Thoughts For the Week Ahead
The Week That Was
Wall Street's primary indices closed marginally higher on Friday, reflecting traders and investor anticipation of potential US Federal Reserve (Fed) interest rate cuts.
Despite positive US quarterly results and amidst a Justice Department investigation for allegedly shipping equipment to a Chinese firm without proper licenses, Applied Materials saw its shares decline by 4.1%.
In stark contrast, Charge Point Holdings experienced a significant 35.6% drop following a lowered revenue projection and changes in its executive leadership, including its CEO and CFO.
On a brighter note, Gap celebrated a remarkable surge of 23.6%—its most substantial post-earnings increase in decades—fueled by earnings that surpassed expectations and confirmation of its annual revenue forecast.
Over the week, all three major indexes recorded consecutive third-week gains: the Dow Jones increased by 2%, while the S&P 500 and Nasdaq grew by 2.6% and 3%, respectively.
The Johannesburg Stock Exchange's All Share Index modestly ascended by 0.3% to settle at 73 921 on Friday, buoyed by advances in sectors linked to resources, technology, retail, and industrials, which more than compensated for the downturn in financial shares.
Investors, meanwhile, are increasingly confident that the Fed will soon conclude its rate-hiking cycle and possibly start to ease monetary policy by 2024, despite some cautious statements from officials.
Domestically, attention is turning towards the forthcoming policy announcement by the South African Reserve Bank, set for 23 November (Thursday). Analysts largely predict the bank will maintain the repo rate at its current level of 8.25%.
For the week, the JSE marked a significant gain of 3.5%.
The Week Ahead
Last week in the US, traders and investors will be keenly awaiting the Federal Open Market Committee (FOMC) meeting minutes on Tuesday. These minutes are expected to offer valuable insights into the Fed's future monetary policy, particularly as policymakers balance the risks of overadjusting or underadjusting in response to slowing inflation and signs of a softening labour market.
The US economic agenda will feature the release of durable goods orders and the flash S&P Global PMI survey. Projections suggest a 3% drop in October's new orders for manufactured durable goods, following a 4.7% increase in September.
The upcoming PMIs for November are anticipated to show continued growth in service sector activity but a slight decline in manufacturing.
US markets will observe Thanksgiving holidays with a closure on Thursday and an early closure on Friday.
The week will also see US earnings reports from major US companies like Agilent, Zoom, Nvidia, Lowe’s, Analog, Dell, Autodesk, HP, Dollar Tree, Best Buy, and Deere & Company.
In Europe, the focus shifts to the flash PMI readings, with expectations of a modest downturn in overall business activity in the Euro Area, Germany, and France. Both manufacturing and services outputs are expected to decline, albeit at a slower pace.
In the UK, significant events include the Chancellor of the Exchequer presenting the 2023 Autumn Statement on November 22, alongside releases of flash PMIs, GfK Consumer Confidence, CBI industrial trends orders, and public sector net borrowing data.
The UK's manufacturing and service sectors are also projected to experience a gentle contraction.
China's focus will be on the People's Bank of China (PBoC), which is likely to keep its loan prime rates steady following its decision to maintain medium-term lending facility rates. However, markets will watch for any central bank movements, especially after recent unexpected cash infusions and reports of upcoming funding.
In Japan, attention will centre on October's inflation data, with a weaker yen likely pushing consumer prices higher. This could increase pressure on the Bank of Japan to reconsider its ultra-easy monetary policy. Additionally, Japanese PMI data for November will be closely monitored.
Key Themes for the Week Ahead
The US Fed plans to release the minutes from its 31 October to 1 November meeting earlier than usual, on Tuesday, due to the Thanksgiving holiday. This release has garnered significant attention as recent signs of easing inflation have sparked speculation that the Fed might halt its rate hikes.
Market participants are eager to scrutinise the minutes for hints about the Fed's future policy direction.
Comments from high-ranking Fed officials have added to the anticipation. Vice Chair for Supervision Michael Barr recently suggested that the Fed might be approaching the peak of its interest rate increases. However, contrasting views from Mary Daly, head of the San Francisco Fed, and Boston Fed President Susan Collins, who both emphasize the need for more conclusive evidence of diminishing inflation, indicate ongoing deliberation within the Fed.
