activity. By understanding how the economy works over time and how things change each quarter, you will be better prepared to make smart financial plans, for investments or savings.

In this TVC Economic Review we reflect back on Q1 and recap what moved the markets for the first quarter of 2024:

Global and Local Markets in Summary

Globally, markets were mostly positive in Q1 2024, with global bond and equity markets ending on a high note. However, markets were negatively affected by slightly higher than expected inflation and we experienced an expected delay in the first interest rate cut.

Market-related headlines in Q1 seemed to focus on global monetary policy and growing hopes for a soft landing played a significant role in market dynamics.
Central bankers in the United States and South Africa maintained a more hawkish stance.

The local markets were influenced by uncertainty over the national elections and low growth prospects for the country. We also had The Budget Speech and subdued load shedding.

Quick glossary of terms

What’s a ‘soft landing’? A soft landing is a cyclical slowdown in economic growth that ends without a period of outright recession

What does ‘sticky inflation’ mean? Sticky inflation refers to a phenomenon where prices do not adjust quickly to changes in supply and demand, leading to persistent inflation

What does ‘bullish investor sentiment’ mean? A Bullish Sentiment refers to an overall positive attitude regarding the value and future prospects of a given asset.

What is a ‘hawkish stance’? A “hawkish” stance refers to a monetary policy approach characterised by a focus on controlling inflation and prioritising price stability over economic growth

Global and Local Markets in Summary

For this quarter the global focus seemed to be on monetary policy and its future direction. Global inflationary pressures picked up again, after having eased somewhat at the end of 2024.

Markets were negatively affected by stickier than previously expected inflation, as globally the decline in inflation came to a halt. There was an expected delay in the first interest rate reduction, with major central banks – including the US Federal Reserve, European Central Bank and Bank of England – deciding to hold rates steady.

China’s growth continued to sputter this quarter, as demonstrated by the court-ordered liquidation of Chinese property giant, Evergrande. In an attempt to boost lending and support economic recovery, their central bank cut banks’ reserve requirements by 0.5%.

Global markets were mostly positive in Q1 2024, with global bond and equity markets ending on a high note. Global bonds saw a smaller duration effect resulting in positive 1.0% return in Q1, weakened somewhat by higher than expected inflation. For global equities, we saw a continuation of the relatively bullish investor sentiment – delivering a total return of 8.2% in Q1 compared to 11.0% in Q4 (as measured by the MSCI ACWI). On the one hand the developed market equities produced 8.9%, and on the other the emerging market equities returned only 2.4% (as per the MSCI Emerging Markets Index – all in US$).

A very good quarter for market returns, the best performing was Japanese and US equities, helped by the strong performance of technology stocks, as large cap technology companies drove global returns. As was the case in 2023, developed markets outperformed emerging markets, with emerging markets broadly in the red. The MSCI All Country World Index (which measures the performance of developed and developing countries) increased by 12.0% in rands in Q1.

Wall Street’s Standard and Poor’s 500 stock market index posted consecutive double-digit gains for the first time in over a decade and Europe’s STOXX 600 index was also near record levels. Bad news for both major and developing economies was the dollar index (which measures the greenback’s value against other major currencies) which ended the quarter up almost 3%.

When it came to commodities, they had a strong quarter led by Crude Oil and Gold. Other major commodity prices were mixed; iron ore had a dreadful quarter. Leading the way at the sector level was IT and communication services. It was a strong quarter too for the risk assets, influenced by artificial intelligence (AI) excitement.

Zooming in on the different geographical regions, prospects for growth in the United States were buoyed as a “soft landing” is seen as likely for the economy. GDP data showed that both the United Kingdom and Japan were in recession at the end 2023 – as Japan’s economy shows signs of mild inflation due to their loose monetary policy. Geopolitical risk concerns followed us into 2024, such as in the Middle East and Ukraine.

Local Landscape

Back on home soil, we saw the South African Rand depreciate against the dollar, 3.2% weaker for the quarter.

Some significant events for the quarter were the imminent elections, with the potential of coalition government increasing uncertainty. The silver lining was that loadshedding improved (the average stage of loadshedding was 1.8 for the first two months of this year, versus 3.8 for the same period in 2023).

The Budget Speech delivered by South Africa’s Finance Minister Godongwana revealed disappointing GDP growth expectations and a reasonable budget deficit. On the plus side, it showed no signs of extravagant spending or policy deviations.
Also held in February was The State of the Nation Address (SONA) which confirmed that the current Social Relief of Distress (SRD) grant would be extended.

The South African Reserve Bank highlighted supply-side constraints (particularly port and rail) as having a negative impact on the quarter.
Some of these factors meant that South African equities still did not do well; add to this slow economic growth. For the quarter, South African nominal bonds had a 1.8% decline in prices and inflation-linked bonds were down 0.4%

The FTSE/JSE All Share Index and Capped SWIX Index underperformed, both delivering -2.3% in rand terms. If we look at the various sectors, we saw 7.6% loss in Financials, while Industrials returned 0.6%, Resources 0.8% and Listed Property 3.5%.

As expected, the SA Reserve Bank decided to keep the repo rate steady at 8.25% at its March policy meeting, leaving interest rates unchanged as the first quarter came to an end. Inflation in South Africa spiked to 5.6% y/y in February, with core inflation marginally higher than expected, at 5% y/y. Expectations now are for a moderation of food price increases.

We narrowly avoided a recession in Q4 2023 and had an annual rate of only 0.6% GP growth for 2023 as a whole. In February we saw shares for South Africa’s second largest grocery chain, Pick ‘n Pay, plunge after their announcement of a full-year loss due to surging costs and competition.

South Africa Asset Class performance in Q1:

The investor perspective

Some investors are convinced central bank heads have achieved a ‘no landing’ or ‘soft landing – a scenario of rate cuts without recessions – but some analysts heed warnings and only time will tell.

With economic data remaining relatively robust, there are still conflicting economic signals.
Recession risks certainly should not be forgotten. And what happens if rate cuts keep getting pushed out?

Looking forward, The US Federal Reserve forecasts a 25bp interest rate cut in each of Q2, Q3 and Q4. In South Africa there are relatively high inflation expectations for 2024 among businesses and consumers.

At TVC Wealth and Health Managers, you can work with a professional Financial Advisor to invest wisely and accumulate wealth. Contact us today! (via our message form or drop us a WhatsApp via the ChatBox below)

Sources:
https://ppstalkingpoints.s10u.com/TP_Q1_2024/
https://www.reuters.com/markets/global-markets-q1-pix-graphics-2024-03-28/
https://www.diamond-hill.com/insights/a-668/articles/the-global-economy-in-review-q1-2024s-winners-losers-and-surprises/
https://www.mandg.co.za/insights/articlesreleases/market-observations-q1-2024/
https://www.sanlamintelligence.co.za/retail/events-that-move-the-market-q1-2024/
https://ninetyone.com/en/south-africa/insights/market-review-q1-2024
https://stonewealthmanagement.co.za/economic-and-market-overview-quarter-1-2024/
https://www.fanews.co.za/article/investments/8/economy/1021/pps-investment-perspectives-equity-markets-in-q1-2024/39251

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