Thoughts For the Week Ahead
The Week That Was
Major US equity indices wrapped up Friday in the red, influenced by geopolitical tensions in the Middle East, surging yields, and a mixed bag of US corporate earnings.
The S&P 500 and the Nasdaq saw dips of 1.2% and 1.5% respectively, while the Dow shed 286 points. Meanwhile, the Treasury yields stayed high, with the 10-year yield moderating slightly after surpassing the 5% threshold.
Comments from Powell indicated the US central bank's inclination to maintain the current rates in the upcoming meeting. However, he also alluded to the possibility of prolonged heightened interest rates in a robust economic scenario. Large-cap equities were not spared from the sell-off, evidenced by Tesla's 3.7% drop, marking its poorest weekly performance since December.
In corporate news, Solaredge Technologies' shares took a sharp 27.3% dive after the firm downsized its sales projection. Despite announcing record revenues and profits for Q3, American Express saw its shares retreat by 5.4%.
Summing up the week, the S&P 500, Nasdaq, and Dow retreated by 3%, 3.8%, and 2.3% respectively, marking their most significant downturn in the past month.
The JSE All Share Index tumbled by 1.1%, settling at an 11-month low of 70 198 on Friday. This marked its fourth consecutive decline, mirroring the downtrend observed in major global markets.
Diving into specific shares, Lighthouse Properties led the descent with a 6.5% drop. This was followed by Sun International which slid by 5.5%, Anglo American by 4.3%, and Bytes which dipped 4.1%. In contrast, Tiger Brands, a prominent food producer and consumer goods entity, witnessed its shares soar by over 11%. This spike was attributed to the announcement of CEO Noel Doyle's impending departure, set to be succeeded by Tjaart Kruger starting 1 November.
Summing up the week's trajectory, the JSE retreated by approximately 3.7%, marking its steepest weekly decline since mid-August.
The Week Ahead
In the upcoming week, we will witness a flurry of activity on the US earnings front. Top-tier tech giants like Alphabet, Microsoft, Meta, and Amazon are slated to unveil their performance. Additionally, other corporate behemoths such as 3M Co, Coca-Cola, General Motors, Spotify, Verizon Communications, Snap, Visa, Mastercard, Automatic Data Processing, Boeing, CME Group, Merck & Co, Ford Motor, Intel, Chevron, and Exxon Mobil are on the radar.
On the economic side, the US is gearing up to release the preliminary figures for the third-quarter GDP and September's personal income and expenditure data. Forecasts suggest a notable uptick in the US economy, with an anticipated annualized growth rate of 4.1% in Q3 – a step up from the 2.1% in the preceding quarter. This positive trend is attributed to vibrant consumer activity and bolstered private investments.
Analysts project a 0.3% rise in core PCE prices for September, a tad higher than the 0.1% increase in August. The upcoming report is also predicted to showcase a 0.3% surge in consumer expenditure and a 0.4% growth in income for the same timeframe.
Traders and investors are also primed to track data like September's durable goods orders, the preliminary S&P Global PMI survey, housing sales data, the Chicago Fed National Activity Index, insights into wholesale sales and the goods trade balance, and the Michigan consumer sentiment's final reading.
Across the Atlantic, the European Central Bank (ECB) is anticipated to hold its current interest rates steady, signalling a hiatus after a ten-rate-hike streak. Preliminary data from Europe suggests a potential dip in consumer confidence, triggered by inflation fears exacerbated by spiking oil prices and continuing tensions in the Middle East.
The UK is prepping for the release of its latest employment data by the ONS. Early PMI figures hint at a milder contraction in both the manufacturing and services sectors. Meanwhile, the CBI is set to provide insights into factory orders, business sentiment, and distributive trades.
Lastly, in Japan, market enthusiasts will be keenly observing October’s PMI statistics and Tokyo’s CPI figures, keenly looking for signs of potential shifts in the Bank of Japan's strategies or interventions.
Key Themes for the Week Ahead
Big Tech Q3 Earnings
This week, the US earnings season intensifies with Big Tech giants such as Microsoft, Alphabet, Meta, and Amazon stepping into the limelight with their reports.
