Thoughts For the Week Ahead
The Week That Was
On Friday, the three main US equity indices, namely the Dow Jones, S&P 500, and Nasdaq 100, ended the day in negative territory as market participants sifted through the latest US corporate earnings reports and recent job data.
The Dow relinquished its initial advances, closing 148 points lower. Meanwhile, both the S&P 500 and Nasdaq 100 saw declines of 0.5% and 0.3% respectively, with the latter's descent being further accelerated by a 4.8% drop in Apple's shares.
This dip followed less-than-expected quarterly results and a subdued outlook from the technology giant, which in turn caused its market valuation to slip below the $3 trillion mark.
Additionally, the yield on bonds decreased due to the mixed signals from the jobs report, which offered no clear direction on future US Fed policy.
The US economy saw an addition of 187 000 jobs in June, falling short of market predictions of a 200 000 increase. However, the unemployment rate fell unexpectedly to 3.5%, and hourly earnings outstripped projections with an annual growth of 4.4%.
Turning to the corporate earnings scene, Amazon, Booking, DraftKings, and Dropbox posted gains of 8.3%, 7.8%, 5.8%, and 5.9% respectively, spurred by optimistic quarterly results.
Over the week, the Dow Jones experienced a decrease of 1.1%, while the S&P 500 and Nasdaq 100 recorded losses of 2.3% and 3% respectively. The JSE FTSE All Share Index reclaimed momentum to close approximately 0.3% higher at 76 961 on Friday, marking a two-session upward trend. The uptick was primarily driven by a robust 2.1% increase in financial shares, which sufficiently counterbalanced a 0.9% contraction in resource-linked sectors and a decline in technology shares, with Prosus and Naspers dropping 1.8% and 1% respectively.
On the corporate earnings front, AngloGold Ashanti, a prominent mining company, disclosed a 54% slump in half-year profits, while affirming its yearly guidance in spite of impairments recorded in its Brazilian portfolio.
In terms of weekly performance, the JSE registered a 2% loss, making it the most substantial weekly reduction since mid-June.
The Week Ahead
In the US, although the frequency of earnings releases is expected to moderate, traders and investors will still keep an eye out for major reports from key corporations such as The Walt Disney Co, AMC Entertainment, Novo Nordisk, Barrick Gold, Eli Lilly and Co, Take-Two Interactive Software, Twilio, and Upstart Holdings.
Market participants will be focusing their attention on the US CPI report due on Thursday. Market participants anticipate an acceleration of the inflation rate to 3.3% from June's 3%, marking the first hike in headline inflation since June 2022, primarily attributed to base-year effects from energy costs. The core rate is expected to hold steady at 4.8%, significantly exceeding the Fed's 2% target. In the UK, the Office for National Statistics (ONS) is set to publish preliminary estimates for Q2 GDP, along with reports on industrial production, construction output, and trade balance. The British economy likely maintained its growth trajectory during the April to June timeframe.
Elsewhere in Europe, market participants will be closely monitoring the final CPI figures to confirm Germany's inflation rate's deceleration to 6.2% in July.
Over in Asia, China is slated to disclose its second set of July economic data, including trade figures, inflation rates, and a plethora of credit data, following last week's PMI figures that emphasized the country's ongoing struggle to recover from Covid lockdowns. In Japan, market participants will scrutinise the Bank of Japan (BoJ)'s Summary of Opinions for insights into the bank's decision to loosen its yield curve control policy. uring PMI.
Key Themes for the Week Ahead
US inflation data
On Thursday, the US is slated to publish its inflation data for July. This data will help determine whether price pressures are easing and if market sentiments about the Fed nearing the end of its intensive cycle of interest rate increases are accurate.
If the inflation numbers come in lower, it could make it more plausible for Fed policymakers to pause the rise in interest rates at their impending September meeting, following a quarter-percentage-point hike the previous month.
The US is also expected to disclose July's Producer Price Index (PPI) data on Friday, with core producer prices predicted to have climbed 2.3% year-over-year.
Additionally, throughout the upcoming week, market participants will have the opportunity to hear from several Fed officials, including Philadelphia Fed President Patrick Harker, Atlanta Fed President Raphael Bostic, and Fed Governor Michelle Bowman.
