Date published - 2024-02-20
(This is a very shortened version highlighting excerpts of our full report which is available for our paid subscribers).
Last week, U.S. stocks concluded on a negative note, weighed by higher-than-expected US inflation data (see Economic section). For the week, losses were recorded across the board, with the S&P 500 and Nasdaq down by 0.4% and 1.5%, and the Dow marginally lower by 0.2%.
Notable movements included a 7.4% increase in semiconductor firm, Applied Materials following its earnings beat. DoorDash shares by fell 2.8% for the week after the company reported a larger-than-expected loss. Apple saw a 3.5% decline following reports that Berkshire Hathaway reduced its stake in the company. Other tech giants like Google and Microsoft also faced significant selloffs. Deere & Co., known for its agricultural and construction equipment, beat profit and sales forecasts for the first quarter of fiscal 2024, despite an 8% drop in revenue from the previous year. The company adjusted its full-year guidance downwards, anticipating a slowdown in customer fleet renewals amidst uncertain economic conditions leading to a 5.4% drop for the week. Uber surged 10.5% after the company marked a significant milestone by announcing its first-ever stock buyback program.
Brent crude surged to over $83 per barrel, marking the highest level since November and securing gains for the second consecutive week. The increase in oil prices was supported by geopolitical tensions in the Middle East and OPEC+'s continued efforts to restrict oil supply. However, the International Energy Agency issued a cautionary note in its monthly report, indicating a slowdown in global oil demand, particularly highlighting a decrease in demand from China. The IEA also adjusted its global oil demand forecast for 2024 and predicted a higher supply increase than previously expected.
In the gold market, the precious metal hovered around $2,000 an ounce but was on track to record a decline for the second week in a row, impacted by a stronger dollar on the pack of the higher-than-expected inflation data.
Feature Slide - A Quick Primer on Short Selling
Short Selling is a trading strategy where a trader sells a share they don't own at a high price, aiming to buy it back later at a lower price to profit from the price difference. Short selling is a way to capitalise on falling markets or from an anticipated fall in a share's price. Our slide below details some of the complexities of the process as well as highlighting some of the risks.
Some SA company highlights last week:
Transaction Capital: +20% on the WeBuyCars unbundling news.
Barloworld: +5.7% on lower demand.
South32: -7.2% on lower commodity prices and production volumes.
DRDGOLD: -3.5% despite higher profit. Operational updates showed some challenges.
Gold Fields: -1.7% on lower production and a rise in All-In Sustaining Costs (AISC).
Santam: +0.5% which was muted considering HEPS growth guidance of 17% to 37% for the year ended December 2023.
More detail on the announcements in the full report.
Economic:
Last week we saw US inflation higher than expected on both consumer (CPI) and producer (PPI) metrics. Weakness in manufacturing and a slowdown in retail sales.
In Europe, major economies entered technical recessions including the UK.
Japan also entered a recession as GDP unexpectedly shrank in Q4 2023.
In South Africa, retail sales grew by 2.7% year-on-year in December 2023, marking the strongest increase since July 2022. Some key sectors showed robust growth. Mining production increased by 0.6% compared to the previous year, following a significant 6.9% jump in the prior month. This growth fell slightly short of market expectations of a 4.9% advance. Sectoral breakdown in full report.
For the week ahead:
SA: Inflation and the Budget Speech. The latter presents significant event risk as the finance minister attempts to juggle fiscal consolidation with social benefits in an election year. The condition of State-Owned Enterprises remains a key pressure point.
US: FOMC minutes
Europe: Eurozone inflation
China: House prices
Global: Global PMI's
Our Market's and Risk view:
Our risk indicators have remained in 'Extreme Greed' territory for a third consecutive week now. 52 week highs vs. lows ratio and overal market momentum has risen further and the overall put/call ratio remains low signalling high complacency. We maintain a cautiously long stance but our concern continues to rises as our risk indicator metrics track higher.
(Corporate clients can contact us for more detail on our overall risk matrix).
Our full report unpacks all of this in more detail as well as their implications for the markets.
This note is just a 'menu'. There's alot of detail underlying the comments above. Our paying subscribers can get under the hood to see what's driving the economy and the markets. Join us.
If you are not a subscriber, you are missing out on the key details, an overview of the week ahead and quality insights with actionable trade ideas weekly. Click below to sign up!
The full report is available to our Monthly and Annual Members. To read the full report, please login or join us.