Several other prominent players across diverse sectors will also unveil their updates. These include Snap from the social media sector, Spotify in music streaming, Boeing in aerospace, Coca-Cola in the beverage industry, UPS in delivery services, and media conglomerate Comcast. Additionally, financial powerhouses Visa and Mastercard, defence leaders RTX and Northrop Grumman, telecom titans Verizon and AT&T, automotive giants General Motors and Ford, and travel stalwarts Southwest Airlines and Royal Caribbean Cruises will share their performance. Not to be missed are the reports from energy behemoths Exxon Mobil, Chevron, and Italy-based Eni.
In the UK, banking majors like Lloyds, Barclays, Standard Chartered, and NatWest are set to capture attention with their updates. Meanwhile, other notable mentions include online fashion retailer ASOS, airline operator IAG, and consumer goods giants Unilever and Reckitt Benckiser.
Markets are in a risk-off attitude, with investors concerned about the potential of more interest rate hikes and the spread of the Israel-Hamas war. Last week's earnings announcement from Tesla was also less than stellar.
The CBOE Volatility Index, Wall Street's most closely monitored barometer of investor jitters, closed Friday at its highest level in over seven months.
As a result, investors have flocked to conventional safe-haven assets such as the dollar and gold, as well as short-term Treasuries or money-market funds, which have been generating more appealing returns since interest rates began to rise early last year.
Oil prices fell on Friday after the Islamist organization Hamas freed two American prisoners in Gaza, raising hopes that the Israeli-Palestinian conflict may de-escalate without engulfing the rest of the Middle East and damaging oil supply.
Crude futures for November delivery in the US slid 0.7%, to $88.75 a barrel after settlement on Friday. The more liquid December crude contract ended 29 cents lower at $88.08 per barrel.
Both front-month contracts gained more than 1% for the week, marking the second consecutive weekly gain.
The Middle East remains a big focus of the market because of fears of a region-wide conflict that would likely involve a disruption of oil supplies.
ECB Likely To Remain On Hold
The European Central Bank (ECB) will convene its monthly policy meeting on Thursday, with the widespread consensus being that interest rates will remain unchanged.
After raising its deposit rate at each of its previous ten meetings to a current record high, the ECB has hinted that it is time to take a breather and analyse the impact of monetary tightening thus far. Market investors will be watching for any signs of a possible final rate hike this year in December.
The Eurozone will issue carefully regarded October PMI statistics on Tuesday, ahead of Thursday's meeting. Recent economic figures have prompted concerns about the bloc's economic prospects, as consumer spending has weakened in the face of persistently rising inflation.
This week, market participants will get a new update on the strength of the US economy from data such as third-quarter GDP and the Fed's preferred measure of inflation, the core personal consumer expenditures price index.
Economists predict that third-quarter GDP will grow at an annualised rate of 4.1%, boosted by solid consumer spending. The core personal consumption expenditures price index, which excludes volatile food and gasoline prices, is expected to rise 3.7% year on year.
Fed Chair Jerome Powell said on Thursday that the stronger-than-expected US economy may necessitate tighter policy, yet increasing market interest rates may make central bank intervention less necessary.
South Africa News
The latest BankservAfrica Transactions Index for Q3 indicated a 0.7% decline, suggesting a decrease in South Africa's GDP for that period, after a marginal growth in Q2 driven by reduced electricity load shedding. Investec's chief economist, Annabel Bishop, highlighted the challenges posed by the recent interest rate cycle affecting consumer spending but also noted falling inflation might provide a brief respite, while 2024 could witness a modest GDP growth of around 1.0%.
South African crypto exchange VALR has partnered with Visa to enhance crypto payment adoption in both local and international markets. This collaboration aims to leverage Visa's global payment network, following VALR's recent approval to offer crypto services in Europe and ongoing licensing processes in Dubai, Mauritius, and South Africa.
The South African Revenue Service (SARS) spearheaded a large-scale operation, involving inter-governmental cooperation, to dismantle a coal smuggling syndicate responsible for exacerbating load shedding and causing significant economic damage. The syndicate, comprising both local and foreign members, involved former Eskom employees and caused a revenue loss of over R500 million, by substituting high-grade coal with low-quality alternatives, damaging Eskom's infrastructure.
In the upcoming economic calendar for this week, several significant events are scheduled to take place.