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  • Writer's picturePeet Serfontein

Thoughts For the Week Ahead

The Week That Was

US equities ended Friday on a mixed note as recent data dampened expectations for imminent US Fed interest rate cuts.


The S&P 500 inched up by 0.1%, while the Dow Jones extended its winning streak to eight days, climbing 124 points. Conversely, the Nasdaq closed slightly lower.


A decline in Michigan consumer sentiment to a six-month low, driven by rising inflation expectations for the coming year, echoed concerns from a Fed official who recommended a cautious approach to lowering interest rates amid strong inflation data observed this year.


In the megacap sector, Nvidia rose by 1.3%, whereas Tesla fell by 2%. Shares of Novavax skyrocketed by 98% following the vaccine manufacturer's announcement of a multi-billion-dollar partnership with Sanofi to co-commercialise its Covid vaccine starting next year.


Meanwhile, Zeekr made an impressive debut, with its shares soaring 34.5% above its IPO price of $21, underscoring a robust launch for the Chinese electric vehicle maker. Over the week, the S&P 500 advanced 1.3%, the Dow Jones grew by 1.9%, and the Nasdaq increased by 0.5%.


The JSE index climbed 1.2% to close at 78 464 on Friday, marking its highest level since August of the previous year and continuing its upward trajectory for the sixth consecutive day.


This rally was largely fueled by global market optimism, spurred by the anticipation of potential rate cuts by the Fed, although Fed officials have recently advocated a more cautious approach to reducing interest rates.


On the corporate side, resource-linked equities saw significant gains, rising by 2.6%, and financials also performed well, increasing by 1.3%. In corporate news, Sibanye-Stillwater's CEO, Neal Froneman, announced that the company is negotiating with lenders to temporarily adjust its lending agreements due to the adverse effects of persistently low prices for platinum group metals on its financial performance.


Over the week, the JSE gained approximately 2.7%.


The Week Ahead

In the US, the spotlight is on the upcoming April CPI report, with traders and investors keen to gauge evolving price pressures within the economy. The CPI is forecasted to rise by 0.3% from March, a slight deceleration from the previous month’s 0.4% increase. Similarly, the core CPI is expected to moderate to 0.3% from 0.4%. Additionally, the PPI data is projected to reflect a steady increase of 0.2% in both headline and core producer prices, mirroring March’s figures.


Other important economic indicators include retail sales, anticipated to show a modest increase of 0.4%.


Market participants will also closely monitor remarks from various Fed officials, especially Chair Powell during his appearance at the Annual General Meeting of the Foreign Bankers' Association in Amsterdam on Tuesday, for insights into potential interest rate cuts.


On the US corporate front, upcoming quarterly earnings reports from major companies like Home Depot, Cisco Systems, Walmart, Applied Materials, and Deere & Company are expected to draw significant attention.


In Europe, the ZEW Indicator of Economic Sentiment for Germany is predicted to climb for the tenth consecutive month in May, potentially reaching its highest point since February 2022.


Preliminary estimates suggest the Eurozone’s economy expanded by 0.3% in the first quarter of 2024, marking the fastest growth since the third quarter of 2022.


However, industrial production in the Euro Area is likely to decline following a rebound in February. Final inflation figures for the Euro Area, Germany, France, and Italy are due, with initial estimates suggesting stable figures for the Eurozone and Germany, but a decrease in France and Italy.


In the UK, attention turns to the jobs report, with projections indicating a rise in the unemployment rate to 4.3% in the first quarter and a slowdown in wage growth to its lowest rate since the second quarter of 2022.


China’s economic agenda includes important data releases on industrial production, retail sales, unemployment, and housing prices for April. These figures follow mixed economic signals from the first quarter, which may influence the extent of new economic measures recently announced by the Politburo.


In Japan, an initial estimate of the first quarter GDP is expected to show a contraction, heightening concerns among investors as the Bank of Japan’s reluctance to adopt more hawkish guidance exacerbates the yen’s sharp depreciation.


Key Themes for the Week Ahead

US inflation data

This week, investors will closely monitor US Producer Price Index (PPI) and Consumer Price Index (CPI) data for signs that inflationary pressures are subsiding. Persistent high inflation has heightened concerns that the Federal Reserve might not reduce interest rates this year.


The markets experienced some relief earlier this month following remarks from Fed Chair Jerome Powell, who suggested that the central bank is still considering rate cuts. Additionally, recent US employment data indicated a slowdown in the labour market, further buoying investor sentiment.


