The Week That Was
On Friday, the S&P 500 and Nasdaq 100 climbed to new record highs, while the Dow Jones oscillated around its all-time peak. Market participants were evaluating the latest adjustments to the Consumer Price Index (CPI) in the US and the Federal Reserve's future monetary policy directions.
The Bureau of Labor Statistics routine adjustments revealed a December CPI increase of 0.2% month-over-month, slightly below the initially reported 0.3%, while the core CPI (excluding food and energy prices) remained steady at 0.3%, aligning with initial estimates. These figures supported the notion of a disinflationary trend over the past year, offering no significant surprises.
Looking ahead, the inflation report for January is anticipated this week, which could provide further insights into the economic landscape.
On the US corporate side, major technology firms saw significant gains, with NVIDIA surging 3%, Amazon up 2.7%, Alphabet increasing 2.3%, and Microsoft rising 1.3%. Apple's shares, however, remained relatively stable. PepsiCo experienced a downturn, dropping approximately 2.6% following a shortfall in revenue expectations.
For the week, the S&P 500 has advanced by 1.3%, the Dow Jones has appreciated by 0.4%, and the Nasdaq has witnessed a substantial uplift of 2.5%, reflecting a buoyant mood in the market amidst the latest economic data and corporate earnings reports.
On Friday, the JSE All Share index experienced fluctuations before closing down by approximately 0.4% at 73 423, marking its third consecutive session of losses. The downturn came as traders and investors processed a new round of US corporate updates and reacted to comments from US Federal Reserve policymakers, which tempered expectations for imminent interest rate cuts.
President Cyril Ramaphosa presented his annual State of the Nation address last week, pledging to overhaul the country's healthcare system, expand welfare benefits, and confront the ongoing energy and logistics challenges in anticipation of upcoming elections. Despite these commitments, Ramaphosa's speech was noted for its lack of innovative strategies to address the nation's economic difficulties.
From a sectoral perspective, companies linked to natural resources witnessed significant declines, while the industrial sector saw modest gains. Overall, the JSE ended the week down by 1.3%, reflecting a cautious sentiment among market participants amid mixed economic signals and policy uncertainties.
The Week Ahead
This week, the US is set to focus on several key economic reports, with the spotlight on the much-anticipated Consumer Price Index (CPI) report for January.
This report is expected to show inflation cooling to 3% in January, the lowest level since June of the previous year, with the core inflation rate, which excludes food and energy prices, projected to fall to a two-and-a-half-year low of 3.8%. Both the headline and core inflation rates are forecasted to remain steady on a month-over-month basis at 0.2% and 0.3%, respectively.
Retail trade is predicted to see a modest growth of 0.1% in January, a slowdown from December's 0.6% increase, while industrial production is forecasted to rise by 0.3%.
Speeches from several Federal Reserve officials will also attract attention for further insights into monetary policy.
On the corporate earnings front in the U.S., significant companies such as Arista Networks, Coca-Cola, Airbnb, Shopify, Cisco Systems, CME Group, The Kraft Heinz Co, Twilio, Applied Materials, Deere & Co, and Liberty Global are slated to release their fourth-quarter financial results.
In the UK, the economic agenda is packed with data releases on GDP growth, employment figures, inflation rates, and retail sales. The GDP is forecasted to show a slight contraction of 0.1% in Q4, potentially marking the onset of a technical recession. Consumer prices are expected to fall by 0.3% month-over-month, with the annual inflation rate anticipated to climb for the second straight month to 4.2%. The unemployment rate for Q4 is expected to increase to 4%, while retail sales are projected to recover from their most significant drop in nearly three years.
In Europe, second estimates are likely to confirm that the Euro Area staved off a recession at the end of 2023. Germany's ZEW Indicator of Economic Sentiment is projected to hit a 12-month high, alongside other critical data such as the Eurozone's industrial production and trade balance.
Although financial and commodity markets in China will remain closed for the Lunar New Year celebrations, global investors will closely watch for any new support measures from Beijing aimed at stabilizing the country's equity market and addressing macroeconomic challenges.
Meanwhile, preliminary GDP figures are expected to indicate a rebound in Japan's economy during the last quarter of 2023.
