Date published -2023-07-11

(This is a very truncated version highlightinog excerpt of our full report which is available for our paid subscribers)

After a strong end to the second quarter of the year, Q3 started off on a negative footing. All major US indices were down with the Dow Jones ending the week -1.7%, the S&P 500 -0.9% and the NASDAQ -0.8%. The US dollar was marginally weaker against major currencies and the yield on US treasuries rose materially after a hawkish set of FOMC minutes and US jobs numbers.

Tesla was amongst last week's biggest winners up 6.5% after German auto manufacturer Mercedes announced that they will be adopting Tesla’s charging technology for their North American vehicles from 2025. Meta platforms was also a gainer for the week (+3.2%) bucking the trend after the company debuted their release of a Twitter competitor called ‘Threads’. Chinese tech giant, Alibaba Group soared 10% last week after Chinese regulators announced an end to the crackdown on Alibaba 's affiliate, Ant group after a $985 million fine.

In domestic company news, Telkom announced that it had decided to not pursue further discussions with the Afrifund consortium and the PIC regarding their proposed acquisition of Telkom. The stock traded 11.5% lower for the week. On the positive side, real estate company Attacq (+5.5% for the week) announced that it had reached an agreement with the government employees pension fund (GEPF) to acquire 30% of the shares and shareholder loans in the company’s Waterfall property for R2.4bn.  Cape Town based Spear REIT released results for the first quarter to May 2023. The group's overall performance was reasonably good with vacancies lower at 6.8% and rental reversions (renewals) higher at 4.2%. On a segmental basis the industrial sector remains the strongest performer with retail a little weaker and office (commercial) still exhibiting a very high vacancy rate above 15%. The stock was flat in limited liquidity but remains a strong dividend payer.

We kick off US quarterly earnings season this week with some large names like PepsiCo and United Health reporting. We also have results from banks, JP Morgan, Wells Fargo, Citigroup and asset management giant BlackRock.

This week's feature chart is global trade which we previously had as a long, then a partial profit take after a long rally. This week, it has given us a short trigger, indicating the full trade cycle. 

While the economic data calendar was relatively light last week, the few data releases on the calendar resulted in significant market moves. On Wednesday we had the release of the US Federal Reserve’s FOMC minutes for June. The minutes indicated that while all participants opted to leave rates on hold at the last meeting, that while inflation is still well above the 2% target, all considered it appropriate to consider raising rates again later this year. This was construed as more hawkish than the market had previously anticipated.

On Thursday and Friday, we had two different sets of US employment data released. In our full report we share the details of the divergences. We also saw US average hourly earnings rise by 4.4% in June and contributed to the market’s overall perception that the labour market remains resilient and likely supports further monetary tightening.

In other macroeconomic data, global purchasing managers index (PMI) data which serves as a lead indicator for economic growth, showed a deceleration across most global regions including the US. This coupled with weaker factory orders for May in the US signals that while rates may still rise, that economic conditions are slowing. SA’s ABSA PMI fell to 47.6 (below 50 signals contraction), the 5th consecutive month of contraction as business conditions continued to deteriorate amid a series of headwinds.

Globally, for the week ahead, the CPI data from China and the US will be watched closely alongside several speeches from various Fed officials. Mid-week, we have the release of Chinese trade data. We end the week with University of Michigan sentiment indicators. In South Africa we have business confidence data ahead of manufacturing and mining production data.

In total - our market carousel now has 2 open long positions with both being in a partial profit take stance. We open a new short this week for a total of 4 open short positions (up from 3) across an assortment of equity, FX and commodity markets. We now hold 4 'No Position' stances (from 5 last week). Our trade ideas this week include a previous idea, which we were stopped out of previously but that has given us a long trigger again. We also include a global long and an out of sector pair trade.

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