Date published -2023-10-10

(This is a very shortened version highlighting excerpts of our full report which is available for our paid subscribers). 

War is horrendous and serves to dehumanize. The increasing prevalence of global conflict is a shocking indictment on humanity and the ability of civilization to transcend racial, ethnic and religious barriers. Innocent civilians, mothers and children always bear the brunt of these conflicts. In war, there is no right or wrong…just suffering and the pretext for the next conflict. Our hearts and minds are with the innocents affected on either side. Now to markets…

After weeks of negative pressure, US markets rallied in the latter part of the week. The Dow closed slightly higher, the S&P 500 gained 0.6%, and the Nasdaq rose 1.3%, snapping a four-week losing streak. The US 10-year Treasury yield surged to a fresh 16-year high above 4.8% in October. This was driven by strong evidence of a tight labor market which bolstered expectations of the Federal Reserve maintaining its hawkish stance. The 30-year bond yield crossed the 5% threshold for the first time since August 2007.

Some SA company highlights last week included Sasol (-9%), Pick n Pay (-12%), Sibanye-Stillwater (-14%), Datatec (+8%), FirstRand (-1.5%) - detail in our full report.

The week ahead for US stocks will see earnings season kick off with some big names reporting including Citigroup, JPMorgan Chase, BlackRock, UnitedHealth Group, PepsiCo, and Delta Air Lines. However, risk appetite will likely be dominated by the escalating war in the Middle East.

Our trade ideas this week include a global commodity play as well as a US based media company you probably haven't heard of. 

With the prevalence of event risk globally, it is worthwhile noting that we have roughly three weeks to the presentation of the Medium Term Budget Policy Statement in South Africa. This event is generally seen as a litmus test for SA's fiscal health and sets the context for SA bonds, the rand and other asset prices over the next 6 months. This week's feature infographic highlights the context and importance of this event.

Economic:

Last week’s focus on US jobs appears a distance memory after developments of a war in the Middle East escalated over the weekend. This is dominating news flow and will likely dictate market sentiment for the week ahead. ADP jobs data contrasted with the official US nonfarm payrolls data. Overall, the market focussed on the stronger NFP data with sentiment supporting stock gains in the latter part of the week but also higher bond yields, building on pressure introduced by the aforementioned developments on Capitol Hill. We also had the release of Purchasing Managers Index (PMI) data out from several countries globally.

The upcoming week will be marked by the geopolitical developments in the Middle East. There are key economic events including the IMF meetings and the release of their latest World Economic Outlook.

For the week ahead:

US: Inflation report and expecatations, FOMC minutes, sentiment indicators

SA: Mining and Manufacturing production (August), business confidence

Global: Chinese trade, UK GDP, German industrial production, inflation (China, India, Brazil, Russia)

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