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  • Writer's picturePeet Serfontein

Thoughts For the Week Ahead

The Week That Was

On Friday, the S&P 500 and Nasdaq achieved new all-time highs, fueled by a surge in technology stocks as concerns diminished over the US Federal Reserve's postponement of interest rate reductions.

Recent ISM data indicated a more significant contraction in factory activity for February than expected, alongside a considerable downward revision in Michigan consumer sentiment. Nonetheless, the PCE inflation report offered some easing of inflation fears, and unexpectedly high initial jobless claims bolstered anticipations that the Fed might begin reducing interest rates by June.

On the business scene, New York Community Bancorp's stock took a steep dive of 25.89% following the discovery of significant deficiencies in its loan risk management. Meanwhile, Nvidia saw a more than 4% increase in its shares, whereas Apple experienced a slight decline of about 0.6% after being dropped from Goldman Sachs' conviction buy list.

For the week, the S&P 500 enjoyed a 0.97% uplift, and the Nasdaq advanced by 1.74%, marking their seventh week of gains in the past eight weeks, though the Dow slightly fell by 0.11%.

On the first trading day of March, the JSE All Share index concluded the session almost flat at 72 775, neutralising the previous session's 0.7% increase as advancements in the financial sector were counterbalanced by declines in resources and industrial shares.

On a local level, the Absa Purchasing Managers’ Index highlighted a significant rebound in South Africa's manufacturing activity for February, following a notable downturn the month before.

Over the week, the JSE experienced a 1.9% reduction in its value.

The Week Ahead

In the US, this week is set to be dominated by the release of January's employment figures, alongside a series of speeches from Federal Reserve officials, including a notable two-day testimony before Congress by Fed Chair Jerome Powell concerning monetary policy.

Expectations are set for the non-farm payroll numbers to show a rise of 188 000 jobs in February, marking a significant drop from the 353 000 jobs added in January. Moreover, it is anticipated that the unemployment rate will hold steady at 3.7%, with the pace of monthly wage increases cooling to 0.2% from the 0.6% recorded in the prior period.

Additionally, the February ISM report is expected to indicate that growth in the services sector remains stable, mirroring the four-month high observed in January. The JOLTs job openings are projected to decrease to 8.9 million in January, following two months of successive increases.

In Europe, the European Central Bank (ECB) is likely to maintain interest rates at their current levels, following inflation figures that surpassed expectations, underlining a prudent approach to monetary policy. The economic agenda also includes predictions for a slight uptick in Euro Area retail sales after experiencing the most significant drop in a year. Further attention will be directed towards the final GDP data for the Euro Area's fourth quarter.

In the UK, anticipation builds ahead of Finance Minister Jeremy Hunt's pre-election budget, which is expected to propose tax reductions as a strategy to manage the nation's £2.5 trillion debt. The agenda for key economic announcements includes the BRC retail sales monitor, Halifax house price index, and the final S&P PMI figures.

China's focus shifts to the National People's Congress opening on Tuesday, with market participants keenly awaiting announcements on new stimulus measures, initiatives to boost consumer demand, and regulatory actions aimed at stabilising the equity market. Key economic data will spotlight the country's trade balance for the initial two months of the year, expected to reveal a modest improvement in both exports and imports. Additionally, the Caixin Services PMI will be closely watched by investors.

In Japan, the spotlight turns to the release of the current account data for January, providing insights into the country's international financial position.

Key Themes for the Week Ahead

Anticipation for Nonfarm Payrolls report

This week's spotlight is on the US nonfarm payrolls report for February, crucial for traders and investors gauging the Federal Reserve's timeline for the first interest rate decrease, with expectations leaning towards June.

The robust labour market could amplify inflation concerns if the Fed eases prematurely. Predictions suggest February saw 190 000 new jobs, maintaining the unemployment rate at 3.7% with a deceleration in wage growth.

Federal Reserve Chair's testimony

Ahead of the jobs data, Fed Chair Jerome Powell's semiannual testimony on monetary policy to Congress will capture attention.

Powell is likely to advocate for a careful interest rate strategy amid economic robustness and inflationary pressures. Comments from Richmond Fed President Thomas Barkin highlighted the complexity of forecasting rate cuts due to persistent inflation.

Equity market rally

The equity market, propelled by AI and growth prospects, continued its upward trajectory, marking a fourth month of gains for the Dow, S&P 500, and Nasdaq in February.

The equity indices, especially the S&P 500 and Nasdaq, reached new highs, supported by the economy's resilience against high interest rates. This trend suggests a gradual retreat from the high-interest rate cycle without drastic rate cuts.

European Central Bank's Upcoming decision

The European Central Bank (ECB) is poised for its meeting this week, with no changes anticipated in its policy stance. The key interest lies in whether the ECB will maintain its position on the prematurity of rate cut discussions.

Despite market expectations for rate reductions later this year, the ECB seeks more proof of inflation nearing its 2% goal. Recent inflation data in the Eurozone reaffirmed the ECB's cautious approach.

Oil Prices and OPEC+ decision

Oil prices ended the week on a positive note, with traders eyeing an OPEC+ decision on Q2 supply agreements while evaluating new economic data.

Both Brent and WTI futures reported weekly gains, with expectations of continued production cuts by OPEC+ into the second quarter of 2024. Geopolitical tensions are also expected to play a role in supporting oil prices.

South Africa News

  • The ANC's proposal for prescribed assets, aiming to direct retirement funds into public projects, has sparked debate in South Africa's financial sector. Critics argue it could lead to lower returns or higher risks for investors due to policy uncertainties and might divert funds from private to public sectors, affecting economic growth and job creation. However, recent policy reforms seek to attract private investment in infrastructure without compulsory measures.

  • The push for the National Health Insurance (NHI) Bill, despite unresolved issues and the potential negative impact on South Africa's healthcare system, raises serious concerns. The public health sector, already struggling with inadequate facilities and staffing shortages, faces further strain under the NHI. The lack of clarity on funding and operational details adds to the uncertainty. Critics argue for a reconsideration of the bill to prevent further strain on healthcare services and to explore more viable improvements to the system.

  • South Africa is on track to dodge a technical recession with the upcoming Q4 2023 GDP figures potentially bringing a positive surprise to the year's growth, despite previous recession fears and a minor contraction in Q3. The economy showed resilience with slight growth in the first half of 2023, and experts now anticipate a slight Q4 expansion, hinting at better-than-expected annual growth.

Economic Calendar

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


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