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  • Writer's picturePeet Serfontein

Thoughts For the Week Ahead

The Week That Was

Major US equity indices hovered near the break-even point on Friday afternoon. The Dow Jones was poised for a 2% weekly dip, while both the S&P 500 and the Nasdaq had shed over 2% for the week. This put them on course for their third successive week of losses, largely driven by concerns about prolonged high-interest rates and emerging credit risks from China.

The US earnings season progressed, with notable outcomes from several companies. Keysight Technologies saw its shares plummet by over 14% following a quarterly report that fell short of expectations. Both Deere and Estee Lauder also registered declines of 5.1% and 3.1% respectively, after their disappointing earnings announcements. Meanwhile, Meta shares extended their downward trajectory for the week, dropping an additional 2%.

Conversely, positive quarterly reports boosted shares of Applied Materials and Ross Stores, with gains of 4.1% and 5% respectively.

In international news, Chinese property giant Evergrande has filed for US bankruptcy. This comes in the wake of recent profit alerts from state developers and a missed bond payment by Country Garden, leading to a spike in private credit costs in China.

The JSE FTSE All Share Index dipped 1.7% to just under 73 100 on Friday, marking its lowest point since 13 March. This decline marked the 6th consecutive session of losses, with traders and investor concerns mounting over potentially prolonged tighter monetary policies. On the domestic front, South Africa's Minister of Electricity announced the potential finalisation of an agreement with China this week. This partnership seeks to bolster solar power installations in South Africa, facilitating access to crucial panels to alleviate the nation's energy predicament.

A number of sectors, including those tied to resources, financials, and industrials, experienced downturns. Over the week, the JSE plummeted by 5.1%, marking its sharpest drop since mid-June.

The Week Ahead

The highly-anticipated annual Jackson Hole symposium is upon us, and US Fed Chair Jerome Powell's speech is expected to be the focal point of the event.

Last year, his remarks were a catalyst for a 20% slide in the S&P 500, underscoring the impact of his words on market dynamics.

Concurrently, retail sales data from the U and the US, along with earnings reports from select American companies, will offer additional insights into consumer sentiment.

These multiple factors are likely to keep investors on their toes as they navigate a complex market landscape.

Key Themes for the Week Ahead

Jackson Hole

Market participants are eagerly awaiting a forthcoming speech from US Fed Chair Jerome Powell to gain insights into the economic landscape and the likely trajectory of interest rates. Scheduled for just after 10:00 am ET (16:00 SA time) this Friday, Powell's address follows the recent release of minutes from the central bank's July gathering, which revealed widespread concern among policymakers about inflationary pressures. This suggests that additional interest rate hikes remain a possibility.

Traders' and investors' attention will be squarely on Powell's views regarding the necessity for further policy tightening to combat inflation, or whether enough strides have been made to maintain the current rate levels. Financial analysts will also be keen to discern any hints that suggest the Fed is contemplating potential rate reductions in 2024.

According to data from the Fed rate monitor tool (see the link below), market participants currently assign an 89% probability that the Fed will keep interest rates unchanged at its upcoming September meeting.

China woes

Anticipation is building that China may soon reduce its loan prime rate, potentially leading to decreased mortgage rates, possibly as early as Monday.

This comes amid increasing concerns that the severe debt crisis engulfing the country's property sector—accounting for approximately a quarter of the national economy—is beginning to affect its financial stability.

Despite surprising moves to cut key interest rates last week, analysts argue that these actions have been insufficient and belated. They contend that more aggressive interventions are urgently needed to arrest the economy's deteriorating trajectory.

The escalating troubles in the real estate sector, coupled with the growing risk of financial contagion, threaten to destabilise China's economy, which is already under strain. This is due to a combination of sluggish domestic and international demand, waning industrial production, and a rising unemployment rate.

US earnings

As the US earnings season nears its conclusion, traders and investor anticipation is reaching a fever pitch for the forthcoming results from NVIDIA, Wall Street's most closely-watched stock of 2023. Market participants are keen to see if the chipmaker can live up to the escalating excitement surrounding its role in artificial intelligence.

Additional companies to monitor include cloud computing pioneer Snowflake, Chinese internet search giant Baidu, enterprise software leader Workday, and semiconductor manufacturer Marvell. The retail sector also remains under the spotlight, with financial updates expected from a roster of retailers including Lowe's, Macy's, Kohls, Nordstrom, Gap, and Dick's Sporting Goods, among others.

Meanwhile, the UK's business calendar is relatively subdued this week. Financial announcements are anticipated from mining behemoth BHP Group, recruitment agency Hays, oil and gas enterprise Harbour Energy, as well as oilfield service firms John Wood and Hunting.

PMI data

On Wednesday, the Eurozone and the UK are set to unveil their PMI (Purchasing Managers' Index) data, which may offer crucial insights into the likelihood of further interest rate adjustments by the European Central Bank (ECB) and the Bank of England (BOE).

Recent trends show a decline in PMI figures for both regions, characterised by a stagnating service sector and a contraction in manufacturing activity.

Traders and investors will also be keenly awaiting remarks from ECB President Christine Lagarde, scheduled to speak at the Jackson Hole symposium on Friday. Market participants will be scouring her speech for indications regarding the ECB's possible actions at its September meeting.

In a July statement, Lagarde noted that the ECB would maintain an "open mind" regarding upcoming rate decisions. She further elaborated that policymakers were transitioning to a phase where their decisions would be increasingly influenced by economic data.

Oil prices

Last week, oil prices recorded their first weekly decline since June, as rising apprehensions about global demand overshadowed the impact of reduced output by OPEC+ stalwarts Saudi Arabia and Russia.

Contributing to the downward pressure on oil prices was China's escalating property crisis, which dampened risk sentiment among traders and investors.

Concurrently, the release of minutes from the Fed's latest meeting drove up Treasury yields and propelled the US dollar to its fifth consecutive week of gains, thereby diminishing the attractiveness of commodities for international buyers.

Market participants are grappling with the tension between waning global growth and constrained global supplies. Prices are likely to remain range-bound for the moment, highlighting that demand remains a question mark for traders and investors, particularly in light of disheartening economic data emerging from China.

South Africa News

  • The International Monetary Fund (IMF) says that South Africa could grow by 3% if Eskom and Transnet are fixed. These two state-owned companies have been facing financial and operational challenges, and fixing these problems could help boost economic growth in the country.

  • After accusations of misconduct and due to owed taxes, the Gupta-linked company Regiments Capital's liquidation will proceed, as the Constitutional Court dismissed an appeal against previous judgments favouring the SA Revenue Service (SARS).

  • The New Development Bank (NDB), established by the BRICS nations, successfully raised R1.5 billion from its inaugural South African bond auction to fund local infrastructure and sustainable projects, with significant interest allowing for an upsized deal, managed by Standard Bank Group and Absa Group.

Economic Calendar

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


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