Global equity markets continued their rally in June, achieving a 1.8% monthly gain, bringing their 2024 increase to 10.1%. The 2.3% quarterly gain marked the third consecutive positive quarter, with the market now having rebounded nearly 25% from September's lows.
The gains have been fuelled by several factors including robust corporate earnings, easing inflationary pressures, and expected productivity enhancements from artificial intelligence (AI).
The impact of mega-cap tech stocks on global equity market returns remained significant, with the "Magnificent 7" (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, and Tesla) accounting for half of the MSCI World’s performance YTD and more than 90% of June’s return. Nvidia was the standout out performer - delivering a quarter of global equity market returns in June and YTD (149%).
Apple also briefly took the crown in June as investors responded positively to the company’s long-awaited announcement of its entry into the generative AI space through ‘Apple Intelligence’, which the company aims to integrate across its hardware and software products.
During the month we also saw South African stocks touch their highest levels since January with the rand surging from the “market-friendly” political outcome and firming to below R18/US$1. The JSE All-Share Index gained +6.90% over the quarter and 3.91% month-on-month, buoyed by SA Inc. names (companies whose earnings are predominantly linked to the SA economy).
The Brent crude oil price ended the month 6% higher (US$86.41/bbl) despite a 5% drop in early June after an OPEC+ announcement that supply cuts would be extended but eventually phased out.
US MARKETS
U.S. economic data softened after an initial uptick in April and consistently missed expectations from early May onwards. Despite these developments, the Federal Reserve (Fed) concluded its scheduled policy meeting in June with little change in its hawkish stance. Officials raised their forecasted federal funds rate for year-end 2024 to 5.1%, implying only one possible rate cut this year. Markets are however pricing in two rate cuts before year end, driven by weak U.S. consumer data. Investor caution balanced the Fed's moves, keeping Treasury yields stable for the quarter.
The three major US indices all posted gains in June. However, month-on-month and for 2024, the Dow Jones Industrial Average (Dow) was the key underperformer, rising by only 1.1% in June and recording a 1.7% decline in 2024.
After a small pullback in May, the US dollar again demonstrated its resilience, ending June stronger against most major currencies.
EUROZONE/ UK MARKETS
Amongst the non-mega cap tech portion of the market, Europe’s equity market performance was among the most disappointing, with French equities leading the declines, down 6.6% month-on-month. The significant market volatility was triggered by French President Macron's decision to call a snap election in France following the results of the European parliamentary election.
The European Central Bank (ECB) cut its interest rates by 0,25% to 3,75% in its June meeting, its first cut in nearly five years, but kept its plans undisclosed, emphasizing a commitment to remaining data-dependent.
In the UK, the Bank of England (BoE) kept its key interest rate steady. Headline inflation eased to 2% in May, but services inflation spiked to 5.7%, leading to scaled-back expectations for immediate rate cuts. However, the BoE did leave open the possibility of a move in August.
June also saw the UK stock market end in the red (ahead of the country’s 4 July election), with the blue-chip FTSE-100 Index down 1.3% month-on-month.
EMERGING MARKETS
Emerging markets (EMs) also had a strong month, with the MSCI EM Index rising 4% month-on-month. AI computing had a significant impact, particularly through Taiwanese chipmaker TSMC, which surged 18% MoM and contributed approximately 40% of June's EM Index performance.
The Yuan slipped to its weakest level of the year even as the People’s Bank of China left its interest rate setting unchanged and Chinese stocks once again bucked the world trend for the month with the SSE down over 3% in just a week, wiping out nearly all their year’s gains.
Japan’s Nikkei 225 gained in June, reaching its highest level since April. The yen approached the 160.50 per dollar mark, with investors monitoring closely to see if a breach would prompt further intervention. In May, Japan’s core inflation rose to 2.5% for the first time in three months, driven by higher electricity costs.
Elsewhere in Asia, Chinese authorities' support for its real estate sector boosted Chinese equity markets over the quarter.
LOCAL MARKETS
South African equities closed the second quarter of the year in positive territory. April started on a strong note as optimism over corporate earnings lifted domestic equities, with further support coming from better-than-expected economic data.
Speculation over possible alliances dominated headlines in June after political surveys proved to be correct and the ANC failed to win an outright victory at the polls. The prospect of a market-friendly outcome helped lift domestic equities higher by month-end, buoyed by news that the ANC would enter into an agreement with the Democratic Alliance and other smaller parties to form a Government of National Unity. Stocks geared to the domestic economy were the key beneficiary of improving sentiment. The local currency was also a significant beneficiary of the improving SA sentiment, overcoming a strong US dollar to make it one of the best-performing major global currencies in June.
On the economic front, the SARB is now expected to keep the repo rate unchanged at 8.25% at its July and September meetings and cut in November. SA inflation remained steady at 5.2% in May.
The rand appreciated circa 3% against the U.S. dollar over the month, ending at $/R 18.18 from last month’s $/$ 18.75 level.
Credits: Strategic IQ, Ninety One, Finance Charts
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