Thoughts For the Week Ahead
The Week That Was
US equities had a varied performance on Friday, as traders and investors grappled with fresh inflation data and deliberated on the future direction of the US Fed. The Dow Jones concluded the day with a gain of 105 points, buoyed by upward movements in Chevron (+2%) and Merck & Co (+1.8%). Meanwhile, the S&P 500 experienced a marginal decline of 0.1%, and the Nasdaq faced a more substantial setback of nearly 0.7%. This decline was primarily driven by a sell-off in shares of AMD (-2.4%), Nvidia (-3.6%), and Micron (-1.6%).
Inflation indicators came into focus as producer prices, which reflect the costs paid by wholesalers for raw materials, climbed by 0.3% for the month. This increase heightened expectations that the Fed might need to maintain elevated interest rates for an extended period. Notably, the prior day saw both headline and core consumer inflation figures falling short of forecasts, but remaining well above the Fed's targeted 2% mark. Concurrently, Mary Daly, President of the San Francisco Federal Reserve, emphasised that the central bank still has tasks ahead to rein in inflation.
For the week, the Dow experienced a minor dip of 0.1%, while the S&P 500 encountered a 0.7% loss, and the Nasdaq underwent a more pronounced decline of 1.8%. This marked the second consecutive week of losses for the Nasdaq.
On Friday, the JSE FTSE All Share Index experienced a decline of approximately 1%, ultimately closing at 76 980 points. This movement was driven by market participants' attention being divided between monitoring the trajectory of interest rates, staying informed about corporate updates.
The Western Cape chapter of South Africa’s taxi union concluded an eight-day strike. This protest was sparked by opposition to a new municipal traffic regulation in Cape Town. This regulation dictates the impoundment of vehicles instead of imposing fines on drivers who fail to display proper registration plates. Unfortunately, this development led to a surge in violence within the city.
In the realm of corporations, the market saw significant declines in Motus (-4.5%), RCL (-3.9%), and Prosus (-3.7%), emerging as the top losers. The week concluded with the JSE's performance remaining nearly unchanged, reflecting a relatively stable overall outcome.
The Week Ahead
In the US, all eyes are on the FOMC minutes as traders and investors eagerly seek insights into the Fed's intentions for the rest of the year. Notably, Chair Powell emphasised last month that decisions would be approached on a meeting-by-meeting basis.
Market sentiments show an 89% likelihood of the Fed retaining interest rates in September, while a potential quarter-point rise in November has a 32% probability.
As the US earnings season winds down, companies including Home Depot, Cisco, Walmart, Deere & Co, Target, and Applied Materials are gearing up to release their Q2 results.
Forecasts suggest a brisk 0.4% rise in retail sales and a bounce-back in industrial production after June's slump.
In the UK, a bustling economic calendar awaits, featuring unemployment stats, inflation figures, and retail sales data. It's anticipated that July's inflation rate will drop to 6.8%, a record low since February 2022, while retail sales might experience a downturn after three successive months of growth. The unemployment rate for Q2 is predicted to remain stable at 4%.
In the Eurozone, the spotlight is on the Q2 GDP's second estimate and the definitive reading of July’s inflation. Concurrently, German investor confidence is projected to stay relatively consistent.
Shifting the focus to Asia, China's economic reports for July, featuring industrial production, retail sales, and unemployment, will further illustrate its tepid economic resurgence after an array of underwhelming prior data. Fixed investment and property price statistics are also in the limelight, especially with growing concerns over the fiscal stability of real estate developers.
Japan is set to spotlight its robust Q2 GDP growth, as well as data on July’s inflation and trade balance.
Key Themes for the Week Ahead
Federal Reserve Meeting Minutes In anticipation of the Fed's annual gathering in Jackson Hole, Wyoming, towards the end of this month, traders and investors are shifting their focus to the minutes of the central bank's July policy meeting, scheduled for Wednesday.
After implementing a 25 bps rate increase last month and keeping the possibility of another hike in September open, the released minutes will offer insights into market participants' appetite for further rate hikes, even though the market is leaning towards a September pause.
Recent data indicated moderate increases in US consumer and producer prices for July, suggesting a trend of easing inflationary pressures. The US central bank has gradually raised interest rates by 5.25 percentage points since March 2022 to align with its 2% inflation target.
US Economic Data The upcoming week includes the release of July retail sales data on Tuesday, expected to display a demand uptick at the beginning of Q3 following a less-than-anticipated increase in June.
Other data is likely to signal ongoing struggles in the manufacturing sector, with the Empire State and Philly Fed manufacturing indexes predicted to remain negative.
Reports on building permits and housing starts, set for Wednesday, are anticipated to present a more positive picture of the housing sector. Additionally, the weekly initial jobless claims report on Thursday is expected to show a slight decrease after a larger-than-expected increase the previous week.
Retail Earnings As the second-quarter US earnings season draws to a close, S&P 500 results demonstrate a mixed scenario. While companies are surpassing analysts' profit expectations at the highest rate in nearly two years, revenue beats have declined to levels not seen since early 2020.
This week, major US retailers, including Home Depot, Target, and Walmart, will unveil their results, providing crucial insights into the state of consumer spending— a key driver of the US economy.
Traders and investors attention will centre around retailers' commentary on how inflation is impacting profit margins, given that elevated prices are eroding households' purchasing power.
Furthermore, it's an essential week for Chinese firms listed in the US. Tech behemoth Tencent, video streaming service Bilibili, e-commerce giant JD.com, and electric vehicle producer XPeng are all slated for updates.
Additionally, updates from the South-east Asian company, Sea, are anticipated.
In the UK, spotlighted firms include insurance giants Aviva, Admiral Group, and Legal & General. They're joined by retirement service provider Just Group, infrastructure developer Balfour Beatty, and gaming entities 888 Holdings and Rank Group.
Chinese Economic Data China's post-Covid economic rebound has faltered in recent months after a robust first quarter, weighed down by weak domestic and international demand. Beijing is scheduled to release data on Tuesday, encompassing retail sales, industrial production, and fixed asset investment, which is expected to indicate only modest gains.
The previous week's data revealed China's consumer prices experienced their first yearly decline in over two years in July, intensifying pressure on policymakers to take further actions to bolster the economy. Despite promises of supportive measures from authorities, the lack of detailed information has left investors disappointed.
Oil Price Increases Oil prices climbed on Friday after the International Energy Agency forecasted record global demand coupled with tightening supplies, leading to the seventh consecutive week of price gains—the longest streak since 2022. With June seeing an all-time demand peak of 103 million barrels per day, the (International Energy Agency) IEA projected the potential for a fresh peak this month.
Concurrently, output reductions from Saudi Arabia and Russia set the stage for a substantial inventory decline through the remainder of 2023, potentially propelling oil prices even higher according to the IEA.
The Congress of the People (Cope) has alleged that the ANC shields its members who are implicated in criminal activities. This statement was in response to the special leniency afforded to former president Jacob Zuma. Zuma faced arrest in 2021 for not adhering to a mandate to testify at the commission investigating claims of state manipulation. Merely two months into his 15-month sentence, he was given medical parole. Yet, the Constitutional Court declared the parole was granted in violation of the law. While Zuma was reincarcerated on Friday, he was set free in under two hours.
The escalating frequency of load-shedding in 2023 poses the potential of an R1.6 trillion economic setback for South Africa, surpassing last year's losses by R400 billion, as highlighted by Electricity Minister Kgosientsho Ramokgopa during a recent public lecture at the University of Pretoria.
In the upcoming economic calendar for this week, several significant events are scheduled to take place.