Date published - 2024-01-16
(This is a very shortened version highlighting excerpts of our full report which is available for our paid subscribers).
After starting the year weaker, stocks rallied last week as the US fourth quarter earnings season kicked off. The Dow Jones Industrial Average managed a slight increase of 0.3% while the S&P 500 and Nasdaq outperformed, up by 1.8% and 3.1% respectively. Bank of America (-4.7%) and Wells Fargo (-5%) saw their stock prices decline after reporting earnings that fell short of estimates. JPMorgan fell (-1.9%) despite posting upbeat results. In the health sector, UnitedHealth’s stock fell 3% despite better-than-expected results indicating market nervousness around growth prospects.
The airline industry also faced challenges, with Delta Airlines (-6.7%) experiencing a significant drop after lowering its 2024 earnings forecast. The sector was also affected by weakness in Boeing (-12.5%) after the company’s planes were grounded by several operators. Safety concerns after an incident where the door of a plane blew out remain in focus. In the automotive sector, Tesla's stock declined 7.3% following news of a temporary production halt at its Berlin plant, a move influenced by shifting transport routes due to conflicts in the Red Sea.
The oil market saw a notable response to geopolitical events, particularly the U.S. and British airstrikes in Houthi-controlled areas of Yemen, although spot crude prices stabilised toward the end of the week. Gold experienced a significant increase, surpassing $2,050 an ounce on Friday, partially driven by safe haven demand amid escalating global conflict.
Educational Slide - Contextualising the multiple impacts of conflict and geopolitical risk
Geopolitical tensions often arise from disputes between countries, regions, or entities over territory, resources, ideology, or power dynamics. These tensions can heavily influence financial markets due to their potential implications for trade, economic policies, commodity prices, and investor sentiment. Understanding the intricacies of geopolitical tensions is essential for investors, policymakers, and the general public.
Spotting or preempting conflict and knock on effects can help manage risk and create opportunity. The complex interplay of historical, religious, and political factors in regions like the Middle East highlights the importance of nuanced perspectives. As global interconnectedness increases, the ripple effects of such tensions will likely continue to shape financial markets worldwide.
Some SA company highlights last week:
Sappi (-2.24%) shut down its Lanaken Mill in Belgium due to challenges in the European paper market. The closure is part of Sappi's strategic shift towards packaging, specialty papers, pulp, and biomaterials while reducing exposure to the graphic paper segment.
Pick n Pay (-6.4%) has undergone significant leadership changes, with Sean Summers returning to lead the company. Dallas Langman is tasked with returning Pick n Pay Retail to profitability. The company aims to revamp its leadership structure to address ongoing challenges in the retail market.
Life Healthcare (+5.2%) has met all conditions to sell Alliance Medical Group, and the transaction is expected to conclude at the end of January 2024. Telkom (+6.5%) is one step closer to potentially selling Swiftnet, with a B-BBEE consortium completing confirmatory due diligence.
Economic:
Last week’s focus was largely on US inflation data. CPI in December rose to 3.4%, up from 3.1% in November and exceeding market expectations of 3.2%. Surprisingly, yields on US treasuries fell for the week. We unpack the detail in our report.
In Europe, concerns over the German economy’s performance continue and we look at German factory orders, industrial production as well as Eurozone retail sales data.
In China, we discussed inflation, loan and financing data, and trade data. Imports show still weak domestic demand while exports show the impact of the shifting geopolitical stage, in line with our educational discussion this week.
In SA, we saw the leading PMI indicator tick higher in December albeit marking a correction from very depressed levels. This growth was mainly driven by the production of wood and wood products, paper, publishing, and printing, as well as motor vehicles and transport equipment.
For the week ahead:
SA: Retail sales, mining production.
US: Monday (holiday), retail sales, housing, manufacturing and sentiment indicators.
Europe: Eurozone inflation, German inflation and German GDP, UK retail sales and inflation.
China: GDP, housing, retail sales and unemployment.
Our Market's and Risk view:
Our risk indicators remain in 'Greed' territory and are at levels seen in mid-December. We provide more detail on the moving parts in our full report.
(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.