Date published -2023-08-29

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

Date published - 2023-08-29

Last week's macroeconomic data calendar was not particularly busy, with the markets focusing predominantly on two major events. This was the BRICS summit being hosted in South Africa as well as the Jackson Hole symposium in the US.

While the BRICS acronym was coined over 2 decades ago in 2001 as a grouping of high potential emerging markets to invest in, it has morphed and evolved into a grouping or bloc of countries which share common interests as 'The Global South', a challenger to Western (and US) centric hegemony.

The BRICS summit in South Africa is being hailed as a major success after the grouping agreed to the admission of several new members including Argentina, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates - a grouping we call the 'Vowels'. As a group, the enlarged bloc now represents 46% of the world's population, 43% of the world's oil production, 29% of the world's GDP and 25% of the world's exports. Admittedly, this is largely skewed toward its larger members with recent addition Saudi Arabia being the only new +$1 trillion dollar economy being added. However, it is worth noting that this coupled with a narrative pushing against the use of the US dollar may have longer term consequences which will play out over several decades rather than having an immediate market impact. This is the focus of this week's feature chart. 

This is yet a further development in a series of steps pushing toward a multipolar world and a challenge to US and Western centric multi-lateral organizations. The summit also entailed the announcement of several bilateral financing and trade agreements amongst members. This will need to be watched closely over the longer term as the narrative around a decline in global dollar dominance and the rise of the ‘Global South’ take hold.

Arguably, the more market moving (in the short term) macroeconomic focus was on the gathering of global policy makers at the Jackson Hole symposium in the US. Federal Reserve Chairman, Jerome Powell expressed the resolve of the US Federal Reserve in considering additional interest rate hikes in order to ensure that inflation and inflation expectations remain anchored and sustainably approached the 2% level. However, his comments contained the caveat that the Fed could keep rates on hold at its September meeting as they assessed the data as well as an evolving economic backdrop.

In South Africa, we had the release of inflation data for July. CPI fell to 4.7% from 5.4% in June.

The week ahead is reasonably busy on the macroeconomic data front. Globally we have the release of Purchasing Managers Index (PMI) data from several geographies. As a leading indicator for economic growth, the overall trend here has been toward slowing global growth. Domestically we also have the release of money supply and credit data and the trade balance for July. South African trade balance data usually has a strong bearing on the Rand and is expected to swing from a surprise deficit in June to a small surplus in July.

In the US the key focus will likely be on PCE (personal consumption expenditure) price index data for July. This measure is the Fed’s preferred inflation measure. We also have the release of US jobs data on Friday. This, coupled with an impending long weekend with the Labour Day holiday in the following week, will likely present some market risk.

Market update:

Last week, markets found reprieve with broad based gains. The Dow Jones industrial average was the only major US index in the red at -0.4%, while the S&P 500 (+0.2%) and NASDAQ (+1.1%) rose. Much of the upside impetus was related to Jerome Powell's commentary out of Jackson Hole (see Economic section) Defensive and energy sectors were down for the week with most of the gains concentrated in the tech sector.

We had results from Semiconductor and chip manufacturer, NVIDIA corporation, and Software as a service giant, Intuit (+6.9%).

South African stocks navigated volatile trade throughout the week, to end the week around 1% higher. Financial and resource stocks led the gains. We had results from logistics company, Grindrod (+7.6%) , chemical giant, Sasol (-1.2%) and mining giant, BHP (-3.6%).

The Rand rallied strongly last week, perhaps the beneficiary of positive sentiment around the BRICS summit. This was remarkable as the US dollar was stronger over the week against most major currencies, rising to an 11-week high. Oil prices moderated after a strong rally over the last 2 months.

This week in the US, we expect results from Salesforce, lululemon and Best Buy among the larger names reporting. In South Africa, we will be looking for results from Sibanye, Naspers, Harmony Gold, Tiger Brands and Barloworld among the larger names reporting.

This week have evolved our report to clearly differentiate between short term and long term opportunities. We close our short on a major equity index after 7 weeks. We enter one new commodity long and switch one commodity long into a short position. We identify 2 equity speculative (short term longs), 3 speculative short term long range trades and 1 speculative short term long FX range trade. We highlight the details in our full report.

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