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  • Writer's picturePeet Serfontein

Thoughts For the Week Ahead

The Week That Was

On Friday, US equities closed lower, influenced by concerns following strong Producer Price Index (PPI) data, which fueled speculation that the US Federal Reserve might delay cutting interest rates.

The S&P 500 declined by 0.5%, the Dow Jones Industrial Average fell by 145 points, and the Nasdaq Composite dropped by 0.8%. The US witnessed a 0.3% rise in producer prices last month, exceeding the expected 0.1%, while core PPI, which excludes food and energy prices, jumped by 0.5%, significantly above the predicted 0.1%.

Sectors such as real estate, technology, and consumer discretionary underperformed, whereas the energy sector remained resilient. Applied Materials saw its shares surge by 6.3% after reporting earnings, revenue, and forecasts that beat expectations.

Conversely, DoorDash experienced an 8.1% decrease in its shares following a larger-than-anticipated loss. Notable declines were also seen in shares of Meta (-2.2%) and Nike (-2.4%). Over the week, the S&P 500 and Nasdaq recorded losses of 0.4% and 1.5%, respectively, while the Dow Jones slightly decreased by 0.2%.

The US equity market will be closed on Monday in honour of Presidents' Day.

On Friday, the JSE All Share Index climbed approximately 0.5%, ending the day at 73 616, buoyed primarily by gains in financial, resource-linked, and industrial shares.

Traders and investors closely monitored additional economic indicators and corporate news while evaluating the prospects for interest rate adjustments.

Concurrently, central bankers around the world continued to adopt a prudent approach towards easing monetary policies. Over the week, the JSE secured a 0.3% increase.

The Week Ahead

In the US, the upcoming release of the Federal Open Market Committee (FOMC) meeting minutes on Wednesday is set to provide valuable insights into the Federal Reserve's future interest rate strategy, alongside remarks from several Fed officials.

Market participants will also focus on the forthcoming flash S&P Global Purchasing Managers' Indexes (PMIs), anticipated to reveal a slight deceleration in both the manufacturing and services sectors.

Regarding US corporate earnings, notable companies such as Home Depot, Walmart, Etsy, NVIDIA, Moderna, and Berkshire Hathaway are scheduled to announce their quarterly financial outcomes.

In Europe, the release of the European Central Bank (ECB) monetary policy meeting minutes is eagerly awaited by market participants for clues on possible interest rate adjustments. The flash PMIs for the Eurozone, Germany, and France are expected to show a slight easing in the contraction of private sector activity.

In Asia, the focus is on China as markets reopen after the Lunar New Year holidays, with traders and investors keen to gauge the impact of the holiday period on the nation's economic sentiment. Despite anticipations of increased economic measures from Beijing, the People's Bank of China (PBoC) is likely to keep key interest rates steady in this week, as efforts to stabilise the yuan outweigh the push for a more relaxed monetary policy.

Moreover, China's fourth-quarter current account data is highly anticipated. In Japan, the spotlight turns to the latest PMI figures, the Reuters Tankan index for February, and January's trade statistics.

Key Themes for the Week Ahead

US Federal Reserve meeting focus

This week's economic calendar appears relatively subdued due to the holiday, with the Federal Reserve's January meeting minutes release on Wednesday standing out as the primary event.

During their January 30-31 meeting, policymakers opted to maintain borrowing costs at their existing levels, indicating a cautious stance towards potential rate adjustments in March.

Notably, Fed officials, including Chair Jerome Powell, have underscored the importance of exercising patience to ensure that inflation trends align with the central bank's 2% target. Market sentiment reflects an expectation of four quarter-point rate cuts this year, possibly commencing in June, driven by recent robust economic indicators.

Additionally, market participants anticipate insights from various Fed officials scheduled to speak throughout the week, including Atlanta Fed President Raphael Bostic and Vice Chair Philip. Alongside these events, the economic calendar features other significant data releases, contributing to the broader market outlook.

Nvidia's earnings report

As the week progresses, all eyes turn to Nvidia's earnings report following the close of the US market on Wednesday, representing a pivotal moment in assessing market sentiment, particularly within the realm of artificial intelligence (AI).

