Date published - 2024-02-27
(This is a very shortened version highlighting excerpts of our full report which is available for our paid subscribers).
The US stock market continued its bullish streak last week with the S&P gaining 1.6% while the Dow Jones Industrial average and Nasdaq each added 1.3%. The news flow was dominated by semiconductor manufacturer, Nvidia. The stock soared 8.5% last week. A monumental achievement in space exploration was made by Intuitive Machines (+22.5% for the week), whose spacecraft Odysseus successfully landed on the moon, marking a significant milestone for commercial spaceflight and the first American lunar landing since Apollo 17 in 1972.
Other stocks catching our eye were Capital One's (COF), Booking Holdings (BKNG) (-6.6%), Warner Bros Discovery (WBD) (-14%) and an upcoming IPO for Reddit.
Brent crude fell 2% last week on concerns of slowing global economic growth. Gold remained resilient, holding above $2,020 an ounce. It’s safe haven appeal as well as hawkish comments from Fed officials have helped keep bullion supported.
Feature Slide - Key Technical Analysis Concepts
Technical analysis, often regarded with scepticism and dubbed as "voodoo finance" by its detractors, is actually an art form that requires a nuanced understanding of market behaviour. At its core, technical analysis is the study of past market data, primarily price and volume, to forecast future price movements. This method operates under the assumption that market psychology is predictable and that patterns tend to repeat over time. To demystify this art, one can focus on three fundamental factors: Cycle, Momentum, and Trend outlined in our graphic below.
Some SA company highlights last week:
Pick n Pay (PIK) -14.6%: on results and a substantial capital raise and IPO plans for the Boxer business.
Anglo American (AGL) +2.75%: on a deal with Vale and operational update.
Anglo American Platinum (AMS) +3.3%: despite lower profits and revenue. Job losses to come.
Northam Platinum (NPH) +4.5%: on trimmed capex plans.
Gold Fields (GFI) -5.1%: on higher all-in-sustaining costs.
Harmony (HAR) +0.6%: on guidance with results this week.
BHP (BHG) +0.85%: on profit and cash flow growth.
Kumba Iron Ore (KIO) +0.25%: with cost savings but logistics challenges remain.
Mondi (MNP) +6.6%: announced a special div.
Tiger Brands (TBS) -1.5%: lower volumes and tough trading conditions.
NEPI Rockcastle (NRP) +5%: strong numbers.
Telkom (TKG) +2%: on stable EBITDA.
More detail on the announcements in the full report.
Economic:
It was a busy week domestically with the release of unemployment and inflation data along with the Budget Speech as the focus. The unemployment rate in South Africa increased to 32.1%. Inflation rose to 5.3% in January 2024, the first increase after 2 months of declines in the inflation rate.
The Budget Speech was the key focus last week. National Treasury lowered its growth forecasts with real GDP expected to be 0.6% in 2023, followed by modest accelerations to 1.3% and 1.6% in 2024 and 2025. Tax revenue was dampened by corporate tax slumps, particularly in mining. Personal taxes were lower than expected but there was no accommodation for inflation with bracket creep resulting in an effective tax increase. Expenditure growth is projected to average 4.6% per year with adjustments made for higher wage settlements. Debt metrics are expected to improve over the Medium-Term Expenditure Framework (MTEF) period, with a deficit of 4.9% of GDP projected for 2024/25, falling to 3.3% by 2026/27. The debt-to-GDP ratio is forecasted to peak at 75.3% in 2025/26 before easing gradually. Treasury also indicated that they would be drawing on the country’s reserves in order to mitigate the borrowing requirement. This is viewed with some concern by the market with the rand and bond yields reacting negatively following the announcement.
Globally, flash PMIs remained weak. The release of the Fed’s FOMC minutes indicated that the policy rate was likely at its peak for the current tightening cycle, but policymakers did not expect a reduction until they had greater confidence in inflation moving sustainably toward 2%. In China, new home prices declined by 0.7% year-on-year in January 2024, marking the seventh consecutive month of decline.
For the week ahead:
SA: PPI, credit data
US: PCE (Personal Consumption Expenditure Price Index), the Fed’s preferred inflation measure. We will also watch personal income, and spending data as well as a confirmation of Q4 GDP growth.
Global: Inflation data from many large economies including Japan, Germany and the Eurozone PMI
Our Market's and Risk view:
Our risk indicators have remained in 'Extreme Greed' territory for a fourth consecutive week now. We have decided to act on the heightened risk backdrop by closing our longs on US markets this week.
(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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