Monthly Market Update – 10/2021
South Africa continued to experience a reduction of Covid-19 infections and deaths in October as the third wave came to an end. Eskom increased rolling blackouts at very short notice in the last week of the month. This, along with uncertainty ahead of the municipal elections on the 1st of November, weighed on business and consumer confidence.
Locally, October was a quiet month on the economic data front with the inflation reading coming to the fore. The CPI inflation rate remained elevated. Inflationary pressure is beginning to build and the SARB has stated that the sustained increase in inflation prompts the need for interest rates to start normalising, implying a rate hike.
Globally, inflation, monetary tightening, and ongoing supply chain bottlenecks continued to weigh on investor sentiment in October. The inflation debate remained front and centre, especially relating to concerns that inflation will not be transitory after all. Limited supply has kept inflation close to the peaks reached earlier this year in most major developed economies.
Emerging markets have also seen notably higher inflation. Developed market central banks have therefore continued to prepare the market for monetary tightening coming earlier than expected, while some emerging market central banks have already entered their hiking cycle.
A strong start to the third quarter corporate earnings season made investors look beyond inflation and supply chain woes and was broadly supportive for equities over the month. More than half of S&P 500 companies had reported Q3 earnings by the end of October with their earnings up 40% year-on-year in aggregate, 10% ahead of expectations. US GDP came in at 2% quarter-on-quarter for Q3, slightly behind expectations of 2.6%.
China’s GDP growth rate continued to slow, printing a mere 0.2% quarter-on-quarter for Q3, down from 1.2% in Q2 and marking the weakest growth since the start of the pandemic.
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