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  • Writer's picturePeet Serfontein

Thoughts For the Week Ahead

The Week That Was

US equity markets ended the week on a high note, with the S&P 500 reaching a record-breaking close at 4 839, a gain of 1.2%. The Dow Jones Industrial Average also saw significant growth, surging by 395 points, while the Nasdaq Composite Index climbed by 1.7%. Driving the day's bullish trend was the technology sector, particularly chip manufacturers, who continued their upward trajectory following Taiwan Semiconductor's strong forecast and heightened enthusiasm surrounding AI technologies. Notably, Nvidia achieved a new peak at $594.91, up by 4.2%, while Advanced Micro Devices and Texas Instruments experienced substantial gains of 7.1% and 4%, respectively.

In US corporate earnings news, Travelers Company's stock leapt 6.7% as the insurer reported a more than twofold increase in fourth-quarter profits. Additionally, Fifth Third Bancorp's shares rose 2.9% after surpassing expectations in both revenue and earnings. Adding to the positive sentiment, Michigan's consumer sentiment index unexpectedly hit its highest point in 2021, coupled with a decrease in inflation expectations to a three-year low. Over the course of the week, the S&P 500 enjoyed a 1.1% rise, the Nasdaq jumped 2%, and the Dow Jones concluded with a modest 0.5% increase.

On Friday, the JSE All Share Index experienced a positive close, rising by 0.44% to settle at 72 661, echoing the uptrend seen in major global markets.

Traders and investor focus was primarily on the unfolding earnings season and key economic indicators. Additionally, market sentiment was influenced by the hawkish remarks from US Federal Reserve officials. A notable statement came from Raphael Bostic, President of the Federal Reserve Bank of Atlanta, who emphasized the need for more concrete signs of inflation approaching the Fed's 2% target before considering rate cuts, which he doesn't foresee happening until at least the third quarter of the year.

In the realm of sector performance, financials led the way with a 0.80% increase, closely followed by resource-linked equities, which rose by 0.44%.

On the corporate side, Sim Tshabalala, the CEO of Standard Bank – Africa's largest bank – indicated a potential strategic move to expand the bank's presence in East Africa through an acquisition.

Despite the day's gains, the JSE ended the week on a lower note, posting an overall weekly decline of 2.13%.

The Week Ahead

In this week, the US economic landscape will be dominated by the release of the advance estimate for Q4 GDP growth, alongside data for December's personal spending, income, and durable goods orders.

Expectations are set for the US economy to have grown at an annualised rate of 1.8% in the fourth quarter, marking a notable deceleration from the 4.9% expansion seen in the previous quarter. In terms of inflation, core PCE prices are projected to show a modest uptick of 0.2% in December, slightly higher than November's 0.1% increase.

Personal spending and income are both anticipated to reflect modest growth, with increases of 0.2% and 0.3%, respectively. Durable goods orders are expected to have risen by 0.5%, a slowdown from the significant 5.4% jump in November, which was the highest since July 2020.

Traders and investors will also be tracking key indicators like the flash S&P Global PMI survey, new and pending home sales, the Chicago Fed National Activity Index, and advance estimates of wholesale sales and the goods trade balance.

The fourth quarter in the US also marks a busy earnings season, with major companies such as American Express, Johnson & Johnson, Procter & Gamble, Intel Corp, IBM, Netflix, Tesla, AT&T, Blackstone, 3M, General Electric, Verizon, Intuitive Surgical, Visa, and ServiceNow scheduled to report.

In Europe, the European Central Bank is widely expected to maintain its interest rates, but the focus will be on its statement for any hints regarding economic conditions and potential shifts in policy. The Eurozone's Flash PMI data is predicted to indicate a lessening downturn in early 2024, thanks to milder declines in manufacturing and services. Additionally, consumer confidence in the Euro Area is forecasted to reach its highest level since February 2022.

The UK's Flash PMI survey is likely to show a reduced contraction in manufacturing and the strongest services growth in seven months. Investors are also monitoring the CBI indicators for factory orders, business optimism, distributive trades, and public sector net borrowing.

In Asia, the People’s Bank of China is anticipated to keep its one-year and five-year loan prime rates stable. This follows the unexpected hold of its medium-term lending facility rate, indicating a pause in monetary easing to support the yuan.

The Bank of Japan is also expected to maintain its key interest rate and continue its yield curve control policy, especially after recent declines in headline and core inflation rates. Key data releases include December’s trade balance and January’s PMI figures for Asia Key Themes for the Week Ahead

US economic data

Slowing inflation is fueling expectations of US Federal Reserve rate cuts this year, though some policymakers oppose them. A crucial US inflation report on Thursday will offer insights into interest rate direction. In November, the price index rose 2.6% YoY, while monthly prices fell for the first time in over three years, raising concerns about inflation trends.

Fourth-quarter GDP data, due Wednesday, is expected to show 2.0% growth following a robust previous quarter's 4.9% increase. Federal Reserve officials are in a pre-policy meeting blackout period ahead of the Jan. 30-31 meeting.

US earnings season

The upcoming earnings season is gaining momentum, drawing investor attention to forthcoming reports from major companies such as Netflix, which is scheduled to release its results on Tuesday. This will be followed closely by Tesla on Wednesday, and later in the week by 3M and Intel.

Recently, the S&P 500 achieved a significant milestone, reaching a record high close on Friday for the first time in two years. This surge was primarily driven by a strong performance in the semiconductor sector and other major technology stocks. However, this upward trend may face challenges if the upcoming earnings reports over the next few weeks don't align with the currently high market valuations.

The focus isn't solely on American tech giants; significant developments are also expected in the European tech sector. Key players like ASML, Logitech, SAP and the luxury brand conglomerate LVMH are all set to release their earnings reports, making it a pivotal week for both US and European markets.

Central bank actions

The European Central Bank's first 2024 policy meeting is on Thursday amid rate cut speculation. ECB President Christine Lagarde warns against excessive rate-cut expectations.

The Bank of Japan's policy meeting (Tuesday) may provide insights into a potential exit from negative interest rates later in the year.

PMI indicators

Flash PMI readings (Wednesday) for Eurozone, UK, and US will reveal early 2024 business activity trends, particularly new orders and hiring intentions.

New orders may indicate firms preparing for challenging times despite financial market optimism.

Oil prices

Oil prices dipped slightly on Friday but had a weekly gain due to Middle East tensions and supply disruptions, offsetting concerns about the global economy.

Brent gained about 0.5% for last week, while US crude rose over 1%.

The International Energy Agency raised its 2024 demand forecast, but projections remain uncertain, reflecting differing opinions.

South Africa News

  • South Africa's Finance Minister, Enoch Godongwana, stressed the nation's commitment to structural reforms for economic growth at the World Economic Forum in Davos. Key reform areas include electricity, infrastructure, water, logistics, and digital communications, through Operation Vulindlela, aiming to improve electricity supply, reduce communication costs, ensure water sustainability, enhance transport, and ease visa regulations.

  • The South African Post Office's restructuring may result in about 6 000 job losses, causing union concerns and highlighting challenges in state-owned enterprises. This situation reflects wider issues in employment and service delivery in South Africa.

  • South Africa's Justice Minister, Ronald Lamola, warned that the energy crisis poses a significant threat to the ANC's success in the upcoming elections. The country faces severe power shortages, causing lengthy outages and economic impact. The ANC is responding with strategies like appointing an electricity minister and increasing renewable energy sources to mitigate this issue before the elections.

Economic Calendar

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


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