Election Fever: Rising Yields and Fiscal Uncertainty Shake Market Momentum
The stock market’s rally encountered an “October surprise” as rising bond yields grabbed attention, much like a last-minute swing in the polls. Following the Fed’s half-point rate cut, both 2- and 10-year Treasury yields unexpectedly spiked, creating an economic twist reminiscent of a debate night upset. Positive economic indicators, including September’s strong job numbers and retail sales growth, fuelled the Atlanta Fed’s Q3 GDP forecast to a robust 3.4%, challenging any recession concerns and highlighting the economy’s resilience. The Fed’s strategy is also adjusting. With improved data and a modest rise in inflation, the tone has shifted to a measured approach to rate cuts — less grandstanding, more steady hand. However, the “fiscal baggage” carried by both Trump and Harris lingers in the background. Their proposed policies could increase national debt, pressuring long-term yields to rise. And with Trump’s odds improving in betting markets, new tariffs could emerge as a wildcard, potentially spurring inflation and reshaping the economic landscape.
Closer to home, South Africa’s Finance Minister Enoch Godongwana took centre stage with the 2024 Medium-Term Budget Policy Statement (MTBPS), the first major fiscal checkpoint under the Government of National Unity (GNU). Debt stability remains a cornerstone of the GNU’s economic platform, though minor “slippage” has emerged relative to February’s targets. With underwhelming revenue collection acting like a polling gap, the Treasury is counting on consumer spending, supported by pension drawdowns, to help narrow the fiscal deficit. Despite this, debt is projected to stabilize at 75.5% of GDP by 2025/26 — though wage costs and infrastructure demands weigh heavily on the GNU’s fiscal platform. As the fiscal “campaign trail” unfolds, both South Africa and the US face mounting expectations. South Africa’s Government of National Unity, like a candidate with much to prove, must move swiftly to deliver on reform promises. Meanwhile, in the US, the economy’s resilience will be tested as policymakers weigh growth against fiscal pressures. The stakes are high, with each step in fiscal strategy shaping the road to long-term stability and growth.
Article by Corion Capital