Date published - 2024-06-11

Last week, US markets ended on a positive note with the S&P 500 up 1.3%, the Dow Jones increasing by 0.3%, and the Nasdaq rising 2.4% despite concerns on Friday around the timing of the Fed’s rate cut following robust US jobs data (see Economic section).

Nvidia (+10%) had an exceptional week with its market capitalization surpassing $3 trillion for the first time. Tech stocks outperformed while energy stocks were the laggard for the week along with other defensives. Some trading glitches along with the rise of meme stock mania (GameStop) contributed to market volatility. The US 10-year yield ended the week flat but rose significantly off intraweek lows as a robust jobs report, highlighted the strength of the US labor market supporting a more hawkish view of the Fed’s future actions.

Oil prices were pressured with Brent crude falling back below $80 per barrel, marking the third consecutive week of declines. This decrease in oil prices reflects growing concerns that interest rates might stay higher for longer, which could dampen economic growth and reduce oil demand. OPEC+ indicated that it would be extending supply cuts into 2025 but this failed to support prices.

Gold fell to below $2,300 per ounce, the lowest in a month, under the influence of a more hawkish outlook for the Federal Reserve and a slowdown in central bank purchases in Asia. A halt in the aggressive gold-buying by the People's Bank of China contributed to the pressure on gold prices.

This week, we consider an SA banking stock along with a London listed insurance stock.

Some SA company highlights last week:

Some companies getting our attention:

Sibanye-Stillwater (-9.5%), The Foschini Group (+7.3%), Spar (-6.7%), Ninety One (-6.7%), Vukile (+6.6%), British American Tobacco (+1.3%), Brait (-14.3%)

More detail in the full report.

Feature Slide - Understanding the Impact of Interest Rate Cuts on Equities and How to Position Yourself

When the Federal Reserve or other central banks cut interest rates, it generally leads to several positive outcomes for the equity markets:

Economic:

Last week saw significant moves by major central banks as the European Central Bank and the Bank of Canada initiated interest rate cuts, marking the start of a new easing cycle. The ECB cut rates by 25 basis points, its first in nearly five years, while the BoC also lowered its key rate by 25 basis points to 4.75%, citing disinflation towards their 2% target.

In contrast, the US nonfarm payrolls data showed a robust gain of 272,000 jobs in May, surpassing expectations and exerting pressure on bond yields.

Domestically, South Africa’s GDP contracted by 0.1% in Q1 due to declines in manufacturing, mining, and construction, although the current account deficit narrowed.

In China, exports surged by 7.6%, driven by strong overseas demand, despite weak domestic demand as reflected by a modest 1.8% increase in imports.

More detail in our full report.

For the week ahead:

SA: Mining and Manufacturing production , Election newsflow

US: Fed FOMC

China: Inflation

Global: Bank of Japan decision, G7 Meeting

Our Market's and Risk view:

Our risk matrix has remained in NEUTRAL territory for a third week now. Momentum remains in Greed territory, but stock price breadth remains poor. The put/call ratio remains in GREED territory and has moved even lower. This gives us pause and we remain cautious.

(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.

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