Markets rebounded strongly in August, recovering from an early-month dip of nearly ten percent, supported by resilient economic data, positive earnings, and the Federal Reserve’s willingness to ease monetary policy. With inflation approaching the Fed’s target, the focus is now shifting to growth. As we approach the US November election, investors should also be prepared for potential market volatility. Despite this, markets ended the month on a high note, with most indices near record levels after recovering from the earlier correction.

NVIDIA’s earnings release and US economic data were the main drivers of sentiment this week, particularly the Labour Department’s core PCE price index, the Fed’s preferred inflation measure, which showed inflation rising modestly by 0.2% in July. Investors were reassured by inflation’s alignment with the Fed’s target. Meanwhile, consumer spending remained strong, with personal incomes and spending both exceeding expectations. The GDP growth rate for the second quarter was also revised upwards to 3%, driven by stronger consumer spending.

US consumer confidence reached a six-month high in August, despite concerns over the labour market, reflecting optimism about the economy and inflation. The Fed is expected to begin cutting interest rates in September, which may ease some economic pressures. However, growth is likely to moderate due to ongoing high borrowing costs affecting sectors like housing and manufacturing.

NVIDIA’s latest earnings report showed significant revenue growth, though its forecast fell short of some expectations, raising concerns about the sustainability of its AI-driven expansion. The company’s shares fell after the announcement, leading to questions about its future growth trajectory.

Inflation in the eurozone slowed to 2.2% in August, its lowest in three years, while core inflation saw a slight decline. However, services inflation, closely monitored by the ECB, increased. Germany faced further economic challenges, with a small GDP contraction in the second quarter and continued struggles in its industrial sector.

The UK saw an increase in net mortgage approvals in July, reaching the highest level since September 2022. House prices continued to climb, with the Nationwide Building Society reporting a 2.4% annual increase in August.

In Japan, inflation rose to 2.6% in August, reflecting ongoing price pressures, while industrial production rebounded. However, retail sales growth slowed, missing market expectations. In China, economic growth concerns are mounting, with rising protests linked to labour and housing issues. The People’s Bank of China injected liquidity into the banking system, though monetary policy remained largely unchanged.

Global stock markets delivered mixed results this week. In the US, the Dow Jones gained 0.94%, the S&P 500 edged up by 0.24%, while the Nasdaq slipped by 0.92%. European markets saw the Euro Stoxx 50 rise by 1.11%, and the FTSE 100 increased by 0.59%. Asian markets were generally stronger, with Japan’s Nikkei 225 advancing by 0.74%, the Hang Seng Index strengthening by 2.29%, and the Shanghai Composite dipping by 0.43%. Brent oil prices dropped 2.61%, and gold prices edged down 0.36%.

Market Moves of the Week:

In July, South Africa’s Producer Price Index recorded a slight decline of 0.2% month-on-month, with a 4.2% year-on-year increase, down from 4.6% in the previous month.

During a speech at Business Unity South Africa’s AGM, President Cyril Ramaphosa emphasised the importance of strengthening the relationship between government and business to support economic growth, describing it as “far too important to fail.”

Meanwhile, the health department is preparing to release draft regulations for the NHI Act within the next month, which will address key issues such as the appointment of the NHI fund’s board.

After strong performance in recent months, the JSE All Share Index closed the week down by 0.71%, with the Resource sector facing significant pressure, dropping 4.82%. The Industrial sector also edged lower by 0.30%. However, the Financial sector rose by 1.45%, and SA Listed Property continued its strong performance, gaining 2.56%. The yield on the South African 10-Year Bond increased by 0.13%, while the rand settled at R17.82/$.

Chart of the Week:

This chart illustrates the market’s excitement with NVIDIA. Since ChatGPT’s launch in November 2022, Nvidia’s market cap has surged by over $3 trillion, making it a dominant force in the S&P 500, where it now accounts for more than 6% of the index. This unprecedented rise has introduced significant volatility, establishing Nvidia as a key market driver. Source: Bloomberg.

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