The Week That Was
The S&P 500 rebounded ahead of the long weekend, rising 0.7% on Friday, while the Nasdaq Composite reached a new record high, driven by a surge in AI stocks.
In contrast, the blue-chip Dow remained subdued after experiencing a drop of over 600 points the previous day. Traders and investors were also digesting fresh data indicating that new orders for key US-manufactured capital goods rebounded more than expected in April, and Michigan consumer sentiment showed lower-than-anticipated consumer inflation expectations.
Among individual stocks, Nvidia hit an all-time high of $1,064, rising 2.4% following a 9.3% surge in the previous session, adding over $218 billion to its market value. The AI leader's impressive quarterly results on Wednesday last week bolstered market participants' confidence in Big Tech's commitment to artificial intelligence. Megacap stocks such as Apple, Alphabet, and Meta also saw gains, ranging from 0.9% to 2.6%.
For the week, the S&P 500 lost 0.3%, and the Dow declined by 2.3%, ending a five-week winning streak, while the Nasdaq gained 0.7%.
The JSE index rebounded from initial losses to close slightly higher at 79 195 on Friday, driven primarily by gains in resource-linked equities, financials, and telecommunication companies.
Traders and investor sentiment remained cautious due to uncertainty surrounding the US Federal Reserve's policy outlook, heightened by strong US economic data that raised concerns about prolonged tighter monetary policy.
In South Africa, apprehension is mounting ahead of the local elections scheduled for 29 May (Wednesday), with polls indicating that the ruling ANC might lose its legislative majority for the first time in three decades. Analysts widely regard this as the ANC's most formidable challenge yet, amid widespread public dissatisfaction with the country's current trajectory.
Over the week, the JSE recorded a 0.4% decline.
The Week Ahead
In the US, all eyes will be on the PCE inflation report, the US Federal Reserve's preferred measure of inflation, providing critical insights into the economy's price pressures. Although the inflation rate slowed in April, recent flash estimates of the S&P Global PMIs suggest that price pressures have intensified in May.
Additionally, both personal income and spending are expected to have increased by 0.3%, marking a notable slowdown from March. Market analysts will also be closely examining the second estimate for Q1 GDP growth, with predictions suggesting a slight downward revision to 1.5% from the initial estimate of 1.6%.
US markets will be closed on Monday in observance of Memorial Day.
Throughout the week, various Federal Reserve officials are scheduled to speak, which could provide further clues about future monetary policy. Although the US earnings season is winding down, traders and investors will still be watching for quarterly results from Salesforce, Costco Wholesale, and Dell.
In Europe, the focus will be on the flash CPI reports for the Eurozone, including key countries like Germany, France, Italy, and Spain.
The annual inflation rate in the Euro Area is expected to rise to 2.5% in May, the highest in three months, while the core inflation rate is forecasted to hold steady at 2.7%. In Germany, the GfK Consumer Climate Indicator is projected to reach a 12-month peak, and both retail sales and wholesale prices are expected to show growth for the second consecutive month.
In the UK, the economic calendar is lighter, with only the Bank of England's monetary indicators, the CBI Distributive Trades Survey, and the Nationwide Housing Price Index scheduled for release.
In China, official PMI figures for May are expected to show a slight expansion in the country’s manufacturing sector, offering insights into how Beijing may allocate over CNY 1 trillion in stimulus to be raised through long-dated bonds.
Japan also faces a busy week of economic releases, including consumer confidence, the Tokyo CPI for May, retail sales, the unemployment rate, industrial production, and housing starts for April. Additionally, Governor Ueda will deliver opening remarks at a conference hosted by the Bank of Japan.
Key Themes for the Week Ahead
US inflation data
The Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, due on Friday, will be closely scrutinised for insights into the future direction of interest rates for the remainder of the year.
This data release comes as markets adjust to the higher-for-longer interest rate outlook, reinforced by last week's Fed minutes and cautious remarks from policymakers expressing skepticism about the reliability of the current downward inflation trend.
