Date published -2023-07-25
(This is a very truncated version highlighting excerpt of our full report which is available for our paid subscribers)
Equity markets were mixed last week as participants digested a range of earnings releases while also remaining cautious ahead of this week’s US Federal Reserve meeting. The JSE underperformed world markets with some significant moves in individual stocks.
There were updates from several mining stocks. The Anglo American group of companies released updates for Anglo American (-0.5% for the week), Amplats (+1.5%) and Kumba Iron Ore (-4%). The key theme was one of lower commodity prices and higher costs. BHP Group (-3%) also released and update that showed similar trends while Glencore (+0.44%) produced guidance in line with estimates but also remains involved in a series of mergers and acquisitions including soft commodity producer Bunge and Canadian miner Teck Resources.
Richemont was a big loser last week, falling 6% after its quarterly update disappointed markets. Sales were up 14% overall but the America’s region fell 2% with Europe and Asia doing better. SA retailers presented a mixed picture. Mr Price (flat), Truworths (+2.5%) and Pick n Pay (-3%) all put out trading updates. There were big differences in underlying business performance, but common themes appear to be load shedding, pressure on volumes and mixed success at pricing increases.
In the US, the Dow Jones Industrial index ended the week 2% higher, followed by the S&P 500 +0.6% with the NASDAQ down at -0.5%. The earnings season thus far has been good with most companies beating estimates. However, notable misses were Netflix (-4%), and American Express (-2%). Tesla ended the week 7.5% lower after the company’s Q2 update showed pressure on margins. This filtered through to a weaker performance in many automakers.
For the week ahead, the market will focus on macro news with the looming Fed decision. The earnings calendar is also packed. Some larger names reporting include Microsoft, Alphabet (Google), Visa, Coca Cola, Meta, Amazon, McDonalds and more.
This week's feature chart outlines what Fibonacci levels and ratios are and how to use them in analysing financial markets.
South African inflation for June slowing to 5.4% year-on-year from 6.3%. South African retail sales for May declined 1.4% following a decline of 1.8% in April.
This backdrop provided perfect cover for the South African Reserve Bank to keep interest rates on hold at its meeting last week. The repo rate was kept unchanged at 8.25% with the Prime Lending rate at 11.75% after ten consecutive rate hikes during this cycle. The MPC remains split with 2 of the 5 members having voted for a hike of 25 basis points.
Chinese GDP showed the Chinese economy grew by 6.3% year on year in Q2, up from 4.5% but below consensus expectations. We had inflation from the UK cooling to 7.9% in June from 8.7%. Eurozone inflation slowed from 6.1% to 5.5%. The decline was largely due to lower energy prices compared to a high base this time last year.
For the week ahead, the macro focus will be on the US Federal Reserve’s interest rate decision. The market consensus is for a hike of 25 basis points although this remains finely balanced. The market will also watch any forward guidance closely to determine if this is the first last hike in this cycle. We also have the ECB decision with a 25-basis point hike expected as well as the Bank of Japan with no change expected.
Our market carousel has 2 open long positions with both being in a partial profit take stance as we watch what appears to be an extended rally closely. We still hold 2 short positions although 1 is moved to partial profit take. We wait for better price action on 6 'No Position' stances. Other than the partial profit take, our overall stance remains in line with last week. We highlight notable developments below. Our trade ideas this week include a mean reversion trade on an SA retailer, a potential break out from a big base on a global tech stock that had been consolidating for a while and a momentum trade on a global mining ETF.
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