Thoughts For the Week Ahead
The Week That Was
US equities rallied during the final trading hour on Friday. The Dow Jones increased by 50 points, and the S&P 500 and the Nasdaq climbed by 0.2% and 0.4% respectively. As traders and investors navigated expectations of sustained high-interest rates, the latest S&P Global PMIs for September presented a diverse picture. The services sector showed a deceleration, but the dip in manufacturing activity was less than predicted.
In individual stocks, the upward movements of Apple (+1%), Meta (+2%), and Nvidia (+2%) helped counterbalance Tesla's 3.5% drop. Furthermore, Ford's shares grew by 2.4%. Reuters highlighted that the United Auto Workers union is on the verge of a significant agreement with Ford Motor, even as it intensifies strikes against competitors General Motors and Stellantis.
Concluding last week, projections suggest the Dow Jones will decrease by 1.5%, with the S&P 500 and the Nasdaq likely to drop by 2.5% and 3.2% respectively.
On Friday, the JSE All Share Index inched up to 73 399, bouncing back from the previous day's pronounced decline. Market participants are processing recent monetary decisions from major central banks, inclusive of the South African Reserve Bank, and are sifting through a set of varied PMI data from the US and Europe.
Locally, several union federations have endorsed the South African Reserve Bank's choice to maintain the repo rate at 8.25%, marking its second consecutive hold. This steady rate is anticipated to offer relief to consumers managing debt payments, encompassing vehicle and housing loans.
In the business arena, tech powerhouses Naspers and Prosus bolstered the index, surging by 4.4% and 3.1%, respectively. Conversely, numerous South African poultry businesses are facing substantial losses due to a severe avian influenza outbreak in the country's northern regions. Despite the modest recovery, the JSE ended the week down by roughly 1.6%.
The Week Ahead
The bond markets exhibited a significant response after the recent US Fed meeting, with bond prices declining and yields escalating. Surprisingly, the US dollar did not sustain its rally, even with the increasing yields.
Global equity markets also reacted, dropping in response, as traders and investors began to grasp the Fed's indication that interest rates might stay elevated for an extended period.
While upcoming economic indicators include US PCE inflation, consumer sentiment, GDP, and retail sales, along with China's PMIs and Australia's CPI, the trajectory of bond yields in this week will likely determine the significance of these data points.
Key Themes for the Week Ahead
US PCE inflation
Driven by energy prices and the base effect, the US inflation rate has risen for a second consecutive month. However, the focal point remains on the core measure of inflation in the upcoming period. The Fed's favoured inflation gauge is the Personal Consumption Expenditure series (PCE), set for release this week.
The Core PCE is more stable than the Core CPI and has been more consistent compared to its CPI equivalent. Given the Fed's emphasis on the persistence of high rates, it would take a notably significant drop to overshadow this week's directive. Thus, while PCE data might not significantly influence the market, any unexpected surge could spark fresh speculation of an additional Fed rate increase.
US Consumer Confidence
This week, the US will release two significant consumer confidence measures: the Conference Board Consumer Confidence Survey and the University of Michigan Survey of Consumers.
Since March 2020, these indicators have shown notable divergence, with the latter appearing more volatile and bearish. The University of Michigan survey polls a smaller sample of 500 compared to the Conference Board's 5 000. It emphasises individual circumstances, while the Conference Board leans towards gauging perceptions of the broader economy. However, both indicators have shown a downward trend recently.
This ongoing trend would be essential to diminish the chances of sustained high rates. Yet, if the bond market takes a downturn and yields surge, it could adversely impact sentiment and the overall economy.
Other US data
As previously mentioned, bond markets currently hold the primary influence. Consequently, secondary data might appear less enticing. However, since retail sales can be an indicator of consumer sentiment, any significant downturn in US data might suggest a tempering economy.
The final US GDP figures will be out on Thursday. Yet, the concurrent release of jobless data might overshadow it, especially if it reveals another robust set of numbers.
Corporate earnings calendar
The US earnings calendar features prominent names such as athleisure titan Nike, retail powerhouse Costco, memory chip manufacturer Micron, and IT specialist Accenture.
In the UK, eyes will be on consumer healthcare leader PZ Cussons and semiconductor enterprise Alphawave.
Cruise operator Carnival and plumbing supplier Ferguson, both listed in the US and UK, are set to garner attention from both regions. Meanwhile, fashion giant H&M takes centre stage in Europe.
Ahead of the upcoming flash PMI data releases from the US and Europe, there's anticipation that these figures could influence expectations for China’s PMIs the following week.
According to the official NBS data, the deceleration in the manufacturing sector appears to have bottomed out. However, the services PMI, growing at a more sluggish pace, will likely be the focal point. It is worth noting that the private survey by Caixin will be released at the week's end. Given current expectations, only a significantly positive deviation would truly be seen as a surprise.
South Africa News
Starting Monday, Gauteng should prepare for the possibility of severe thunderstorms. The province is currently under the influence of an intense weather phenomenon known as a cut-off low. Recently, powerful winds struck areas of Tshwane and Centurion, causing damage to infrastructure and vehicles.
Eskom has initiated Stage 3 load shedding and it will remain in effect until further updates, due to the malfunction of three generating units.
Deputy President Paul Mashatile has urged the engineering sector to tackle the notable lack of representation of women and other marginalised groups. This global issue is largely structural and demands targeted strategies for rectification.
In the upcoming economic calendar for this week, several significant events are scheduled to take place.