In addition to the Fed minutes, key economic data are scheduled for release. Tuesday will see the publication of figures on existing home sales, and Wednesday brings the weekly update on initial jobless claims along with October's data on durable goods orders. These releases will provide further insight into the current state of the US economy.
Although Thanksgiving itself is not directly linked to trading themes, it will lead to the closure of US markets on Thursday, 23 November. Additionally, trading activity on Friday is expected to be subdued, as many traders and investors may extend the holiday into a four-day weekend. Consequently, market participants are likely to be actively balancing their portfolios up until Wednesday.
Interestingly, there is a noticeable trend where US markets often experience an uptick leading up to Thanksgiving. This makes US indices particularly noteworthy from Monday through Wednesday this week.
US retailers are gearing up for Black Friday, marking the start of the crucial holiday shopping season that follows Thanksgiving at a time when market participants are questioning whether the consumer-driven US economy can remain resilient.
This year's Black Friday comes against a backdrop of elevated interest rates and inflation that, while easing, remains above the Fed's 2% target.
Data last week showed that US retail sales fell for the first time in seven months in October, pointing to slowing demand, although the decline was smaller than expected.
Retailers have already warned that this year's holiday season will be less robust than in previous years. Walmart said Thursday that consumers are being more cautious with spending as the holiday season gets underway, even as the largest US retailer raised its forecast for sales and profit for the year.
In recent weeks, market participants' confidence in the equity market has seen a notable increase, following a rebound from a prolonged downturn that lasted from August through much of October.
This renewed optimism is partly due to a retreat in Treasury yields, which had been on a steady rise and putting pressure on stocks. The decline in yields comes amidst growing expectations that the Federal Reserve may cease its interest rate hikes.
On Friday, oil prices experienced a significant surge, increasing by over 4%. This rebound came after reaching a four-month low in the prior session. The rise in prices was partly driven by investors who had previously held short positions opting to take profits. Additionally, new US sanctions imposed on certain Russian oil shippers provided further support to the oil market.
Despite this uptick, both Brent and crude oil benchmarks concluded last week with a decline of more than 1%. This marked their fourth consecutive week of losses, primarily influenced by an increase in US crude inventories and continued high levels of production.
Further impacting the market were concerns about China's intensifying property crisis and a slowdown in industrial growth, which added to the downward pressure on oil prices.
With Brent crude prices remaining below $80, many market analysts anticipate that the Organization of the Petroleum Exporting Countries (OPEC) and its allies might consider extending their output cuts into 2024. This possibility is expected to be a key topic of discussion at the group's upcoming meeting later this month.
On Thursday, the Eurozone is set to release its Purchasing Manager Indexes (PMI) data for November, with economists not anticipating a significant increase in business activity.
Additionally, Wednesday will see the publication of consumer confidence data for the bloc. Another key economic indicator, the German Ifo business climate index, known for its impact on market perceptions, is scheduled for release on Friday.
The European Central Bank (ECB) is preparing to unveil its latest Financial Stability Review on Wednesday. This will be followed by the release of the minutes from its October policy meeting on Thursday, offering insights into the bank's decision-making process and economic assessments.
ECB President Christine Lagarde has a busy week ahead, with scheduled appearances in Berlin on Tuesday and another event in Frankfurt on Friday. These engagements often provide valuable insights into the ECB's perspective on the Eurozone's economic health and monetary policy. Throughout this week, several other ECB officials will also be making public appearances, likely contributing further to the discourse on the Eurozone's economic outlook.
South Africa News
South Africa's Ambassador to The Hague has formally submitted a referral to the International Criminal Court, requesting an investigation into possible war crimes in Gaza.
This past weekend, voting stations nationwide opened their doors, with thousands of South Africans anticipated to register in preparation for the 2024 general elections.
In South Africa, issues of crime and justice stand as urgent priorities, requiring both immediate and transformative responses. These challenges go beyond mere numbers and statistics, embedding themselves deeply within the societal structure. They represent a profound call for justice, equality, and the protection of essential human rights.
In the upcoming economic calendar for this week, several significant events are scheduled to take place.