Thoughts For the Week Ahead
The Week That Was
On Friday, Wall Street continued to build upon the gains made earlier in last week. The S&P 500 and the Nasdaq both posted strong increases of 0.9% and 1.4%, respectively. Meanwhile, the Dow Jones closed 222 points higher, driven by the latest US jobs report, which revealed that the US labour market cooled more than initially anticipated last month. Nonfarm payrolls experienced a larger-than-expected decline, causing the unemployment rate to tick up slightly, and wages rose less than what had been forecasted. These developments reinforced the belief that the US Federal Reserve is unlikely to implement further interest rate hikes in the near future.
Among the US sectors, real estate, financials, and materials were the standout performers, contributing to the overall market gains. Conversely, the technology sector faced challenges, with Apple shares declining by 0.5%. Despite beating earnings and revenue forecasts, Apple reported a fourth consecutive quarter of declining sales and projected that its December quarter revenue would be "similar to" the previous year's performance.
Last week, for the week as a whole, the Dow Jones saw a remarkable 4% jump, marking its strongest weekly performance since October 2022. Similarly, the S&P 500 and the Nasdaq posted impressive gains of 4.7% and 5.1%, respectively, representing their best weekly performance since November of the previous year.
On Friday, the JSE All Share Index displayed strength, closing approximately 2.1% higher and reaching a level not seen in over two weeks, at 72 856. This marked the index's third consecutive day of gains. The impetus for this positive momentum stemmed from a combination of factors.
On the domestic front, there was noteworthy data from a fresh PMI survey, which revealed that South Africa's private sector contracted in October for the first time in three months.
Turning to the SA corporate arena, a majority of sectors experienced substantial gains, with particular strength observed in the mining, industrial, and technology companies. As the week came to a close, the JSE had achieved an impressive 4.9% gain, marking its strongest performance since January.
The Week Ahead
This week, traders and investors will be eagerly anticipating the release of updated US earnings reports from several key companies, including Berkshire Hathaway, Activision Blizzard, Viatris, Gilead Sciences, Lucid Group, Uber, Twilio, Unity Software, The Walt Disney Co, Take-Two Interactive Software, AMC Entertainment, Fiverr International, and Illumina.
Additionally, the spotlight will be on remarks from US policymakers, particularly Fed Chair Powell, as market participants seek insights into the future direction of monetary policy. Meanwhile, the economic calendar appears relatively light, with expectations that US consumer sentiment will remain at the five-month low seen in October, while the trade deficit is expected to have widened to $60.2 billion in September from $58.3 billion in August.
In the UK, attention will turn to the preliminary estimate of third-quarter GDP growth, along with reports on industrial production, foreign trade, and construction output. The UK's economy is expected to have contracted in Q3, marking a reversal from three consecutive quarters of growth.
In Europe, there is anticipation of a third consecutive monthly decline in retail sales in the Euro Area for September.
In China, all eyes will be on October's trade data and inflation figures, providing further insights into the impact of the government's economic stimulus measures following unexpected contractions highlighted in the PMI data. Additionally, new yuan loans for the period will shed light on the effects of the People's Bank of China's looser lending rules.
In Japan, traders and investors will be awaiting the Tankan index for November and September's current account data, while follow-up documents from the Bank of Japan's latest policy decision will provide insights into the bank's adjustments to its yield curve control policy.
Key Themes for the Week Ahead
Can yields and the US dollar loosen their grip on sentiment?
Recently, rising bond yields have taken centre stage, sparking concerns about potential market disruptions. This apprehension reverberated through market sentiment, causing the US dollar to move in sync with these escalating yields, adversely affecting major forex counterparts, equities, and commodities. However, as yields experience volatility near their peaks and start to recede, it is pressuring the US dollar, offering a respite to the bruised markets. Last week's notable event was the US Federal Reserve acknowledging that increasing yields might inadvertently execute their intended monetary tightening, leading to predictions of no upcoming rate hikes.
The current scenario suggests a corrective period for the US dollar. While it is encouraging to witness a decline in yields, they have a considerable distance to cover before we can confidently anticipate a stable and enduring market rally.
While we may have navigated through the most hectic portion of the US earnings season, this week promises financial reports from several prominent companies. On Monday, earnings from Ryanair Holdings and BioNTech will be unveiled. This will be succeeded by announcements from Gilead Sciences, Uber Technologies, UBS, and Rivian Automotive on Tuesday. Midweek, The Walt Disney Company and Warner Bros. Discovery are set to disclose their figures. Concluding the week, Thursday will spotlight financial reports from Honda Motor Company, Li Auto, and a few more notable names. China data
To rejuvenate genuine risk appetite, it is crucial to witness enhanced data from China. A comprehensive improvement in data from the region is essential for global equity markets to continue the uptrend observed in the recent days.
The optimal situation would involve an increase in imports and loan growth, indicating China's growth is driven by internal demand, aligning with Beijing's aspirations.
Concurrently, a surge in exports would reflect global demand. However, this could also be perceived as a reason for Western central banks to maintain elevated interest rates for extended periods.
If the aggregated data from China appears weak, both AUD/USD and US indices might find it challenging to uphold the positive trajectory they have demonstrated last week.
South Africa News
South Africa's debt is set to surge to R6 trillion by 2026, causing alarm amidst rising borrowing to meet budget deficits. The country's debt is expected to peak at 77.7% of GDP by 2025/26, up from just 23% in 2009. For every R1 the government spends now, 22 cents are dedicated to debt repayment.
South Africa will remain on the global anti-money laundering watchdog's grey list until at least 2025, despite efforts to improve compliance. Finance Minister Enoch Godongwana, during the Medium-Term Budget Policy Statement on 1 November, acknowledged the country's challenges in investigating and prosecuting money laundering and terror financing.
The number of government employees earning over R1 million per year has increased by 450% from a decade ago, with 55 000 public workers now considered millionaires.
In the upcoming economic calendar for this week, several significant events are scheduled to take place.