U.S. stock markets experienced mixed performance as long-term interest rates fell amid concerns about a cooling labour market. While the S&P 500 Index reached record highs earlier in the week, they pulled back late Friday. Small-cap and value shares outperformed, while mega-cap tech shares lagged due to reports of slowing iPhone sales in China. Novo Nordisk, a Danish pharmaceuticals company, surpassed Tesla as the 12th biggest public company by market capitalization.

The week started with a decline, attributed in part to disappointing policy news from China, but regained momentum midweek as domestic demand and inflation pressures eased. However, concerns about rising prices persisted, with consumers showing more sensitivity to inflation. Additionally, job openings fell to a three-month low, and the quits rate dropped to its lowest level since August 2020.

Friday’s jobs report initially reassured investors about the labour market, with employers adding more jobs than expected in February. However, January’s job gain was revised lower, and the unemployment rate unexpectedly rose to its highest level in over two years.

Fed Chair Jerome Powell’s testimony suggested a less hawkish stance on rate cuts, stating that policymakers were “not far” from having confidence in sustained inflation downtrend to begin cutting rates. Consequently, futures markets priced in a higher chance of a rate cut by June. As a result, the yield on the benchmark 10-year U.S. Treasury note fell to its lowest level since February.

In political news, Nikki Haley withdrew her challenge to Republican frontrunner Donald Trump, solidifying his position as the party’s candidate for the upcoming election against Democratic President Joe Biden. Additionally, the U.S. Supreme Court ruled in favour of Trump, allowing him to appear on presidential ballots despite efforts to bar him due to his actions following the 2020 election.

All major U.S. equity markets ended the week lower. The Dow Jones Industrial Average down 0.93%, followed by the tech heavy NASDAQ composite down 1.17%. The S&P 500 faired best, still in negative territory, but only marginally lower, down 0.26%.

In the U.K. Chancellor of the Exchequer Jeremy Hunt presented the final Spring Budget before a general election, announcing a GBP 10 billion payroll tax cut through a reduction in national insurance rates. The budget also proposed more generous changes to child benefit rules. To partly fund these measures, Hunt outlined less favourable tax treatment for foreign residents with permanent homes outside the UK and extended the windfall tax on oil and gas companies for another year. The FTSE 100 closed the week in the red, down 0.30%.

European Central Bank President Christine Lagarde indicated policymakers may be in a position to lower interest rates in June as fresh projections showed inflation hitting the 2% target in 2025. Speaking after policymakers left the deposit rate at 4% for a fourth straight meeting, Lagarde said there’s a definite slowdown in consumer prices but that she and her colleagues aren’t “sufficiently confident” at present to commence monetary easing. “We clearly need more evidence, more detail,” she told reporters Thursday in Frankfurt, highlighting upcoming figures on wages. “We know that this data will come in the next few months. We will know a little more in April, but we will know a lot more in June.” The Euro Stoxx 50 responded positively to these developments, closing the week up 1.35%.

Strong wage data in Japan has raised the likelihood that the Bank of Japan (BOJ) will abandon its negative interest rate policy in upcoming rate-setting meetings, potentially as early as March 19. Government officials are reportedly becoming more open to ending the negative rate regime, seeing it as a signal of the domestic economy’s return to normalcy after years of deflation. The Nikkei 225 closed the week in the red, ending down -0.56%.

China has announced a growth target of around 5% for the year, signalling potential for increased stimulus measures. The government also aims for an unemployment rate of about 5.5% and plans to add 12 million urban jobs. To bolster the economy, China plans to issue 1 trillion yuan ($139 billion) of ultra-long special central government bonds this year. In January-February, both export and import values exceeded expectations, with export growth improving across major trading partners except for the European Union and Japan. Import growth remained robust, particularly for tech-related products like chips and diodes. As a result, the trade surplus for January-February reached US$125.2 billion, surpassing consensus estimates. The Shanghai Composite closed the week higher up 0.63%, while Hong Kong’s Hang Seng Composite ended lower, down 1.30%.

