The Week That Was
US equity markets exhibited modest movements on Friday afternoon. The Dow Jones Industrial Average edged up by 50 points, while both the S&P 500 and Nasdaq hovered close to the break-even line. This lacklustre activity follows the release of US employment data, suggesting a decelerating labour market—news that could provide the US Federal Reserve with justification to pause its monetary tightening cycle.
The US economy added 187 000 jobs, outpacing the anticipated 170 000, although this was offset by a 110 000 downward adjustment in job gains for the preceding two months. Additionally, the unemployment rate ticked up to 3.8%, marking its highest level since February 2022 and exceeding the projected 3.5%.
On the industry side, a report from the Institute for Supply Management indicated that the manufacturing downturn showed signs of abating more than expected in August. However, this news weighed on technology stocks; Tesla dipped by 4.3%, and Nvidia saw a 1.5% decline.
In corporate earnings news, Dell Technologies, MongoDB, and Lululemon reported stronger-than-expected quarterly results, driving their shares up by 21%, 4%, and 5%, respectively. Conversely, Broadcom and VMware experienced declines of 5% and 2.5% following disappointing updates.
The JSE All Share Index saw a marginal decline of 0.2% to close at 74 787 on Friday, largely influenced by a downturn in resource-related sectors. Companies like Impala Platinum, Anglo American, and Northam Platinum witnessed declines of over 4%, while luxury goods company Richemont scaled back by nearly 2%.
According to the latest Absa Purchasing Managers' Index (PMI) survey, South Africa's manufacturing industry remained in a contractionary phase for the seventh consecutive month as of August. In a brighter development, South Africa's automotive component manufacturers have pledged to invest ZAR 4.86 billion into the domestic economy by December 2024, a commitment viewed as vital for the country's economic progress.
For the week as a whole, the JSE All Share Index posted a gain of 1.3%.
The Week Ahead
US financial markets will remain shuttered on Monday in observance of Labor Day.
As the week progresses, market participants will closely watch the release of the ISM Non-Manufacturing PMI survey, anticipated to indicate a slight slowdown in the American service sector.
Alongside this key indicator, the US will unveil an array of other impactful economic data points, including figures on factory orders, foreign trade, IBD/TIPP Economic Optimism, and weekly unemployment claims, as well as finalised readings for S&P Global Services PMI and Q2 labour productivity.
Turning to Europe, traders and investors are keenly awaiting the final numbers on the Eurozone's second-quarter GDP and Germany's inflation rate for August.
In addition, updated S&P PMIs are on the docket. A downturn in industrial output is projected for both Germany and France for the third and second months in a row, respectively.
Retail sales across the Eurozone are also expected to have declined for a second consecutive month in July. Additional metrics to keep an eye on include Germany’s trade balance.
In the UK, the economic agenda appears relatively light, featuring crucial releases such as the finalized S&P PMIs and the Halifax House Price Index.
Over in China, a slew of trade data for August is set to shed more light on the country's current resource demands. This comes after recently released PMI figures exhibited a somewhat rosier outlook than anticipated, thereby moderating views that Beijing might be willing to curtail economic support.
Finally, in Japan, investors are on the lookout for updated current account numbers, which will include transaction data for July.
Key Themes for the Week Ahead
US economic data, Fedspeak
The recent employment report on Friday is the latest addition to a growing body of economic evidence suggesting that the economy is on course for a "soft landing." This strengthens the prevailing opinion that the US Fed is approaching the end of its cycle of interest rate hikes.
It's unlikely that the economic data slated for release in this week will substantially shift this perspective.
This Wednesday, the Institute for Supply Management is set to unveil August figures for service sector activity, which are anticipated to show a modest decline.
Concurrently, the US Fed will release its Beige Book, an encompassing survey that captures the economic conditions across its 12 regional districts.
Throughout this week, traders and investors will also have the opportunity to gain insights from various US Fed officials. Dallas Fed President Lorie Logan is scheduled to speak on Wednesday, followed on Thursday by New York Fed President John Williams, Governors Michelle Bowman and Michael Barr, as well as Chicago Fed President Austan Goolsbee.
