Thoughts For the Week Ahead
The Week That Was
On Friday, the Dow Jones experienced a sharp decline, falling over 360 points. The S&P 500, after initially showing promise, finished 0.5% down. In contrast, the Nasdaq rose by close to 0.4% amidst a backdrop of varied US corporate results.
Recent data highlighted that the US Federal Reserve's favoured inflation metric increased by 0.3% from the previous month, marking its most significant rise since May. Additionally, while personal spending surpassed expectations, income reports came in slightly below forecasts.
From the US corporate perspective, Amazon's shares soared by 6.8%, driven by impressive earnings results and optimistic remarks related to AI. Intel also had a positive reception, with its stock surging by 9.3% after exceeding profit and sales predictions. On the flip side, Ford's stock plummeted by 12.2% due to missed quarterly projections and a revised outlook stemming from the UAW strike. Oil giants Chevron and Exxon Mobil saw their stocks decline by 6.7% and 1.8%, respectively, after delivering underwhelming quarterly results.
Summing up the week, the S&P 500 and the Nasdaq registered a loss of 2.4%, while the Dow decreased by 1.9%.
On Friday, the JSE All Share Index hovered near an 11-month low, settling around the 69 452 mark, primarily weighed down by sectors such as financials, industrials, retail, and telecommunications.
On the local front, investors are gearing up for the upcoming mid-term budget. This budget is widely expected to reveal further degradation in South Africa's fiscal health.
As the week progressed, the JSE appeared set to register a 0.7% decline.
The Week Ahead
This week promises to be bustling with a slew of US earnings reports. Traders and investors eagerly await updates from prominent firms such as Apple Inc, Airbnb, Advanced Micro Devices, and many others.
The US FOMC meeting will also be under the spotlight, with most expecting interest rates to remain stable. Key areas of interest will be the potential trajectory for the December meeting and any hints about criteria for future rate cuts.
As for economic indicators, the anticipated US jobs report could show a drop in October's non-farm payrolls, contrasting with September's figures.
Europe won't be left behind in this flurry. Expected Euro Area inflation rates for October might show a two-year low, with GDP forecasts indicating possible contractions.
The UK's monetary policy will be under scrutiny, with analysts keen to decipher the Bank of England's plans for the upcoming months.
In Asia, China's PMI data might portray continued manufacturing sector growth, indicating the effectiveness of economic measures despite challenges in the housing sector.
Japan will be in the limelight for the Bank of Japan’s interest rate decision, especially after unexpected JGB purchases stirred discussions about yield-curve-control policy alterations.
Key Themes for the Week Ahead
US Federal Reserve meeting
Traders and investors are keenly focusing on the US Federal Reserve’s upcoming policy meeting this Wednesday, looking for insights from policymakers about the economy's health and the trajectory of interest rates.
The prevailing sentiment suggests that the Fed might pause on tightening, especially after Chair Jerome Powell indicated that surging long-term yields could lessen the urgency for more rate hikes. However, a faction believes a rate increase might be on the cards during the December meeting.
Signals that the Fed might maintain the current rate levels into the next year could strengthen expectations of a continued rise in Treasury yields. These yields, having ascended to their peak in over 15 years, have played a part in the notable downturn in the S&P 500.
Since peaking in late July, the index has retreated over 10%, though it still registers a near 8% growth for the year.
US Non-farm payrolls
This week, the spotlight will be on Friday’s nonfarm payrolls report for October.
Following the impressive addition of 336 000 jobs in September, forecasts suggest a more tempered growth of 182 000 jobs for October. However, this figure still indicates a healthy labour market.
The unemployment rate is projected to stay at 3.8%. Notably, anticipated wage growth could slow to 4% year-on-year, potentially setting a new low for the post-pandemic era.
Such a development could strengthen the US Federal Reserve's perspective that inflationary pressures are waning, diminishing the need for further interest rate hikes.
In the run-up to Friday's announcement, market observers will be keenly analysing Tuesday's third-quarter employment cost data, scouting for indications of moderating wage growth.
Apple takes centre stage in an action-packed week of US corporate earnings, with its results scheduled for Thursday.
As the company with the highest market valuation, Apple's stock performance has played a pivotal role in propelling equity indices upwards this year. It stands tall alongside other dominant US technology giants in terms of market influence.
However, this third quarter earnings season has brought some underwhelming performances among the Big Tech segment. Notably, Alphabet and Tesla witnessed their share prices dip post their earnings announcements. Despite these setbacks, the tech-centric Nasdaq 100 index remains nearly 30% positive for the year, even after an 11% pullback from its peak.
Furthermore, insights into consumer expenditure trends will be of keen interest. Key players set to release their earnings include McDonald's on Monday, Caterpillar and Pfizer on Tuesday, Mondelez on Wednesday, and Starbucks and Eli Lilly wrapping up on Thursday.
Bank of England (BOE)
The BOE is gearing up for its second-last meeting of the year this Thursday.
The focal point will be whether officials opt to elevate interest rates again after maintaining them in September, following a streak of 14 consecutive hikes.
Market enthusiasts largely anticipate the BoE to retain rates at the 15-year zenith of 5.25%. However, they also expect the bank to remain flexible, signalling potential increases if deemed essential.
It is anticipated that policymakers will underscore the necessity to sustain rates around the current benchmarks for an extended period, even in the face of evidence suggesting economic stagnation.
The BoE is also slated to refresh its quarterly projections, which, as of August, reflected a modest economic expansion of 0.5% for both 2023 and 2024. Echoing this muted sentiment, Governor Andrew Bailey recently alluded to a "very subdued" economic forecast.
Eurozone inflation and GDP
On Thursday, the European Central Bank (ECB) maintained its interest rates, following its most aggressive series of rate hikes in history.
The bank's attention now shifts to the upcoming Tuesday's data release on inflation and GDP, crucial inputs for its final yearly meeting.
Early estimates suggest that the consumer price inflation for October will decelerate to 3.2%, inching closer to the ECB's 2% benchmark. However, persistent high energy costs might still exert upward pressure on this figure.
Simultaneously, GDP data is anticipated to reveal a slight contraction of 0.1% in the Eurozone economy for the third quarter, translating to an annualised growth rate of a mere 0.2%.
ECB President Christine Lagarde, in her remarks on Thursday, signalled a consistent policy approach and countered any expectations of imminent rate reductions.
South Africa News
As Enoch Godongwana, the Minister of Finance, gears up to present his mid-term budget speech this week, he warned that unless the country reduces spending and boosts borrowing, funds could be depleted by March 2024.
The management of the University of South Africa (UNISA) has expressed intentions to challenge Higher Education Minister Blade Nzimande's decision to put the university under administration.
South Africans are rejoicing in their monumental win against New Zealand in the Rugby World Cup final, with the Springboks making history as the first team to clinch the trophy four times.
In the upcoming economic calendar for this week, several significant events are scheduled to take place.