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  • Writer's picturePeet Serfontein

Thoughts For the Week Ahead

The Week That Was

On Friday, the Dow Jones Industrial Average experienced a downturn, closing 115 points lower, while both the S&P 500 and the Nasdaq showed limited movement as market participants weighed a mix of early US corporate quarterly reports and weaker-than-anticipated Producer Price Index (PPI) data.


Corporate earnings painted a mixed picture: Bank of America and Wells Fargo saw their shares dip by 1% and 3.3%, respectively, following earnings that missed expectations. Conversely, JPMorgan's stock decreased by 0.7%, despite reporting better-than-expected results.


UnitedHealth's shares dropped by 3.5%, even though its financial results exceeded forecasts.


Delta Airlines' shares plummeted by 9% after the airline adjusted its 2024 earnings outlook downwards.


Tesla's stock fell by 3.6% amid news of a temporary production halt at its Berlin plant, triggered by escalating tensions in the Red Sea and consequent changes in transport routes.


On a brighter note, Citigroup's shares climbed by 1% after the bank announced a 10% reduction in its workforce, despite a revenue decline.


Over the week, the S&P 500 saw an increase of 1.5%, the Nasdaq rose by 2.1%, and the Dow Jones edged up by 0.7%.


Wall Street will remain closed on Monday in observance of Martin Luther King Jr. Day.


On Friday, the JSE All Share index rallied, closing up by approximately 0.6% at 74 241, buoyed by significant gains in the gold mining sector.


Key players like DRD Gold, Harmony Gold, and Gold Fields saw their share values increase by 6.1%, 5.8%, and 5.6% respectively, a rise attributed to escalating tensions in the Red Sea region.


Additionally, Sasol, a major player in the oil and chemicals industry, witnessed over a 3% increase in its share price, a movement in sync with the global upswing in crude oil prices.


In the realm of domestic corporate news, FirstRand's soon-to-be CEO, Mary Vilakazi, revealed in a Thursday interview the bank's ambitious plans to acquire other banks within Africa, aiming to expand its footprint in countries where it is already operational.


Despite the day's gains, the JSE concluded the week with a modest overall decline of 0.3%.


The Week Ahead


In the US, December's retail sales, projected to grow by 0.3%—mirroring the previous month's pace—are a key indicator to watch. Industrial production is expected to hold steady, maintaining its 0.2% growth from November.


The Michigan consumer sentiment report might show a slight decline in January, reflecting a dip in consumer morale. The housing sector also warrants attention, with building permits, housing starts, existing home sales, and the NAHB Housing Market Index under the spotlight. Other critical data include foreign trade prices, business inventories, total capital flows, and manufacturing indices from New York and Philadelphia.


Traders and investors are keenly awaiting speeches from Federal Reserve policymakers, seeking clues on the potential timing of interest rate cuts in the US this year.


The second week of the US earnings season is set to feature reports from major firms like Morgan Stanley, Goldman Sachs, US Bancorp, Charles Schwab, PNC, and ProLogis.


In the UK, key economic releases include inflation, employment data, and retail sales. December's consumer price index is expected to fall to 3.8%, the lowest since September 2021. Retail sales are predicted to drop by 0.5% following a November rebound. The unemployment rate might rise to 4.3%, with wage growth potentially slowing to a seven-month low.


In Europe, the European Central Bank's account of its December policy meeting is in focus. Germany's ZEW economic sentiment index and 2023 GDP data are also crucial, with the economy anticipated to have contracted by 0.3% last year. However, German investor morale is expected to remain near a 9-month high.

The Euro Area's industrial production is likely to decline for the third month, and other significant data includes the final inflation figures and trade balance, along with Germany's producer and wholesale prices.


In Asia, China's fourth-quarter GDP will reveal if the economic slowdown hindered the government's 5% growth target for 2023. Additional updates will come from December's retail sales, industrial production, unemployment rate, and investment data.


In Japan, the focus is on December's inflation, January's Tankan index, and November's machinery orders, providing insights into the economic landscape. Key Themes for the Week Ahead


US retail sales

The upcoming release of US retail sales data on Wednesday is garnering significant attention, as it serves as a vital indicator of consumer spending's robustness amid the challenges posed by elevated interest rates. Consumer spending is a critical component of economic growth, and its resilience is key in these economic conditions.


The US Federal Reserve's decision last year to increase rates was a strategic move to control inflation. Now, with inflation rates decelerating, the focus shifts to the prospective trajectory of interest rate reductions in the current year. Additionally, the possibility of the economy steering clear of a recession is a predominant concern influencing market dynamics.


Expectations are set for a 0.4% rise in retail sales for December, following a 0.3% uptick in November. This data will offer insights into the spending trends of consumers during a crucial period.


