June 2024 Economic Review

June arrived with surprises from an interest rate cutting perspective. The European Central Bank (ECB) became the second major central bank to cut rates after the Bank of Canada (BoC). The Swiss National Bank (SNB) cut rates for the second consecutive time in June while sentiment over monetary policy easing remains mixed among major economies. The Swiss bank now forecasts economic growth of around 1% in 2024 and around 1.5% in 2025. The US labour market posted job gains in June, despite the unemployment rate increasing slightly. Japan’s core consumer price index (CPI) increased ahead of market expectations and the Bank of Japan (BoJ)’s 2% target. Locally, government spending exceeded R2 trillion. More positively for the local economy was that the JSE broke through the 81 000-point mark.

The ECB cuts rates

The ECB cut interest rates by 25 basis points in June after nine months of holding them steady. The revised interest rates are set at 4.25% for the main refinancing operations, 4.5% for the marginal lending facility, and 3.75% for the deposit facility. According to the ECB, the rate cut decision was based on an updated assessment of the inflation outlook, the dynamics of underlying inflation and the strength of monetary policy transmission. The annual inflation figure in the Eurozone was 2.6% in May. ECB President Christine Lagarde said inflation has fallen by more than 2.5% since September 2023 and the inflation outlook has improved markedly. Although inflation has eased, it has not reached the central bank’s desired 2% target and the ECB President Lagarde cautioned that there would be bumps on the road towards achieving it. She warned that geopolitical tensions could weigh on growth, while extreme weather events and the climate crisis more broadly could drive up food prices.

ECB cuts deposit facility rate by 0.25% to 3.75% in June

Source: ECB, Euronews, June 2024

The interest rate cuts will reduce the cost-of-living pressures felt by citizens in the Eurozone. Despite this temporary shift in interest rates, the June Eurosystem staff projections for both headline and core inflation have been revised upwards for 2024 and 2025 compared with the March projections. This revision now sees headline inflation averaging 2.5% in 2024, 2.2% in 2025 and 1.9% in 2026. The core inflation rate (excluding energy and food) is projected to average 2.8% in 2024, 2.2% in 2025 and 2% in 2026. The ECB is committed to achieving the 2% inflation target by keeping policy rates sufficiently restrictive for as long as necessary to achieve this goal. Economic growth in the Eurozone is forecast to pick up to 0.9% in 2024, 1.4% in 2025 and 1.6% in 2026.

More jobs added in the US

The US labour market showed resilience with the June figure indicating job gains of 206 000 compared with the 272 000 jobs gained in May. This is despite an unemployment rate increase of 0.1% to 4.1% in June compared with 4% in May, creating a dilemma for the US Federal Reserve (Fed) on whether to cut rates or not. June’s non-farm payroll figure can be largely attributed to the government sector with 70 000 jobs added, followed by the healthcare sector with 49 000 jobs added, social assistance with 34 000 jobs added and construction with 27 000 jobs added. The sectors that experienced declines in June were professional services with 17 000 job losses and retail with 9 000 job losses.

Source: US Bureau of Labour Statistics, CNBC, June 2024

According to the US Bureau of Labour Statistics, there was a small change to the unemployment rate and the number of unemployed people, at 4.1% and 6.8 million respectively. The figures are higher than in June 2023, when the unemployment rate was 3.6% and the number of unemployed people was six million. The number of long-term unemployed (those jobless for 27 weeks or more) rose by 166 000 to 1.5 million in June from 1.1 million a year earlier.

The number of people employed part-time for economic reasons was 4.2 million in June. The number of people not in the labour force who currently want a job declined by 483 000 to 5.2 million in June. Those not included in the labour force are people marginally attached to the labour force, at 1.5 million for the month. The number of discouraged workers (a subset of the marginally attached who believed that no jobs were available for them) dropped to 365 000 for the month.

Source: US Bureau of Labour Statistics, June 2024

For your interest

1. Japan’s CPI rises

• Japan’s core CPI rose 2.1% year-on-year (y/y) in June, above market expectations and the BoJ’s 2% target, reinforcing the case for the central bank to proceed with policy normalisation. The figure accelerated May’s 1.9% gain and exceeded market forecasts for a 2% gain.
• The rise in the inflation figure can be attributed to rising fuel bills and the boost to import costs from a weak yen.