Nvidia's stellar performance in 2023, coupled with continued growth in 2024, has propelled the company to become the third-largest US company by market capitalisation, trailing only Microsoft and Apple.

Given its prominent position in the AI sector, Nvidia's earnings report carries significant weight, potentially fueling enthusiasm for AI technology or dampening market sentiment if results disappoint.

Analysts emphasize the critical role Nvidia plays in shaping the technology sector's trajectory, highlighting the importance of its performance in influencing market dynamics.

Retail sector earnings outlook

Earnings season this week kicks off with Walmart's report on Tuesday, offering valuable insights into the retail sector's trajectory for 2024. Projections suggest

Walmart could reveal an impressive $11 billion increase in sales for the quarter, driven largely by robust performance in its grocery segment. However, persistent inflation pressures pose challenges, tempering hopes for Federal Reserve rate cuts in the near term.

Walmart's dominance in the grocery market positions it well for continued sales growth, potentially exceeding $645 billion for fiscal 2024. Analysts also anticipate improved profitability for Walmart, buoyed by streamlined supply chain operations and declining fuel prices since November, underscoring the retailer's resilience amid evolving market conditions.

PMI data insights

Amidst ongoing global economic uncertainties, this week's release of Purchasing Managers' Index (PMI) data provides valuable insights into the state of various economies.

While concerns about a global recession have somewhat eased, the US economy continues to demonstrate resilience, supported by a robust labour market. Notably, the eurozone PMI reached a six-month high, signalling resilience despite remaining in contraction territory.

Emerging markets, including India and the Middle East, exhibit strength, contributing to a nuanced global economic landscape. Additionally, Germany's improved business sentiment offers a glimmer of hope amidst expectations of an economic slowdown.

These PMI data releases offer crucial indicators for investors and policymakers alike, shaping broader market sentiments and policy decisions.

Return of China markets

Following the last week-long Lunar New Year holiday, traders and investors eagerly await the reopening of Chinese markets on Monday, with a keen interest in Beijing's measures to stabilise the battered stock market.

Preceding the holiday, authorities took significant steps to mitigate losses in mainland shares, including the appointment of a new head of the country's market regulator known for his assertive risk management approach.

China's central bank maintained its policy rate unchanged amidst uncertainties surrounding Federal Reserve rate cuts, limiting Beijing's manoeuvrability in monetary policy.

Additionally, the upcoming data on new home prices will offer insights into the depth of the downturn in China's property sector, further shaping market sentiments and policy considerations.

South Africa News

  • The Democratic Alliance (DA) has proclaimed that its tenure as the primary opposition party is nearing its conclusion. During the unveiling of its election manifesto in Pretoria on Saturday, the party set forth a decisive goal to triumph over the ANC in the forthcoming general elections. John Steenhuisen, the leader of the DA, expressed his optimism that South Africans will be liberated from the governance of a corrupt ANC-led administration.

  • Once the ANC releases all documents associated with its cadre deployment committee since 2013, state organs and state-owned enterprises (SOEs) may confront significant legal challenges concerning allegations of unfair labour practices and discrimination.

  • The International Court of Justice has rejected South Africa's request for the imposition of further provisional measures on Israel to mitigate harm to civilians amidst the conflict in the southern Gaza city of Rafah.

  • In the wake of President Cyril Ramaphosa's State of the Nation Address, Finance Minister Enoch Godongwana is set to unveil the 2024 budget allocations to Parliament on Wednesday, 21 February at 2:00 PM. The forthcoming budget presentation seeks to strike a critical equilibrium between spurring economic growth and extending support to the vulnerable segments of our society, all within the confines of constrained fiscal resources. During his address, Minister Godongwana will articulate the government's key financial, economic, and social objectives that will guide its budgetary decisions. The Minister is expected to delineate a comprehensive fiscal plan for the year 2024, which will encompass strategies for revenue generation aimed at supporting the government's policy initiatives and promises.

Economic Calendar

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

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