Pause in equity market rally?
Wall Street ended the trading session down on Friday, as highlighted earlier, with the S&P and Nasdaq registering their most significant weekly percentage drops since March. Some market participants chose to secure profits after a five-month upward trajectory.
The immediate path for equities may hinge on whether Thursday's inflation data reflects a moderation in consumer prices. The movement of Treasury yields, which unsettled markets recently by reaching new annual peaks following a downgrade of the US credit rating by Fitch, is also under close scrutiny by traders and investors.
A rise in Treasury yields, considered among the globe's safest investments given their backing by the US government, can suppress the appeal of equities.
The US employment data released on Friday revealed that although job growth sustained a moderate pace in July, wage growth exceeded expectations, fuelling concerns that the Fed might maintain elevated rates for an extended period.
The UK is slated to disclose its second quarter GDP data on Friday, which is projected to show a minor uptick, suggesting that the overall economy is essentially static. In May, the economy contracted less than anticipated after virtually flatlining over the preceding two months.
Last Thursday, the Bank of England escalated interest rates to a 15-year peak of 5.25%, marking its 14th consecutive increase. The central bank also cautioned that borrowing costs are likely to remain high for a prolonged period.
UK inflation reached a 41-year zenith of 11.1% last October and has been receding more gradually compared to other regions, registering at 7.9% in June, the highest among any major economy.
Deputy Governor Ben Broadbent stated that maintaining relatively high-interest rates over a long duration is essential for curbing inflation, even though the Bank of England anticipates only minimal economic growth in the upcoming years.
China is set to disclose its trade figures on Tuesday, followed by July's inflation data on Wednesday. The latter is projected to reveal a decline in consumer prices, amidst worries about the future prospects of the world's second-largest economy.
China's economy experienced a robust rebound in the first quarter following the abrupt lifting of strict pandemic-related restrictions late last year. However, the recovery has stumbled in recent months as domestic and foreign demand slackens.
In response to the faltering recovery, Chinese authorities have introduced a series of policy measures in recent weeks. While the specifics of these measures remain largely undisclosed, traders and investors anticipate further actions to support the economy.
In the Eurozone, Germany is set to release industrial production data on Monday. The report is anticipated to indicate a downward trend, in light of a global demand slowdown, with China being a significant contributor to this decrease.
The German economy, the largest within the Eurozone, experienced stagnation in the second quarter of 2023, falling short of predictions for moderate growth.
The combination of diminished purchasing power heightened interest rates, and subdued factory orders all exerted pressure on the German economy.
While the peak of the US earnings season has passed, numerous upcoming results will maintain traders' and investors' engagement over this week.
Electric vehicle manufacturers Rivian, Lucid Group, and Li Auto will be reporting their earnings, alongside ride-hailing platform Lyft. Other notable reports to anticipate include entertainment powerhouse Disney, delivery service leader UPS, pharmaceutical company Eli Lilly, and gaming platform Roblox.
It's worth highlighting that although it isn't scheduled, Berkshire Hathaway will be announcing its results on Saturday, 15 August.
In the UK, we expect updates from several key players such as gambling titan Flutter Entertainment, shipping company Clarksons, vacation provider TUI, hotel operator IHG, insurance firm Hiscox, housebuilder Persimmon, food delivery app Deliveroo, and mining powerhouses Antofagasta and Glencore.
Internationally, earnings reports from Chinese juggernaut Alibaba, Japan's Softbank, and Germany's Deutsche Telekom will also be in the spotlight.
The Democratic Alliance (DA) has levelled accusations against the African National Congress (ANC), alleging attempts to "usurp" the ongoing National Dialogue on Coalition Governments in Cape Town.
The South African Police Service (SAPS) has revealed an increase in the recruitment age limit for officers to 35 years, as part of its initiative to bolster its ranks with 10,000 new officers.
Despite assurances that the termination of e-tolls would be finalised by the end of 2022, the Gauteng Provincial Government has yet to establish formal plans for the dismantling of the toll gantries or to address the existing e-toll debt. This suggests that motorists might have to continue shouldering e-Toll payments for an indeterminate period.
In the upcoming economic calendar for this week, several significant events are scheduled to take place.