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  • Writer's picturePeet Serfontein

Thoughts For the Week Ahead

The Week That Was

In the US, the equity market concluded Q1 with mixed results on the final trading day before the Easter holiday. The S&P 500 slightly increased by 0.1%, reaching a new peak, and the Dow Jones Industrial Average rose by 47 points. However, the Nasdaq Composite experienced a minor decline of 0.1%. This cautious trading atmosphere was in anticipation of the US Federal Reserve's preferred inflation indicator and remarks from Fed Chair Jerome Powell.

Despite a sluggish start, the market is on track to conclude the quarter robustly, having increased US equity values by $4 trillion. This surge is largely attributed to statements from Federal Reserve officials indicating a measured approach towards interest rate adjustments.

On the corporate side, luxury retailer RH saw a significant jump of 17.1% in its stock value after presenting an optimistic forecast for demand and revenue growth. In contrast, Reddit's value dipped by 14.9% following news that its CEO and COO had sold more than 1 million shares collectively.

Over the quarter, the S&P 500 witnessed a 10.2% increase, its most substantial first-quarter rise since 2019. The Dow Jones Industrial Average grew by 5.6%, marking its best first-quarter performance since 2021, and the Nasdaq Composite advanced by 8.6%.

The JSE All Share index saw an increase of approximately 0.9%, closing at 74 536 in the final trading session of March. This uptick marked the sixth consecutive session of gains leading up to the Easter holiday. Shares linked to resources led the charge, with notable advances also seen in technology and industrial sectors.

Globally, investors remained keyed into interest rate forecasts, awaiting key inflation data from the US set for release on Friday. Domestically, South Africa witnessed a slight deceleration in producer inflation, dropping to 4.5% in February from 4.7% the previous month, defying expectations of an increase to 4.9%.

Additionally, a modest uptick was observed in private sector credit growth, which edged up to 3.32% year-over-year in February from 3.16% in the preceding month.

Over the week, the JSE enjoyed a 2.9% gain, culminating in a 2.5% rise for the month.

The Week Ahead

In the US, the financial community is on high alert for the upcoming release of the much-anticipated jobs report, along with the ISM PMI surveys for the manufacturing and services sectors.

Forecasts indicate that non-farm payrolls may have seen an increase of 198 000 in March, a notable slowdown from February's addition of 275 000 jobs. The unemployment rate is predicted to hold steady at 3.9%, the highest it's been since January 2022, with an expected uptick in monthly wage growth to 0.3% from the previous 0.1%.

The March ISM reports are expected to show the manufacturing sector in a state of contraction for the 17th consecutive month, while the services sector is likely to demonstrate stable growth, in line with February's robust performance.

Attention will also be directed towards remarks from various Federal Reserve officials, including a speech by Fed Chair Powell at the 2024 Business, Government & Society Forum hosted by Stanford Graduate School of Business.

In Europe, the spotlight will be on crucial inflation data releases from the Eurozone and its major economies - Germany, France, Italy, and Spain. The Eurozone's headline HICP rate is forecasted to remain at 2.6% in March.

Retail sales in the Euro Area are projected to show growth for the second month in a row. Furthermore, the Eurozone, along with Germany and France, will release final estimates of their S&P Global PMIs, while initial readings are awaited from Spain and Italy.

Insights into future interest rate movements may emerge from the minutes of the ECB's latest monetary policy meeting in March.

The UK will share final S&P Global PMI figures and a range of monetary indicators, including Halifax and Nationwide housing prices.

In China, the focus shifts to the March PMI figures, with the official and Caixin indices expected to deliver divergent insights.

Japan's economic sentiment, as measured by the BoJ Tankan index for large manufacturers, is anticipated to show a slight decline, interrupting three consecutive quarters of gains.

Key Themes for the Week Ahead

US non-farm payrolls

Friday, attention turns to the US employment report, amid growing optimism for a "soft landing" scenario where inflation eases without triggering a major economic slump.

Expectations are set for a moderated job growth in March, following the addition of 275 000 jobs in February. This anticipation of a gentle economic deceleration was further encouraged by the Federal Reserve maintaining its projection of three interest rate reductions this year, while also enhancing its economic growth forecast during its March meeting.

In preparation for the employment report, traders and investors will have the opportunity to gain insights from several Federal Reserve officials, including Chair Jerome Powell on Wednesday, as well as New York Fed President John Williams, San Francisco Fed President Mary Daly, and Richmond Fed President Thomas Barkin.

US equity market enters Q2

The beginning of the year saw a robust performance in the US equity market, propelled by enthusiasm for artificial intelligence equities and the expectation of upcoming Federal Reserve rate cuts.

The main US equity indices enjoyed substantial quarterly gains, with a standout increase of over 10%, marking the largest first-quarter surge since 2019. The market's trajectory into the second quarter hinges significantly on the Federal Reserve's actions, especially considering the shift from six anticipated rate cuts at the year's start to the current expectation of three, contingent on inflation indicators.

US corporate earnings, set to kick off in the second week of April, will also play a critical role in maintaining the market's momentum.

Global currency stability concerns

Japan and China are vigilantly monitoring their currencies as they weaken to levels previously defended against the strengthening US dollar. Japan has issued verbal cautions, whereas China has seen state banks intervene by purchasing yuan and selling dollars.

The significant depreciation of these major Asian currencies has led to speculation about China's potential leniency towards a weaker yuan to sustain its competitive advantage over Japan, although future actions remain uncertain.

Eurozone inflation and rate expectations

The Eurozone is poised to announce preliminary March inflation figures on Wednesday, with market participants and the European Central Bank (ECB) keenly awaiting the outcomes.

Persistent high inflation levels necessitate a decrease to facilitate a possible ECB rate cut this summer, placing significant importance on the upcoming inflation reports.

Should inflation exceed expectations, anticipations for a rate cut could be deferred. ECB Governing Council member Robert Holzmann hinted at the possibility of the ECB reducing its key interest rate ahead of the Federal Reserve, acknowledging the slower economic growth in Europe compared to the US.

China's economic outlook

China reported its first expansion in six months for March, a positive sign for policymakers amidst ongoing challenges such as the property sector crisis.

Monday's expected data points towards a slight growth, indicating a nuanced economic recovery in the world's second-largest economy. Since lifting COVID restrictions late last year, China has faced a complex economic landscape, marked by a persistent housing crisis, increasing local government debt, and diminished global demand.

South Africa News

  • The Electoral Commission of South Africa has announced that Jacob Zuma, the country's former president, is ineligible to participate in the upcoming elections scheduled for 29 May. This forthcoming vote is anticipated to be the most closely contested election since apartheid ended in 1994. Zuma, who was imprisoned for contempt of court in 2021, has been actively supporting the newly established uMkhonto WeSizwe (MK) (Spear of the Nation) party, aiming to make a political comeback. Despite his efforts, his bid to stand in the May elections has been officially rejected by the electoral authority.

  • Over the past year, South Africa has pursued a foreign policy that markedly diverges from the stance of the US, more so than many of Washington's other allies. In response, South African President Cyril Ramaphosa has taken a proactive step to address this divergence. In an op-ed published in the Washington Post today, President Ramaphosa made a direct appeal to US lawmakers, urging Congress to preserve a strong bilateral relationship with South Africa. This appeal comes in the wake of the House Foreign Affairs Committee's recent decision to pass a bill aimed at reevaluating the US's ties with Pretoria. The reassessment is motivated by South Africa's relationships with Russia, China, and Iran, sparking concern among US legislators.

Economic Calendar

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


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