Date published - 2024-04-09
(This is a very shortened version highlighting excerpts of our full report which is available for our paid subscribers).
US markets started the second quarter deeply in the red as the S&P500 experienced its most significant weekly decline for the year thus far, falling 1%, in line with a 0.9% decline in the tech heavy NASDAQ. The Dow Jones was the laggard falling by 2.3%. Stronger than expected US economic data (see Economic section), tempered rate cut expectations and weighed on sentiment. The 10-year US Treasury yield rose 20bps to 4.4%, the highest this year.
On a sector basis, consumer discretionary stocks were weak while energy stocks were the standout performer. Notable moves were seen in Tesla (-6.2%) McDonald’s, Starbucks, Nike, and Home Depot (all down around 5%), Exxon Mobil (+4.4%), Chevron (+2.5%), Meta (+8.6%), Disney (-3.25%), Netflix (+4.75%), and General Electric (GE). Our full report unpacks the drivers including earnings, the proxy battle at Disney and unbundling of GE.
Gold surged a further 4% last week and oil rose by 4.5% as rising geopolitical risks and an OPEC+ meeting held sway.
This week we consider an oil play in SA as well as a global REIT showing interesting technicals.
Our feature slide this week is an extract from our carousel, showcasing Brent crude. Oil markets rose to a 5 month high with crude futures around $91 per barrel. Price support came from rising geopolitical risks in oil-producing regions, supply management by OPEC+, and a positive energy demand forecast. Geopolitical events, including Iran's vows of retaliation over an attack in Syria and the impact of Ukrainian drone strikes on Russian refinery capacity, were key contributors to the ongoing supply concerns. At the same time, OPEC+ reinforced its current supply strategy, and robust US economic indicators bolstered prospects for the leading oil consumer.
We have enjoyed a rally in oil with our long stance and this week we showcase 2 inserts along with our technical chart.
Some SA company highlights last week:
South African stocks bucked the weaker global trend to end the week higher, led by gains on Resources stocks. Gold stocks were notable winners tracking higher bullion prices but also released some positive news.
Harmony (+7.76%) on results, Goldfields (+8%) enjoying the gold rally and commencement at a new mine, Bell (-13%), and Emira (+4.7%) on some interesting deals.
More detail in the full report.
Economic:
US jobs data (ADP and NFP) was the key focus. A robust set of numbers was a key factor in tempering expectations for imminent Federal Reserve interest rate cuts, contributing to the drop in equities. Additionally, a rally in the oil price reignited inflation worries. Our full report has the details.
In Europe, inflation slowed showcasing the divergence between the US and Europe. We saw the release of March PMI data from several economies which offers a good leading indicator for economic growth.
In South Africa, the seasonally adjusted Absa PMI indicated a return to contraction in manufacturing activity, with declines in business activity and new sales orders. The S&P Global South Africa PMI also showed a moderate contraction in the country's private sector, with new order volumes falling sharply and output contracting at its swiftest pace in 2024. The bearish outlook on the SA economy remains a theme albeit overshadowed by the upcoming election season.
For the week ahead:
SA: Mining and Manufacturing production and Foreign Reserves.
US: FOMC minutes, inflation, sentiment indicators.
Europe: ECB meeting (hold expected but dovish), UK GDP and manufacturing.
China: Trade data, loans and inflation
Our Market's and Risk view:
Our risk indicators have pulled back a little but remain in GREED for a fifth week after being in EXTREME GREED for the 5 preceding weeks. Risk assets remain extended to us (which has been the right view largely) suggesting a tactical pullback rather than outright bearishness.
(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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