Date published -2023-06-20

In a shortened trade week last week with a public holiday on Friday, the JSE posted gains across all sectors. This was broadly in line with stronger global markets although a stronger rand detracted from returns on global indices for domestic investors. The Rand continues to outperform over the last few weeks on the back of both a slightly weaker U.S. dollar as well as a normalization in domestic risk premia from significantly extended levels. Our short USDZAR tactical trade continues to bear fruit and this week we overlay some Fibonacci levels in our feature chart.

Some standout performers on the local market for last week included Naspers (+3%) which issued a trading statement. The performance of the stock has largely been related to a narrowing of the discount to net asset value (NAV) as the company continues with its divestment from its Tencent shareholding. And we also saw strong performances from Vodacom (+5%) and MTN (+4%), possibly as beneficiaries of a rally in Telkom (+20%). The legacy fixed line operator surged despite a weak set of results, on the back of speculation around a potential offer for the company by the former CEO in conjunction with the PIC. Gold and platinum stocks continued as laggards last week with broad based losses across most companies in the sector.

Despite a losing session on Friday, U.S. markets continued higher last week. The Dow Jones rose 0.9%, S&P 500 +2.2% and the NASDAQ + 2.7%. All major indices continued to build on multi week rallies. Over the week tech stocks as well as cyclical stocks continued to outperform, building on a trend we have previously discussed. Defensive stocks and energy were laggards last week. NVIDIA +10%) and Microsoft (+5%) remained beneficiaries of a surge in artificial intelligence (AI) related stocks. Oracle (+14%) and Adobe surged 9% after reporting stronger than expected results with homebuilder, Lennar (+5%) also rallying. This will be a shorter trading week in the US, with the Juneteenth holiday at the start of the week. Among the larger names reporting, we have logistics giant FedEx which should give us a good look through to the underlying economy. We also have results from global consulting giant, Accenture.

There was some interesting corporate action with a global commodity player that inspired our global trade idea this week. Log in to check out the full technical chart.

Last week the big macroeconomic focus was on US inflation data as well as the decision by the US Federal Reserve. We unpack some of the trends in the sub-components of inflation in our full report (log in for more). This backdrop undoubtedly fed into the US Federal Reserve's decision to keep the Fed funds rate unchanged at 5.25%, in line with market expectations. This played into our 'Pause with Claws' trading scenario highlighted last week.

Following the Fed, we also had a decision from the European Central Bank on Thursday. The ECB raised interest rates by 25 basis points bringing the policy rate to 4%. In China we had total social financing (a measure of liquidity) rise by CNY 1.5 trillion, slightly below market expectations. We also had the People’s Bank of China move the 1-year Medium Term Loan financing rate down by 10 basis points with eyes on the Prime rate this week. The market is expecting more stimulus from the Chinese as a tailwind.

Domestically we had both mining production and retail sales data from South Africa. Mining production rose by 2.3% year on year in April after a downwardly revised decline of 2.2% prior. This is the first month of growth after over a year of declines. Gold mining was one of the largest positive contributions coming through at 27.4% with coal rising 12.5%. South African retail sales painted a less rosy picture. Retail sales for April declined 1.6% year on year from a 1.5% downwardly revised decline in the prior month with this the 5th consecutive month of decline in retail activity.

For the week ahead, it is relatively light on the economic data front. We have central bank announcements from the Bank of England, China, Norway, and Turkey. We will also see a focus on flash PMI (purchasing managers index) data which serves as a lead indicator to economic growth. Manufacturing PMI remains relatively weak and the trend to watch here would be for any slowing in services PMI which has thus far held up the global growth story. We will also have several Fed speakers as well as the testimony by US Fed chair Jerome Powell before U.S. Congress. The focus domestically will be on inflation data for May, expected to remain well above the 3-6% band.

Our updated analysis on our market carousel has a distinct flavour of derisking this week as we move another one of our longs into a partial profit take. We also close out one of our partial profit take positions on an Asian index, preferring to hold no position at this stage. While risk averse traders may want to consider partial profit takes or closing 2 positions (one FX and another commodity), we will continue to ride short positions in both.

In aggregate, we now have 3 open long positions with two being in a partial profit take stance (compared to 4 longs last week). We maintain 4 open short positions across an assortment of equity, FX and commodity markets.

We now hold three 'No Position' (up from two last week) stances in our weekly carousel as we derisked some positions and wait for better entries on others.

Our  trade ideas this week include two global ideas (one ETF and another stock inspired by some corporate action) as well as a domestic stock which may be a high risk trade to enter now considering that it has run during the preparation phase of our full report. But it would be wise to watch for an entry.

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