Date published -2023-06-13

Last week global markets ended the week with marginal gains ahead of this week's very important US inflation data and US Federal Reserve decision. Thankfully there was a much-awaited correction in the Rand exchange rate which saw a stronger rand erode the performance of global indices for domestic investors while the financials sector of the JSE was a standout performer last week. Among the gainers last week was Premier Group (+ 4.5%), the fast-moving consumer goods company. For the year ended March the company reported revenues up 23.4% leading to a rise in headline earnings per share of 22.7%. We also had a strong performance from up-and-coming energy company, Renergen (+18%). The company announced that it had obtained conditional approval on its $500 million senior debt package in the US in addition to a $250 million debt facility from Standard Bank. This positions the company well for the second phase of its development as well as for its intended listing on the US markets. On the losing side, gold stocks were generally on the back foot last week. We also had packaging company Mondi PLC (-7%) announcing that one of their deals to sell a Russian asset had failed and that they would now be looking for a new buyer.

U.S. markets were mixed last week as participants await the Fed’s decision this week. The Dow Jones added 0.5%, the S&P 500 added 0.3% and the tech heavy NASDAQ ended the week mostly flat. The standout performer was Tesla (+14%) which rose alongside other automotive manufacturers. The company also announced that they would be joining forces with General Motors in terms of the rollout of GM using Tesla’s charging infrastructure and technology. There was also some profit taking in some of the larger tech names last week after some significant rallies in the preceding weeks.

For the week ahead there will be results out from tech companies, Oracle, and Adobe as well as home builder Lennar.

Energy markets are also particularly volatile after Saudi Arabia announced significant production cuts at last week's OPEC meetings, offsetting some production increases amongst other cartel members. Crude oil prices were around 4% lower for the week. The dollar was around 0.5% weaker for the week. This allowed some reprieve to emerging market currencies. However, the larger correction in the USDZAR exchange rate suggests some unwinding of local risk premia that had become particularly extended. This is potentially linked to some signs of recent stabilization in energy availability at Eskom as well. We similarly saw SA bond yields trading lower as bonds rallied alongside the currency.

Our feature chart this week includes an updated trading view on the USDZAR for our subscribers. 

The big macroeconomic economic news last week for South African investors was the release of Q1 2023 GDP data. The South African economy marginally avoid a technical recession (two consecutive quarters of negative growth).  There was some positive economic data out of South Africa last week as the current account deficit and manufacturing production surprised to the upside. We unpack some additional detail of what the numbers mean in our full report.

Globally it was relatively quiet on the economic data front last week. We had US factory orders for April surprise marginally on the downside. We saw a similar trend in German factory orders as well correlating with trends we have been watching on manufacturing PMI data for a while now. We also saw Chinese export and import volumes which were both lower in May, with exports surprising substantially more to the downside. Chinese inflation for May also edged higher to 0.2% impacted by an uptick in food inflation. However, Chinese inflation remains substantially below global trends. Lastly, we also had revised GDP estimates for Q1 out of the Eurozone which came in at -0.1%, swinging into negative territory relative to earlier estimates of a 0.1% rise. Should this final estimate prove accurate, it would indicate that the Eurozone would be in a technical recession, and this may well filter through into deliberations by policy makers this week.

On the data front, this week it is remarkably busy. The key focus will be on US inflation data ahead of Wednesday's US Federal Reserve interest rate decision. The markets and consensus expectations are for the Fed to keep rates on hold at this week's meeting with policy rates at 5.25%. The rationale behind this narrative has been some indication of weakening momentum in the US economic data implying that the Fed may choose to wait until its meeting in July before indicating any further moves or a more definitive pause. In our full report we look at what the 2 scenarios: A "Pause and Pivot" or "Pause with Claws" mean for markets and the EURUSD in partifcular.

On Thursday we have an interest rate decision from the European Central Bank (ECB) with consensus expectations indicating a 25-basis point hike to 4%.

Closer to home we have South African mining production data and retail sales data.

Our updated analysis on our market carousel indicate that we change one of our open long into a long with partial profit take position. We also initiate a new long position in one of the global indices.

This leaves us with 4 open long positions with two being in a partial profit take stance. We also open a new short position in an FX pair leaving us with 4 open short positions across an assortment of equity, FX and commodity markets.

We now hold two'No Position' stances in our weekly carousel as we wait for triggers or better price action.

Our  trade ideas this week include a commodity play as we look to diversify asset class exposure. Domestically, we include a bullish take on a stock which is in accumulation phase. Globally we look at a chemical industrial play which is currently in a megaphone formation and is showing bullish momentum.

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