Market Moves of the Week:

In South Africa, economic output grew marginally by 0.1% quarter-on-quarter in Q4 2023, which was below consensus (0.2%) and South African Reserve Bank (SARB) estimates, but in line with forecasts. Weak final domestic demand and negative contributions from net exports, due to a rebound in imports, were offset by positive contributions from inventories. Goldman Sachs maintains its forecast for growth to improve from 0.6% in 2023 to 1.5% in 2024, with potential risks of a slightly wider current account deficit than the forecasted 0.8% of GDP for Q4.

On the local equity front, the Resource sector caught a bid pushing the JSE ALSI higher for the week, up 1.29%. Resources ended the week up 8.34%. Both Industrials and Financials were lower, down 0.72% and 0.77% respectively. The ZAR appreciated 2.01% against the Dollar, closing the week at R18.71/$.

Chart of the Week:

Bitcoin reached all-time highs this week, with BlackRock’s Spot Bitcoin ETF (IBIT) becoming the fastest ETF to reach $10 billion in assets under management, achieving this milestone in just 37 trading days. Trading volumes in IBIT exceeded $1 billion for four consecutive days. Source: Bloomberg.

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Thursday’s release of the U.S. Commerce Department’s core PCE price index, the Federal Reserve’s preferred inflation measure, defined the week’s market sentiment. The print met market expectations, showing a 0.4% month-over-month (2.8% y/y) increase in January, alleviating investors’ concerns about a potential upside surprise. Despite a surge in stocks following the release, it seemed to have a minimal effect on the overall tone of Federal Reserve communications. At the close of the week, the futures markets reflected only a marginal increase in the probability of a rate cut over the next two policy meetings – 24.6%, compared to the previous week’s 23.4%.

In other U.S. data, the Institute for Supply Management’s (ISM) measure of manufacturing activity significantly fell short of expectations, dropping from January’s 18-month high of 49.1 to 47.8 in February (Readings above 50 indicate expansion). Economists had expected a rise to 49.5. The new orders subcomponent fell to 49.2 from 52.5 in January.

In January, inflation in the eurozone eased less than anticipated, dipping from 2.8% to 2.6% at the headline level but remaining above the expected 2.5% rate. Core inflation showed a decline from 3.3% to 3.1%, surpassing the anticipated drop to 2.9%. European Central Bank (ECB) President Christine Lagarde mentioned that the desired level of inflation has not been reached yet, emphasizing the ECB’s aim for prices to fall sustainably to 2%. Lagarde also expressed optimism about the European economy, stating that there are growing indications that the period of economic weakness is stabilizing, with expectations for improvement later in the year.

In February, China’s economic data presented a varied picture. The official manufacturing purchasing managers index dropped to 49.1 from January’s 49.2, remaining below the growth-indicating 50-mark due to declines in production and exports. Conversely, the nonmanufacturing PMI exceeded expectations, rising to 51.4 from January’s 50.7. On the property front, the China Real Estate Information Corp reported a 60% decline in the value of new home sales by the top 100 developers compared to the same period in the previous year, marking an acceleration from January’s 34.2% decrease.

Japan’s core CPI cooled to 2% y/y in January from December’s 2.3% level, beating estimates and supporting the case for the Bank of Japan to continue moving toward ending its negative interest rate policy in April. Inflation has matched or exceeded the BOJ’s target for 22 months. In other news, Japan’s demographic challenges intensified in 2023, marked by an eighth consecutive annual decline in births, reaching a historic low of 759,000 – a 5.1% decrease from the previous year. The number of deaths, totalling 1,591,000, more than doubled the birth count while marriages hit a post-World War II low.

On the market front, most of the major U.S. benchmarks ended the week higher, with the Nasdaq Composite (+1.74%) joining the S&P 500 Index (+0.95%) in record territory for the first time in over two years. The Dow Jones ended the week relatively flat, down -0.11%. The yield on the benchmark US 10-year Treasury note fell to 4.23% from 4.31% a week ago. In the U.S. investment-grade corporate bond market, spreads expanded over the week as the sector grappled with substantial supply. February marked a record-breaking month with over USD 150 billion in new issuances.