Furthermore, forthcoming data on housing starts and sales of existing homes will likely shed light on the state of the housing market, which continues to grapple with the repercussions of heightened borrowing costs.


The financial community is also poised to gain insights from several Federal Reserve officials. Notably, speeches from Fed Governor Christopher Waller, Atlanta Fed President Raphael Bostic, and San Francisco Fed head Mary Daly are anticipated, providing an opportunity to gauge their perspectives on the current economic landscape.


US bank earnings

The US banking sector's earnings announcements are set to proceed, with Goldman Sachs and Charles Schwab scheduled to release their reports on Tuesday and Wednesday, respectively. This follows a series of mixed results from major banks last Friday.


In the recent reports, major US banks disclosed decreased profits during a turbulent fourth quarter, impacted by a range of special charges and workforce reductions. Additionally, the benefits derived from higher interest rates appear to be diminishing. There is also a noticeable uptick in the deterioration of some consumer loans.


However, the nation's leading financial institutions, including JPMorgan, Wells Fargo, Bank of America, and Citigroup, maintained a positive outlook on the economy. They highlighted the continued resilience of consumers, despite a gradual return to pre-pandemic levels in consumer loan defaults.


Davos

The 54th World Economic Forum, under the theme “Rebuilding Trust,” is set to commence on Monday in Davos, a well-known Swiss ski resort. This annual event will bring together a diverse group of influential figures, including political leaders, central bankers, and business executives.


The forum will provide a platform for discussing the current complex global economic landscape. Key issues include the ongoing conflicts in Ukraine and Gaza, international trade dynamics, and escalating global debt levels.


Highlighting the event, China’s Premier Li Qiang and French President Emmanuel Macron, the sole G7 leader present at the forum, are both slated to deliver special addresses.


A notable presence at the forum will be European Central Bank President Christine Lagarde, who is scheduled for three engagements.


Additionally, key global financial and trade institutions will be represented by their respective heads: Kristalina Georgieva, Managing Director of the International Monetary Fund; Ajay S. Banga, President of the World Bank; and Ngozi Okonjo-Iweala, Director-General of the World Trade Organisation. Their participation underscores the forum's significance as a hub for global economic discourse.


China GDP

On Wednesday, China is set to unveil its full-year GDP figures, providing insight into how closely it approached its 5% growth target for 2023, a significant benchmark for the world's second-largest economy.


The country has faced challenges including a prolonged property sector crisis, cautious consumer spending, and various geopolitical hurdles, all of which suggest a potentially challenging year ahead for its economic landscape.


In Europe, Germany is scheduled to release its full-year GDP data on Monday. This report is anticipated to reveal whether the Eurozone's largest economy experienced a mild recession in 2023, an event of considerable significance given Germany's economic influence in the region.


Additionally, the UK will release critical inflation data on Wednesday, following the publication of the latest employment figures a day earlier. This inflation report is particularly important, as it's expected that the underlying inflation rate will continue to exceed the Bank of England's 2% target.


The Bank of England has expressed its intention to maintain elevated interest rates for a prolonged duration to mitigate the risk of inflation causing long-term economic issues. Despite this stance, traders and investors are speculating on the possibility of an initial rate reduction as early as May, reflecting the dynamic and uncertain nature of current economic forecasts.


Oil prices

Oil prices are expected to continue their volatile trend in this week, following a 1% increase on Friday. This recent upswing in prices is largely attributed to the strategic redirection of numerous oil tankers away from the Red Sea. This precautionary measure comes in the wake of joint military strikes by the US and Britain on Houthi targets in Yemen, in response to the Iran-backed group's attacks on maritime shipping.


Reflecting last week's overall performance, Brent crude saw a slight decrease of 0.5%, while US crude dipped by 1.1%. Earlier last week, the oil market experienced fluctuations due to two main factors: substantial price reductions by Saudi Arabia, the leading oil exporter, and an unexpected increase in US crude stockpiles, both of which intensified concerns over oil supply.


South Africa News

  • At the launch of the ANC's election campaign on Saturday, President Cyril Ramaphosa confidently addressed opposition parties, cautioning them against underestimating the ANC's resilience and strength, despite any challenges it may currently face.

  • Ex-president Jacob Zuma has provided the most definitive signal so far that he is poised to be the MK Party's candidate for president.

  • South Africa faced significant electricity shortages in 2023 due to the deteriorating condition of its ageing coal plants, underscoring the urgent need for new power generation infrastructure and reduced dependency on coal. In early 2024, Energy Minister Gwede Mantashe presented a proposed electricity roadmap, but the draft Integrated Resource Plan has been met with criticism. Analysts have labelled it "shoddy," citing major errors in cost estimates for various future energy scenarios.


Economic Calendar

In the upcoming economic calendar for this week, several significant events are scheduled to take place.





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