(Source: Reuters, June 2024)

2. Bank of Canada cuts interest rates

• The BoC trimmed its key policy rate in June, the first G7 country to do so, in a widely-expected move that will ease pressure on highly-indebted consumers. But indicated further easing would be gradual and dependent on data.
• Some economists predicted the BoC would cut again in July even though financial markets had priced in a 39% chance of a cut to 4.5% next month.

(Source: Bloomberg, June 2024)

3. Switzerland cuts interest rates for the second time

• The SNB cut its key interest rate again, taking the edge off a franc that has been surging in response to European political uncertainty.
• A second successive cut of 0.25% leaves the SNB’s policy rate at 1.25%, as expected by analysts.

(Source: Euronews, June 2024)

4. EU elections

• Elections for the European Parliament, the world’s only directly-elected transnational governing body, are held every five years and are managed by national governments. This month, 720 members of parliament were elected, 15 more than in the previous elections.
• In the elections, the European People’s Party emerged as the largest single party, with 186 of the 720 seats. The bloc nominated European Commission President Ursula von der Leyen as its candidate for leader of the next Parliament.

(Source: World Economic Forum, June 2024)

5. SA government spending breaks the R2 trillion mark

• According to the Financial Statistics of National Government Statistical Report, released in June, government spending topped R2 trillion in 2022/23.
• Financial transfers to other levels of government, institutions and foreign governments accounted for just over half of the R2 trillion, followed by interest paid on debt and social benefits. National government generated or received R1.7 trillion in revenue, with taxes accounting for 97%.

(Source: Stats SA, June 2024)

JSE hits record highs

The announcement of the Government of National Unity (GNU) was well-received in the markets, resulting in the JSE breaking through the key 81 000-point mark. It hit a record high of
81 364 points on inauguration day on Wednesday, 19 June 2024 – a jump of around another 2%. Market optimism started on Tuesday, 18 June 2024 (below the 81 000-point mark) when the JSE saw around R36 billion in trade to close 3.5% stronger.

The close was its biggest surge in a single day in 2024, on the back of market optimism around South Africa’s planned government of national unity (GNU), which included the ANC, DA, IFP, PA, Good and PAC before additional parties joined. The rand rallied below R18 to the US dollar on the morning of 19 June to around R17.92/$ at one point – 0.5% firmer. This followed the local currency strengthening more than 1.1% on 18 June. Banking, financial services, retail, consumer goods, and consumer services stocks led the surge on the JSE – largely SA Inc stocks. On 18 June, Bloomberg reported that the FTSE/JSE ALSI Index was the best performer among 92 global equity benchmarks that it tracks.

Source: Moneyweb/Profile Data (at the JSE’s close on 18 June 2024)

Macro overview

Global overview

Global equities continued their surge in June, when the MSCI World Index ended the month up 2.03% in dollar terms. Mega-cap tech stocks’ influence on global equity market returns remains significant, with the Magnificent 7 making a valuable contribution to the MSCI World’s performance in June. Nvidia has since been the standout performer for the index, even amongst the Magnificent 7, delivering a quarter of global equity market returns in June. Emerging markets (EMs) also had a strong month with the MSCI EM Index gaining 4.01% month-on-month (m/m) in dollars. Global bonds and global property were positive, gaining 0.14% m/m and 0.51% m/m in dollars. The FTSE Index was negative for the month, ending at -1.15%, but the S&P 500 posted gains of 3.59% for the month. The Dow Jones ended the month up 1.23% in dollars, the EuroStoxx 50 was negative at -1.72% m/m, and the Nikkei was positive at 2.94% m/m.

Local overview

South African equities were among the best-performing emerging markets in June as the FTSE/JSE All Share Index ended the month at 4.08%. Stocks geared to the domestic economy were the main beneficiaries of improving sentiment. The bond market was positive, with the FTSE/JSE All Bond Index gaining 5.24% m/m. Bonds of 1-3 years gained 1.87% m/m, bonds of 3-7 years gained 4.14% m/m, bonds of 7-12 years gained 5.91% m/m and bonds of above 12 years gained 6.80% m/m. Industrials and Property posted gains of 5.1% m/m and 5.95% m/m respectively. Financials was the outperformer for the month, posting gains of 14.51%, but Resources underperformed, ending the month negatively at -3.56%. The rand finished the month strongly at 3.11% against the US dollar, 4.44% against the euro, 3.85% against the pound and at 0.54% against the Japanese yen.