As we review the global market trends for February 2024, it is crucial to understand the complex interplay between geopolitical tensions, environmental challenges, and their profound impact on global trade and economic performance. This update provides an in-depth look at how these factors have shaped market conditions across different regions.
Global Shipping Constraints
More than half of the world’s sea trade might face issues because of problems in four key places around the world: the Red Sea, the Strait of Hormuz, the Panama Canal, and the Strait of Malacca. While many have focused on the troubles in the Red Sea, these three other sea paths could also get blocked because of political tensions or environmental problems.
The conflict in the Red Sea has increased shipping costs once again. Even though these costs had decreased to what they were before the COVID-19 pandemic, shipping companies now have to spend more on fuel since they need to take longer routes around the Strait of Hormuz, Panama Canal, and Strait of Malacca. The longer routes mean that goods and supplies take more time to get where they are going and this could increase insurance for ships more expensive and could lead to shortages in things like electronics and car parts, affecting trade worldwide J.P Morgan Research thinks these problems could increase the prices of goods by 0.7% and overall inflation by 0.3% in the first half of 2024.
Emerging Markets
Despite the above, emerging markets performed well, up 4.8%, primarily due to the Chinese rebound.
South Africa
South Africa continues to grapple with significant national debt challenges, with ongoing debt servicing costs constituting a large portion of the budget. National Treasury’s plans to use contingency reserves to reduce debt to GDP and raise taxes indicate a cautious stance towards the country’s fiscal health from the budget.
South Africa faced challenges with increased traffic through the Cape of Good Hope. The capacity constraints at the Port of Cape Town, operating at only half of the required capacity, significantly impacted the country’s primary agricultural exports, highlighting infrastructure and efficiency issues in handling heightened maritime traffic.
China
Chinese markets rebounded strongly with the MSCI China Index gaining 8.6%, driven by supportive government interventions including a cut to the 5-year loan prime rate curbs on short selling, and stock purchases by state-owned investment firms. This comes after hitting five-year lows entering the month.
Mexico
Movements in US markets typically correlate with Canadian and Mexican markets. Additionally, China’s restructuring of its manufacturing operations in Mexico to avoid US tariffs highlights Mexico’s growing role in international trade dynamics.
Developed Markets
United States
The US markets demonstrated resilience with the S&P 500 gaining 5.3% over the month, supported by strong corporate earnings and economic data. The US economy added 353,000 jobs in January, and the Purchasing Managers’ Index indicated continued expansion. Despite stronger-than-expected January inflation numbers, indicating sustained inflationary pressures, the market adjusted its expectations for Federal Reserve interest rate cuts. US Treasuries fell by 1.3% in February.
The United States observed a 74% increase in shipping costs from Asia, with rerouted shipping routes contributing to a potential rise in core inflation by 0.4 percentage points by the end of 2024. South America’s trade, particularly through the Panama Canal, faced risks from El Niño-related drought conditions, affecting volumes and operational efficiencies.
Europe
The eurozone showed signs of overcoming its growth weakness, with the eurozone composite PMI rising to 48.9, suggesting the worst may be over. Despite this, European stock markets underperformed compared to the developed market MSCI World Index, with the MSCI Europe ex-UK rising 2.8%.
Europe saw significant impacts due to the conflict in the Red Sea. The deployment of Naval Force Operation Aspides aimed to protect cargo ships, addressing the 10 to 15-day increase in delivery times for shipments between Asia and the EU and the approximately 400% rise in shipment costs. This scenario underscored the strategic importance of maritime transport for EU-China trade, which accounts for 90% of their bilateral exchange, significantly affecting imports more than exports.
United Kingdom
The UK markets lagged, down 1.1% year-to-date after a -0.3% fourth-quarter GDP print, indicating a technical recession last year. Earnings data from UK companies also disappointed, leading to downgraded estimates for 2024 profit growth.
Japan
Japan’s TOPIX Index rose by 4.9% despite a weaker-than-expected fourth-quarter GDP print, suggesting a technical recession over the second half of 2023. Currency weakness likely aided the export-oriented Japanese stock market.
The events of February 2024 underscore the fragile nature of global trade and the interconnectedness of global economies. As regions navigate through geopolitical strife, environmental threats, and economic uncertainties, the resilience of global markets is tested. These challenges call for coordinated international responses to secure trade routes, stabilize economies, and foster sustainable growth amidst these turbulent times.