Stocks in China rose on hopes that Beijing may boost monetary easing measures to stimulate growth. The Shanghai Composite Index gained 0.74% as a result. Japan’s stock market had another robust week, with the Nikkei 225 gaining 2.08%, hovering around a new record high and taking February’s gains to circa +10.0%. Shares in Europe (Euro Stoxx 50) rose by +0.46% while the UK’s FTSE 100 dropped -0.31%. Oil prices (Brent) gained +2.87% while Gold rose by +2.32%.

Market Moves of the Week:

South African (SA) manufacturing activity rebounded in February, following a sharp drop in January, as indicated by Absa’s Purchasing Managers’ Index (PMI) survey. The PMI increased to 51.7 points in February from 43.6 in January. Although the business activity sub-index and new sales orders improved in February, they remained in negative territory. Absa, the PMI sponsor, noted increased optimism about exports, suggesting relief from congestion and disruptions at local ports.

SA Reserve Bank Governor Lesetja Kganyago affirmed, in an interview with Bloomberg on Wednesday, that there will be no interest-rate cuts until inflation is effectively managed, maintaining his stance despite calls for such measures ahead of national elections. The Monetary Policy Committee will deliver one more rate decision before the elections when it gathers at the end of next month.

The National Treasury stated on Thursday that although SA is making progress in addressing outstanding action items relating to the Financial Action Task Force’s (FATF) greylisting of SA in February last year, the challenge remains formidable to tackle all 17 items by February 2025. It has therefore warned that it “will require a significant effort from all the relevant South African authorities to address the remaining deficiencies for SA to exit the FATF greylist by February 2025.”

On the SOE front, Michelle Phillips, who has more than 20 years of experience working at Transnet, has been appointed as the new CEO of the beleaguered logistics company. This decision comes four months after the departure of the former CEO. Busisiwe Mavuso, CEO of Business Leadership SA, expressed her “relief, elation, and happiness” regarding Phillips’ appointment, as reported by Business Day. Cas Coovadia, CEO of Business Unity SA, also welcomed the decision.

The JSE fell (-1.94%) this week, with Industrials (-3.34%) leading the decline. Resources (-1.78%) continue to struggle amidst a global lack of demand, while Financials faired best, down -0.53%. The local currency strengthened against the U.S. dollar over the week, falling to R19.10/$ from last week’s R19.32/$ level.

Chart of the Week:

With 97% of the S&P 500 done reporting earnings for the fourth quarter, the S&P 500 is projected to have earnings growth of 4% in Q4 2023 compared to the same period a year prior, per new FactSet data. Notably, the current quarter’s earnings growth outlook is not declining at its usual rate. Analysts usually trim estimates by an average of 2.9% in the first two months, but this quarter has seen a milder 2.2% reduction, suggesting a more optimistic outlook. Source: Yahoo!finance

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In the U.S., S&P Global has released early estimations of its Purchasing Managers’ Indexes (PMI) for both the services and manufacturing sectors. The gauge of manufacturing activity surpassed expectations, rising to 51.5, marking its highest level in 17 months, partly bolstered by an uptick in export orders. Conversely, business activity in the services sector eased slightly, with the PMI pulling back to 51.3 from January’s 52.5. Nonetheless, the latest services PMI reading stayed above 50, the threshold between expansion and contraction, signalling continued growth in activity.

According to the recently released minutes from the Federal Reserve’s last meeting, officials expressed a cautious approach towards cutting interest rates and emphasized both optimism and concerns regarding inflation. The majority of policymakers highlighted the uncertainty surrounding the duration of maintaining current borrowing costs, underscoring the need for a careful assessment of the monetary policy stance necessary to achieve the Fed’s 2% inflation target. While there was a sense of optimism regarding the effectiveness of the Fed’s measures in reducing inflation rates, there was a consensus among officials to await further evidence before considering policy adjustments, although indications suggested that future rate hikes are unlikely. Despite reports indicating a gradual return of inflation towards the Fed’s 2% target before the meeting, the committee viewed some progress as temporary and urged a careful assessment of incoming data to determine long-term inflation trends.

In February, the UK experienced faster economic growth, as indicated by early PMI survey data, marking the most rapid business activity expansion in nine months. The headline indicator of economic growth, the seasonally adjusted S&P Global UK Composite Output Index derived from the flash PMI surveys, increased from 52.9 in January to 53.3 in February. This upward trend reflects sustained output growth for the fourth consecutive month, following a three-month decline. Presently, the PMI level broadly suggests GDP expansion.