Traders and investors will also have opportunities to hear from several Fed officials throughout the week, including Governor Michelle Bowman, Cleveland Fed President Loretta Mester, Governor Lisa Cook, New York Fed President John Williams, and Atlanta Fed President Raphael Bostic.
The economic calendar for the week also includes revised data on first-quarter economic growth on Thursday and the Fed’s Beige Book on Wednesday.
Eurozone inflation
The European Central Bank (ECB) is poised to lower interest rates from a record high of 4% at its upcoming June meeting. However, the pace of subsequent rate cuts remains uncertain, especially if Friday's inflation data reveals continued volatility in price pressures. Economists predict eurozone inflation will rise to 2.5% in May year-on-year, up from 2.4% in April, with core inflation expected to remain steady at 2.7%.
While this inflation uptick is unlikely to prevent the ECB from proceeding with the June rate cut, some officials are already expressing opposition to further easing.
The economic calendar for the eurozone also includes Germany’s Ifo business climate index on Monday and the ECB’s survey of inflation expectations on Tuesday.
Brent crude oil
Oil prices rose about 1% on Friday but posted a weekly loss due to concerns that strong US economic data would lead to prolonged high interest rates, reducing fuel demand.
Brent crude ended the week down 2.1%, marking its longest losing streak since 2 January with four consecutive sessions of decline. Similarly, US crude settled 2.8% lower for the week.
Higher interest rates increase borrowing costs, which can slow economic activity and reduce oil demand.
Despite these concerns, oil demand remains robust overall, according to some analysts. They anticipate total oil liquids consumption to increase by approximately 1.5 million barrels per day this year.
While US gasoline demand has been soft, it has been offset by unexpectedly strong global demand, particularly in the early part of the year, the analysts noted.
Japan data
Tokyo's upcoming inflation data, set to be released on Friday, will be closely monitored as markets seek to predict the Bank of Japan's next move on interest rates.
These figures come just two weeks before the BOJ's next monetary policy meeting, where some speculate that the central bank might implement its second rate hike following March's historic increase.
Policymakers are under increasing pressure to raise rates due to the ongoing weakness of the yen, which inflates the cost of raw material imports and negatively impacts consumption.
Additionally, on Friday, the Ministry of Finance will release intervention data, detailing the recent rounds of suspected currency intervention. The BOJ's bond-buying schedule will also be disclosed, with traders watching for potential reductions in the central bank's purchasing activities.
China activity
China is set to release data on industrial profits for the year to date on Monday, with market watchers keen to see if there was a rebound in April following a sharp decline in the previous month, which slowed the growth rate for the first three months to 4.3%.
On Friday, China will also publish its official manufacturing and non-manufacturing PMIs. Economists expect the manufacturing index to stay just above the 50 threshold that separates growth from contraction for the third consecutive month in May.
Beijing has set an ambitious economic growth target of around 5% for this year. However, many analysts believe this will be challenging to achieve due to ongoing weaknesses in the property sector and tepid consumer demand, which continue to hinder the growth of the world's second-largest economy.
South Africa News
President Cyril Ramaphosa stated that an ANC-led government in the seventh administration would be dedicated to serving the people with integrity. He expressed confidence that the ANC would win the national and provincial elections on 29 May, urging the public to support his party at the polls.
Pharmaceutical companies and major pharma retailers are poised to benefit significantly from the immense purchasing power of the National Health Insurance (NHI) Fund once it becomes operational. However, successful contracting will require careful negotiation, and concerns linger regarding the state’s ability to ensure timely payments. Since the drafting of the NHI legislation, questions have surfaced about its potential impact on pharmaceutical companies and retailers, highlighting uncertainties and the need for strategic planning within the industry.
President Cyril Ramaphosa has quickly put his pen to work, signing two significant bills into law today. The newly enacted legislation includes the National Council on Gender-Based Violence and Femicide Bill and the NPA Amendment Bill.
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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