Key Themes for the Week Ahead
Following robust employment and growth figures, the forthcoming US inflation report for January is highly anticipated. An increase in inflation could further delay expectations for Federal Reserve rate reductions. Economists predict a 0.2% monthly rise in consumer prices, leading to a yearly climb of 2.9%. Core inflation is projected to advance 3.8% compared to the previous year.
This week, the financial community will also have the opportunity to glean insights from several Federal Reserve officials, including Thomas Barkin from the Richmond Fed, Raphael Bostic from the Atlanta Fed, and Mary Daly from the San Francisco Fed.
Additional economic indicators to be released include January's retail sales data and the weekly initial jobless claims report on Thursday, followed by producer price inflation figures and preliminary consumer sentiment data on Friday.
US corporate earnings update
The earnings season progresses, marked by the S&P 500 surpassing the 5 000 mark and the Nasdaq reaching over 16 000, buoyed by leading technology and semiconductor companies such as Nvidia.
Latest analyses from LSEG indicate a 9.0% increase in fourth-quarter earnings for S&P 500 firms, surpassing initial January forecasts.
Notably, 81% of reporting companies have exceeded expectations, outpacing the average from the last four earnings cycles.
Key earnings reports to watch include Shopify and Marriott on Tuesday; Kraft Heinz and Cisco on Wednesday; and Wendy’s and Trade Desk on Thursday.
Oil market dynamics
Oil prices are poised for continued volatility, following a 6% increase last week amid escalating Middle Eastern tensions and significant refinery outages in the US.
This fluctuation comes after a 7% decrease the week prior. Analysts predict ongoing erratic price movements in the absence of major developments in the Middle East that could disrupt global oil supply dynamics.
UK economic indicators
The UK is set to publish critical employment, inflation, and growth figures, as traders and investors assess the potential timing of the Bank of England’s next rate adjustment.
The upcoming employment report may indicate slowing wage growth, potentially still above the Bank’s comfort level. Inflation data to be released on Wednesday could further complicate policy decisions, despite expectations for a return to the 2% target. Thursday's GDP figures will highlight the impact of high interest rates on the UK's economy, which showed signs of stagnation in the latter half of the previous year.
Japan's economic performance
Japan is scheduled to announce preliminary GDP figures for the fourth quarter, anticipated to show recovery after a contraction influenced by inflation and decelerated corporate investment.
This report comes as speculation grows over the Bank of Japan potentially ending its negative interest rate policy, in effect since 2016. The data may also suggest Japan has become the world’s fourth-largest economy, trailing the US, China, and Germany.
South Africa News
In an interview, Christo de Wit, Luno's South African manager, praised the country's quick crypto regulation progress, noting over 5.8 million locals own cryptocurrencies, with Bitcoin leading. He linked the sector's growth to the Financial Sector Conduct Authority (FSCA) recognising crypto as a financial product in 2022, paving the way for regulatory frameworks. De Wit is optimistic about soon receiving licenses for crypto providers, including Luno. He advocated for regulation over bans, emphasising consumer protection and the crackdown on illegal activities. The FSCA's active stance on monitoring and regulating the crypto market aims to ensure financial stability, marking a shift from passive observation to proactive regulation.
Standard Bank forecasts the South African rand might face early-year election risks but sees a potential rebound in the latter half due to stable post-election policies and progress in reforms. Despite the rand's 7% depreciation against the dollar in 2023, the bank is optimistic about an improvement linked to possible US interest rate cuts and South Africa's declining inflation. With anticipated rate cuts and a predicted 1.2% GDP growth for 2024, the outlook is cautiously positive. Challenges remain with power cuts and infrastructure, but optimism for reform in state-owned enterprises like Eskom and Transnet suggests potential for economic resilience and improvement.
President Cyril Ramaphosa delivered the State of the Nation Address (SoNA) last week, setting out the government's policy goals for the year and reflecting on past achievements, including progress on the Economic Reconstruction and Recovery Plan. The event, held before Parliament, showcased South Africa's democratic strength through ceremonial elements like the Civil Guard of Honour, a 21-gun salute, and an air force flypast. This annual address unites the nation's executive, judiciary, and legislative arms, along with provincial and local government representatives, emphasizing its significance in guiding South Africa's political, social, and economic direction.
In the upcoming economic calendar for this week, several significant events are scheduled to take place.