Analysts anticipate that Wednesday's crucial CPI report will reveal a year-over-year core inflation increase of 3.6%, marking the smallest rise in more than three years.


However, if inflation exceeds expectations, it could eliminate the possibility of rate cuts for the remainder of the year, potentially triggering renewed market instability.


US retail earnings

This week, traders and investors will gain fresh insights into the health of the US consumer with the release of April's retail sales data on Wednesday, alongside earnings results from major retailers such as Walmart and Home Depot.


Confidence among bullish market participants has been bolstered by a robust earnings season, highlighted by strong performance reports from several key tech and growth companies—often referred to as the "Magnificent Seven." These firms have been instrumental in driving the market upward last year and continue to play a significant role in the S&P 500's dynamics.


Strong earnings have made traders and investors feel more comfortable about being in this market. The trajectory of inflation is always going to be important to us while we're in a cycle where we expect the next thing for the Fed to do is to cut rates.


UK economic data

Last week, the Bank of England edged closer to reducing interest rates, yet there is uncertainty in the markets about whether the first cut will occur at the bank’s next meeting in June or if policymakers will wait longer.


Before the Bank of England's next meeting on 20 June, two official employment reports and two sets of inflation data are scheduled for release.


The first employment report, due on Tuesday, will be scrutinised for indications that rising wages are intensifying inflationary pressures. Annual wage growth remains strong, and the labour supply is showing signs of stagnation.


Economists predict that average weekly earnings, excluding bonuses, increased by 5.9% annually in the first quarter. While robust, any signs of moderating wage growth could strengthen expectations for an interest rate cut in June.


Oil price action

Last week saw minimal changes in oil prices, with Brent crude experiencing a slight decline of 0.2%, while US crude futures edged up by 0.2%.


The prospect of US interest rates remaining elevated for an extended period has negatively impacted oil prices. Higher interest rates generally slow economic growth and reduce oil demand.


Additionally, a stronger US dollar has exerted pressure on oil prices, as it makes oil, which is priced in dollars, more expensive for holders of other currencies.


Rising US fuel inventories, just as the summer driving season typically picks up, have also contributed to the downward pressure on oil prices.


However, oil prices received some support following data released on Thursday indicating that China's oil imports in April increased compared to the same month last year. This came alongside a rebound in China's exports and imports, which grew in April after contracting the previous month.


Energy traders will be closely monitoring this week's inflation data, as it will play a crucial role in shaping the future direction of interest rates.


Chinese economic data

China is set to release a comprehensive set of economic data on Friday, providing insights into the performance of the world's second-largest economy at the beginning of the second quarter.


The release will include April home price data, offering a fresh look at the state of the property sector, which has been mired in a debt crisis for approximately three years. This crisis has pushed numerous property developers to the verge of collapse.


Additionally, indicators such as industrial production, retail sales, and fixed asset investment are expected to show year-on-year acceleration.


Following comments from policymakers at last month's Politburo meeting, traders and investors are anticipating a series of stimulus measures from Beijing aimed at bolstering economic recovery. This prospect has maintained a positive sentiment in the markets for the moment.


South Africa News

  • South Africa's highest court is currently reviewing a challenge regarding the decision to permit former President Jacob Zuma to run in this month's elections. Initially, the electoral commission disqualified Mr Zuma from the electoral race due to his conviction for contempt of court. However, this decision was reversed on appeal, leading the Independent Electoral Commission (IEC) to escalate the matter to the Constitutional Court. Mr Zuma is now leading the newly established uMkonto weSizwe (MK) party, positioning it as a contender against the African National Congress (ANC), the party he previously headed. Although he has been suspended from the ANC, he retains his membership.

  • Amazon has launched its new online platform, Amazon.co.za, offering South African customers an enhanced shopping experience. Accessible through the Amazon Shopping App or by navigating to www.amazon.co.za on desktop or mobile browsers, shoppers have the opportunity to explore and purchase from a wide range of local and international brands across 20 diverse product categories. Customers can benefit from competitive pricing and enjoy the convenience of same-day and next-day delivery options.

  • As the search continued into Friday, the outlook grew increasingly bleak for dozens of construction workers trapped for several days under the debris of a collapsed building in South Africa. The confirmed death toll has climbed to 12, with over 40 individuals still unaccounted for. Authorities have indicated that rescue efforts are now complicated by the need to shift thousands of tons of concrete using heavy machinery in the hopes of finding additional survivors.


Economic Calendar

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


Source: incorporates insights from reports by Reuters and Investing.com.



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