May 2018 market overview

The US economy continues to steer towards 2% inflation as the trade war temporarily ceases. Following the local and international displeasure voiced over the hikes in American trade tariffs, US Treasury Secretary Steven Mnuchin announced a consensus has been reached with China to reduce trade tariffs. This helped the Fed maintain the federal funds target rate at 1.5-1.75%. However, oil prices are surging in the wake of Trump removing the US from the Iran nuclear deal.

The European economy continues towards an estimated 2.3% growth in GDP for 2018, with inflation reaching a year high of 1.9% amid political uneasiness. Italy’s chances of an early election increased after the president vetoed the nomination of a Eurosceptic finance minister, blocking the far-left’s attempt to form a government. Similar unrest gripped Spain following a political corruption scandal, with the possibility of a pending no-confidence vote in the government.

In the UK, the pound’s strength increased from April as the Brexit frenzy calmed. Asian markets continue to rise in the wake of North and South Korean peace.

Locally, the markets took a down turn as SA mining output dropped to its lowest in over two years. Impala Platinum announced their lowest produce since 1999, highlighting the general sentiment felt across the mining industry. Losses in the platinum sector specifically have added to economic pressures, counteracting the Ramaphoria boost to the rand earlier in 2018.

During May 2018 the FTSE/JSE All Share Index (ALSI) lost 3.5% on a total return basis, while bonds lost 1.95%. The SA Listed Property Index (SAPY) lost 5.92 in May. Cash returned 0.59%. Internationally, the MSCI World Index gained 0.63% in dollar terms and the MSCI Emerging Markets Index ($) lost 3.5%. For South African investors who measure their returns in rand, the weakening of the rand against the dollar during the month gave these returns a bit of a boost in rand terms. During May the rand weakened 1.43% against the greenback and gained 2% against the euro.

For the year to date index measures, the ALSI and listed property returned -4.4% and -18.56% respectively. The ALBI returned 5.2% and cash 3%. Internationally, the MSCI World Index rewarded offshore investors with 0.48% in dollars while the MSCI Emerging Markets Index ($) declined with 2.61%.