Bank of England (BoE) Governor Andrew Bailey informed a parliamentary committee that he felt “comfortable” with investors speculating on rate cuts this year, while also noting that the economy was “showing distinct signs of an upturn” following last year’s recession. He emphasized that the BoE does not endorse the market curve and refrained from predicting when or by how much rates would be cut. However, he acknowledged that it was not unreasonable for the market to entertain such expectations.

The initial PMI figures for February indicated a possible stabilization of the Eurozone economy, driven by a revival in the services sector. The preliminary estimate of the Hamburg Commercial Bank Eurozone composite PMI for output increased to 48.9 from January’s 47.9, marking an eight-month high, albeit remaining in contractionary territory. (PMI readings below 50 signify a contraction in business activity). In Germany, the composite PMI for economic output continued its eighth consecutive monthly decline. Similarly, output weakened in France. Nevertheless, output in the remaining Eurozone countries expanded for a second consecutive month.

On Tuesday, the People’s Bank of China announced a notable adjustment to the benchmark five-year loan prime rate, reducing it from 4.2 percent to 3.95 percent. This 0.25 percentage point cut represents the most substantial change to the benchmark rate since its inception in 2019. The decrease in the five-year rate is expected to lower mortgage rates for homebuyers, aiming to stimulate demand in the struggling property sector. Policymakers left the one-year lending rate unchanged.

In company news, shares of Nvidia, a graphic-processing-unit-maker, surged after the company exceeded exceptionally bullish earnings estimates on Wednesday afternoon, leading to a substantial increase in Nvidia’s market capitalization by a record USD 277 billion. This news sparked a widespread rally in the broader markets.

Global equities surged to record levels driven by renewed optimism surrounding rapid advancements in artificial intelligence. In the U.S., major indices such as the Dow Jones (+1.30%), Nasdaq (+1.40%), and S&P 500 (+1.66%) all closed the week higher. Similarly, the pan-European STOXX Europe 50 Index climbed to a record level, posting a gain of 2.24% for the week. However, the UK’s FTSE 100 Index experienced marginal movement (-0.07%), primarily influenced by weakness observed in mining and energy sectors.

In a shortened week, Japanese equities surged to new all-time highs, with the Nikkei 225 Index breaking its previous record set over three decades ago. It recorded a weekly uptick of 1.59%.

Chinese equities also witnessed strong gains on hopes of economic recovery. The Shanghai Composite Index surged by 4.85%, while the Hang Seng Index, a key benchmark in Hong Kong, advanced by 2.59%.

Market Moves of the Week:

In the fourth quarter of 2023, South Africa’s unemployment rate experienced an uptick, surpassing pre-pandemic levels. According to the Quarterly Labour Force Survey data published by Statistics South Africa (Stats SA) on Tuesday, the unemployment rate rose from 31.9% in the third quarter to 32.1% in the fourth quarter. According to Stats SA’s findings, the community and social services sector experienced the most significant reduction in employment, shedding 171,000 jobs during this period. Declines in employment were also observed across various sectors, including construction, agriculture, trade, and manufacturing.

In January, South Africa experienced an uptick in its inflation rate, marking the first such increase in three months. The Consumer Price Index (CPI), a key metric for measuring inflation, rose from 5.1% in December to 5.3% in January, as reported by Statistics South Africa (Stats SA). Additionally, core inflation, excluding volatile food and fuel prices, accelerated to 4.7% in January from 4.5% in December. The categories with the largest annual price increases were restaurants & hotels at 8.0%, food & non-alcoholic beverages (NAB) at 7.2%, and health at 6.5%. This development reduces the likelihood of the South African Reserve Bank implementing interest rate cuts soon.

Against the backdrop of South Africa’s sluggish growth rate, Finance Minister Enoch Godongwana delivered the budget speech on Wednesday. A key focus was the utilization of GFECRA drawdowns to significantly reduce borrowing needs in the coming fiscal years, aiming to tackle the challenge of escalating government debt. The minister unveiled several tax policy reforms, such as implementing a two-pot retirement system, making adjustments to international corporate taxes, and providing incentives for local electric vehicle manufacturing and renewable energy initiatives. Notably, there will be no financial assistance for Transnet and the Post Office, signalling a move towards greater private sector involvement in infrastructure funding. However, the speech placed minimal emphasis on government restructuring.

