WM Market Update – February 2018

Global: Wage inflation the culprit?

The US equity markets suffered a sharp decline early in February, driven initially by wage inflation data which suggested that the Federal Reserve would be inclined to increase interest rates at a faster rate than was initially expected. This concern was further heightened by newly elected Federal Reserve Chairman Jerome Powell suggesting to the US Congress that there was scope to raise interest rates four times this year.

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Domestic: A change to the old guard.

Politics, the Budget and the downturn in global equity markets took centre stage during February. Cyril Ramaphosa was sworn in as the new president of South Africa following the resignation of Jacob Zuma. The budget speech held no great surprises given the current state of the economy, the main feature being a rise of 1% in the VAT rate, and a substantial allocation of R57bn to higher education over the next three years.

Volatility levels on most global markets, as well as the JSE rose to the highest level in two years, resulting in a sharp market sell-off. The CBOE VIX index rose dramatically to a high of 37.32 points. This spooked investors which resulted in the MSCI Emerging Market Index declining -4.73% in Dollar terms. Despite the positive news on the local political front, the global sell-off impacted our local market negatively with the JSE/FTSE All Share down -1.97% while the Top40 declined -2.32% both in total return terms.

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