Date published - 2024-03-19
(This is a very shortened version highlighting excerpts of our full report which is available for our paid subscribers).
It's Fed FOMC time (along with other major central banks this week) and after last week's inflation data causing a scare and some market volality, we saw higher bond yields and a stronger dollar. The expectation is for no change in rates but the focus will be on the forward guidance and the 'Dot Plot'. For more see our week ahead section.
Last week, the US equity markets experienced significant options expirations and a pronounced tech sell-off weighing on the overall index. Some stocks catching our eye were Adobe (-11%), Tesla (-6.7%), Fisker (-55%), Boeing (-8%), and Southwest Airlines (-17%) .
Brent crude closed the week above $85 per barrel driven by a surprising drop in US crude inventories as well as an upward revision in the 2024 global oil demand forecast from the International Energy Agency. Global geopolitical tensions including Ukrainian drone strikes on Russian refineries and persistent tensions in the Middle East, along with OPEC+'s decision to maintain supply cuts, provided further momentum to oil prices. Gold was marginally lower last week but maintained the $2,150 level continuing to offer safe haven appeal amid geopolitical uncertainties as well as a sharp selloff in crypto markets after Bitcoin plunged from around $75,000 to around $65,000 highlighting its volatility vs. other assets.
Some SA company highlights last week:
South African stocks were generally weaker last week with only the resources and industrial’s sectors posting marginal gains. Financials were the laggard as we saw results from several large companies in the sector. SA stocks catching our eye: Absa (-7.7%) , Standard Bank (-5.9%), Remgro (-6.3%), Exxaro (-12%), African Rainbow Minerals (-15%), Foschini (-4.3%) and Attacq (+8%) .
More detail on what drove the moves in the full report.
Economic:
Last week’s macroeconomic data focus was on the US inflation data for February. CPI unexpectedly rose to 3.2%, up from 3.1% in January, and ahead of consensus estimates. Our detailed report looks at the underlying drivers and surprises.
In Europe, German inflation was confirmed at 2.5%, the lowest since June 2021. Eurozone industrial production plunged by 6.7%. This will contribute to the dovish narrative from the ECB. The UK effectively reversed a technical recession from late last year. Japan’s GDP expanded by 0.4% in the latest quarter also quelling recession fears. We also had China’s house prices and new loans.
Domestically, South Africa’s manufacturing production rose by 2.6% year-on-year in January 2024, continuing its upward trend for the fourth consecutive month and exceeding market expectations. The performance signalled a rebound across many sectors after a low base in December.
South Africa’s mining production was less optimistic. Production dropped by 3.3% year-on-year in January 2024, marking the first decline in mining activity after three consecutive months of growth. This decline was steeper than market forecasts and was attributed to challenges such as currency fluctuations, high inflation, load shedding, and logistical (Transnet) limitations in exporting minerals.
For the week ahead:
SA: CPI will be the key focus after an increase to 5.3% in January. Public holiday shortened week. Retail sales and inflation expectations also watched.
US: FOMC Meeting. With no change expected, focus will be on projections. Prior expectations were for 4 cuts of 25bps over the next year, so the ‘Dot Plot’ will be watched closely.
Europe: BOE Meeting (no change expected), Eurozone and UK inflation.
Global: Bank of Japan decision and global PMI's.
Our Market's and Risk view:
We remain cautious and our risk indicators remain in GREED for a second week after being in EXTREME GREED for the 5 preceding weeks. Our relative (market neutral) SP500 vs NASDAQ view is playing out well.
(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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