Much like global markets, local equities in South Africa also saw positive movement. The JSE All-Share Index experienced weekly gains of +0.81%, driven by strong performances in the property (+3.21%), financial (+1.33%), and industrial (+1.04%) sectors. In contrast, the resources sector experienced a slight decline of -0.02% for the week.  By Friday’s close, the rand was trading at R19.32 against the U.S. Dollar, marking a weekly depreciation of -2.51%.

Chart of the Week:

Nvidia reached a significant milestone by becoming the third American company in history to attain a $2 trillion valuation. This accomplishment follows a surge in post-earnings enthusiasm, driven by investor confidence in the company’s growth trajectory as a leading designer of artificial intelligence chips. Source: Forbes

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U.S. consumer prices rose more than expected in January, amid stubbornly high shelter prices. The increase in prices reported by the Labor Department on Tuesday was the largest in four months, the report showed that inflation last month remained high with consumer prices rising by 3.1% in January from a year ago. Although that is cooler than in December, economists surveyed by Dow Jones had been looking for a monthly increase of 0.2% and an annual gain of 2.9%.

Excluding volatile food and energy prices, core CPI accelerated 0.4% in January and was up 3.9% from a year ago, unchanged from December. The forecast had been for 0.3% and 3.7%, respectively.

Shelter prices, which comprise about one-third of the CPI weighting, accounted for much of the rise. The index for that category climbed 0.6% on the month, contributing more than two-thirds of the headline increase. Fed officials expect inflation to recede back to their 2% annual target in large part because they think shelter prices will decelerate through the year. According to the CME FedWatch Tool, the futures market ended the week pricing in only a 10% chance of a rate cut in March compared with a 53% chance a month earlier.

The hotter than expected inflation report was followed on Thursday by a softer than expected retail sales report. The Commerce Department reported that retail sales had fallen 0.8% in January (forecast was for a 0.3% decline). While many economists pointed to seasonal factors, the prior two months’ readings were also revised lower.

In local currency terms, the pan-European STOXX Europe 50 Index ended the week 1.06% higher as signs of cooling inflation in the eurozone and a better outlook for interest rate cuts improved investor sentiment.

During the week, the European Commission downgraded its growth forecast to 0.8%, down from its previous forecast of a 1.2% expansion. The commission sees eurozone inflation falling to 2.7% in 2024 from 5.7% in 2023, a steeper drop than its earlier 3.2% forecast.

In the UK, initial figures from the office for national statistics showed on Thursday that the UK economy slipped into a technical recession in the final quarter of last year. A preliminary estimate of gross domestic product (GDP) showed a greater-than-expected contraction of 0.3% in the three months through December. The economy shrank 0.1% between July and September. Two straight quarters of negative growth is widely considered a technical recession.

Japan’s stock markets rose over the week, with the Nikkei 225 Index gaining 4.3% driven by further Yen weakness and positive corporate earnings releases. The Japanese economy contracted 0.4% quarter on quarter over the final three months of last year, a worse-than-expected slump, which similarly to the UK marked an entry into a technical recession. The country’s economy is now the world’s fourth largest, slipping behind Germany in gross domestic product terms.

Financial markets in mainland China were closed for the weeklong Lunar New Year and reopen on Monday.

Gold headed for a second consecutive weekly fall on Friday, ending the week at $2,013/oz, down 0.55% for the week, while oil prices ended the week higher as geopolitical tensions in the Middle East more than offset a forecast from the International Energy Agency for slowing demand. Brent crude ending the week 1,31% higher at $82.79 a barrel.

Market Moves of the Week:

In South Africa, December retail sales published by Stats SA on Wednesday surprised to the upside, gaining 2.7% from a year earlier. The print was higher than market expectations, but economists warned the sector is still expected to detract from overall GDP in the fourth quarter due to muted consumer spending.