Equities kick off September
Last week, both the Dow and the Nasdaq exhibited robust performance, surging 1.4% and 3.2% respectively, marking their best weekly gains since July. The S&P 500 also rose, posting a 2.5% increase for its most successful week since June.
Friday's employment report has reinforced the market's anticipation that the US Fed will hold off on rate hikes in its upcoming meeting later this month.
The employment data strengthens the argument for the Fed adopting a more dovish stance as we enter the fall season. If the tightening cycle ends sooner rather than later, we could witness a notable rally in the equity market.
According to Investing.com's Fed rate monitor tool, interest rate futures currently indicate a 94% likelihood that the US central bank will maintain existing interest rates at its 19-20 September meeting.
It is worth noting that the US equity market will be closed on Monday in observance of the Labor Day holiday.
China data
Upcoming economic data from China is anticipated to underscore the ongoing fragility of the country's economic recovery. This vulnerability is exacerbated by tepid demand in crucial export markets and an escalating domestic property crisis, both of which are contributing to downward pressures on growth.
The Caixin Services PMI for August, scheduled for release on Tuesday, is projected to reveal a modest deceleration in the service sector's expansion compared to the previous month.
Trade figures set to be disclosed on Thursday are likely to indicate that both exports and imports shrank in August year-over-year, although at a more moderate rate than they did in July.
While Chinese authorities have initiated a range of measures to rejuvenate the flagging economy, the consensus among analysts is that the likelihood of any substantial stimulus package is low, largely due to concerns about escalating debt risks.
Oil surges on supply concerns
Oil prices soared to their loftiest levels in over seven months this past Friday, breaking a two-week losing streak, fueled by growing concerns over a tightening supply landscape.
For the week, Brent crude climbed approximately 4.8%, marking its most significant weekly advance since late July. Meanwhile, Crude Oil WTI Futures saw a 7.2% uptick, their largest weekly boost since March.
Market expectations are leaning toward Saudi Arabia extending its voluntary cut of 1 million barrels per day in oil production into October. This move would further the supply constraints orchestrated by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, commonly known as OPEC+, to buoy oil prices.
The economy is showing resilience, and there are indicators that demand is nearing record highs. The market must confront the stark reality that supply levels are less than average.
In the US, the outlook for oil demand continues to be strong. Data from the US Energy Information Administration indicates that commercial crude stockpiles have decreased in five of the last six weeks, underscoring the robust demand.
International Earnings
The US is in for a relatively subdued week, partially due to the bank holiday on Monday. Updates are expected from a range of companies including grocery giant Kroger, cybersecurity firm Zscaler, software enterprises Sprinklr and UiPath, as well as market sensations like GameStop and AI-specialist C3.ai.
In the UK, the housing sector will be in the spotlight. Traders and investor updates from Barratt Developments, Berkeley Group, and Cairn Homes are highly anticipated, especially as UK home prices are on a downward trend. Additional earnings reports are due from cybersecurity company Darktrace, insurance provider Direct Line, and gaming software developer Playtech.
Ashtead, a UK-based company now traded in the U.S., is poised to capture interest from market participants.
South Africa News
South African producer inflation continued its 12th consecutive month of deceleration in July, hitting a low of 2.7%—the lowest since October 2020 and below Bloomberg's median forecast of 3%. This slowdown, primarily driven by lower prices for fuel and petrochemical products, further corroborates the trend of easing inflation, which was already hinted at by last week's data showing price growth at a two-year low of 4.7%. Falling diesel and petrol prices are expected to further moderate inflation.
Amid a jittery global bond market, concerns about South Africa's fiscal health are intensifying, as the government yield curve approaches its steepest point in a year. Factors such as power shortages, higher-than-expected government wage increases, and missed tax revenue targets are making bond investors anxious about increased issuance from the National Treasury. This comes at a time when rising global yields are diverting capital away from emerging markets, further dampening demand for long-term South African bonds.
In its inaugural South African bond auction, the New Development Bank (NDB)—a financial institution founded by the BRICS nations—raised R1.5 billion and garnered bids exceeding R2.5 billion. The proceeds, predominantly allocated to institutional investors, will fund infrastructure and sustainable development projects in South Africa. The sale was coordinated 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.
source: investing.com
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