South Africa’s Minister of Finance, Enoch Godongwana will present the 2024 Budget speech this week on 21 February, outlining government’s financial and economic agenda for the year ahead. The 2024 Budget is expected to focus on continued fiscal discipline whilst balancing big-risk expenditure line items such as the public sector wage bill, support for Transnet and other SOE’s as well as the increasing fiscal burden of social grants.

The JSE all share ended the week marginally positive (0.26%) – with major indices mixed. The resource (2.5%) and financial (1%) sectors ended the week stronger while the industrial and listed property sector lost 1.23% and 1,71% respectively. The rand strengthened over the week as the dollar weakened, to end the week over 1% stronger at R18.84/$.

Chart of the Week:

The consumer price index rose more than expected in January, increasing 0.3% for the month. On a 12-month basis, that came out to 3.1%, down from 3.4% in December. Shelter prices accounted for much of the rise, climbing 0.6% on the month, contributing more than two-thirds of the headline increase. Core CPI (which excludes volatile food & energy prices) accelerated 0.4% in January and was up 3.9% from a year ago, unchanged from December.

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Despite experiencing upward momentum last week, the markets in 2024 have been characterised as restrained and somewhat uneven. This subdued trend is not entirely unexpected, especially following a robust rally in the final weeks of 2023. During the holiday-shortened week, U.S. stocks concluded on a positive note. The broad-based S&P 500 recorded a gain of 1.17%, while the Dow Jones saw a more modest advance of 0.72%. Notably, information technology stocks outperformed, benefiting from a rally in semiconductor shares, thereby contributing to the Nasdaq’s robust gain of 2.26%.

Expectations for rate cuts in 2024 experienced a significant decline over the week. The likelihood of a rate cut in March dropped notably from 81.0% to 47.4%. This shift appears to be influenced, by comments made on Tuesday by Fed Governor Christopher Waller. During a virtual conference, Waller expressed the view that there was no compelling reason to expedite or cut rates swiftly, citing the healthy state of the economy. The yield on the benchmark US 10-year note increased by 16 basis points to reach 4.17%, driven by the market adjusting and scaling back aggressive rate cut expectations.

In December, U.S. retail sales exceeded expectations, with a 0.6% increase driven by motor vehicle and online transactions. Year-over-year, retail sales saw a notable 5.6% rise, outpacing the 3.4% annual inflation rate. However, U.S. factory production experienced minimal growth of 0.1%, hampered by declines in machinery and electrical equipment output. Excluding motor vehicles, manufacturing output decreased by 0.1%. The manufacturing sector, constituting 10.3% of the U.S. economy, faces challenges attributed to a cumulative 525 basis points increase in interest rates by the U.S. central bank since March 2022.

U.K. inflation unexpectedly rose to 4% year-on-year in December, defying market expectations for an early Bank of England rate cut. This increase was influenced by higher alcohol and tobacco prices, marking the first increase in the annual consumer price index since February 2023. Month-on-month, the headline CPI rose by 0.4%, above a consensus forecast of 0.2% and up from -0.2% in November. Meanwhile, core inflation, excluding volatile energy and food prices, remained steady at 5.1%.

Additional data presented mixed signals for policymakers in the UK. Wages, excluding bonuses, experienced a slowdown to their weakest pace in almost a year, showing a 6.6% increase from year-ago levels during the three months through November. Conversely, retail sales volumes in December were notably weaker than anticipated, witnessing a sequential decline of 3.2%, marking their most significant month-over-month drop since January 2021.

European Central Bank (ECB) President Christine Lagarde stated that while the ECB is working towards its 2% inflation target, definitive success has not been achieved. Lagarde indicated a likelihood of interest rate cuts in the summer, deviating from the market’s anticipation of a spring adjustment. In response to Bloomberg’s inquiry at the World Economic Forum in Davos about Governing Council members’ expectations for a midyear rate cut, Lagarde cautiously agreed, emphasising that crucial wage-related information would influence policy decisions by late spring.

The pan-European STOXX Europe 50 Index concluded the week with a 0.70% decline, influenced by remarks from central bank policymakers that led financial markets to reduce expectations for an early reduction in interest rates. Similarly, the UK’s FTSE 100 Index also concluded the week lower, experiencing a decline of 2.14%.

In 2023, China’s economy achieved a growth of 5.2%, meeting the government’s official target. Despite this positive development, apprehensions persist surrounding the sustainability of growth momentum, exacerbated by a prolonged property crisis, sluggish consumer and business confidence, and a backdrop of global economic weakness. The National Bureau of Statistics in China reported a corresponding 5.2% increase in the gross domestic product (GDP) during the final three months of 2023, with a quarterly growth rate of 1.0%, demonstrating an improvement from the third quarter’s 0.8% expansion.

In December, retail sales registered a lower-than-expected growth of 7.4% compared to the previous year, reflecting a decline from the 10.1% increase observed in November. Concurrently, year-on-year industrial production for December exhibited robust growth, reaching 6.8%, surpassing both consensus estimates and November’s 6.6%. Notably, this marked the sharpest increase since February 2022.

Meanwhile, property prices in 70 major Chinese cities decreased by 0.4% in December, maintaining a pace of decline not seen since 2015, according to data released on Wednesday and analysis conducted using Wind Information. The real estate sector, constituting well over 20% of China’s economy, has faced increased regulatory scrutiny due to developers’ heightened dependence on debt for growth. In 2023, investment in real estate witnessed a notable decline of 9.6%, whereas investments in infrastructure and manufacturing rose by 5.9% and 6.5%, respectively.

Stocks in China experienced a decline as recent indicators highlighted a subdued economic outlook. The Shanghai Composite Index fell by 1.72%, marking its eighth consecutive weekly drop. In Hong Kong, the benchmark Hang Seng Index saw a more substantial decline, plunging by 5.82%. In contrast, Japan’s stock markets demonstrated an upward trend for the week, with the Nikkei 225 Index gaining 1.09%, reaching a 34-year high.

Market Moves of the Week:

According to the most recent data from Statistics South Africa (Stats SA), retail sales in South Africa have continued to experience a decline. Stats SA reported a year-on-year decrease of 0.9% in retail trade sales for November 2023. The primary contributors to this downturn were retailers in the hardware, paint, and glass sectors, as well as those in textiles, clothing, footwear, and leather goods. Additionally, retail trade sales saw a 0.7% decline in the three months ending November 2023 compared to the corresponding period in the previous year.
 
During the week, the JSE All-Share Index registered a decline of 2.13%, driven by losses in the resource sector at -4.04%, followed by financials at -1.91%, and the industrial sector at -1.25%. The only positive performer for the week was the property sector, which concluded with a weekly gain of +1.19%. Additionally, the South African rand depreciated during the week, closing at R19.05 against the US dollar.

Chart of the Week:

Investors in the world’s largest bond markets are paying attention to cautionary signals from central banks and are reducing their expectations for significant interest-rate cuts this year. Those who were once nearly certain that the Federal Reserve would start an easing cycle in March now view the probability as no better than a coin toss. Source: Bloomberg.

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Geopolitical tensions continued to escalate in the Middle East over the week with the US and the UK carrying out multiple airstrikes on more than a dozen Houthi rebel targets in Yemen. Since mid-November Iranian-backed Houthi militants have attacked and harassed several vessels in the Red Sea and the Gulf of Aden, significantly disrupting commercial shipping in the region. Oil and gold were the main beneficiaries of the latest developments with gold ending the week at $2,048/oz, while Brent crude ended a volatile week at $78 a barrel.

There was some encouraging news on Friday on the inflation front with the unexpected fall in US producer prices by 0.1% in December, marking the third consecutive monthly decline. For 2023 as a whole, prices rose 1.0%, while core prices increased 1.8%, less than expected and below the Federal Reserve’s overall inflation target of 2.0%.

The data followed Thursdays higher than expected Consumer Price Index print, which came in modestly hotter than economists had forecasted, with prices up 0.3% on the month and 3.4% from a year ago. Core inflation (excludes volatile food and energy), meanwhile, was roughly in line with expectations, rising 0.3% for the month and 3.9% when compared to the same period the prior year.

Major US indices moved higher over the week as the 4^th Quarter earnings season kicked-off in the US with some of the larger bank’s reporting. For the week the Dow Jones added 0.34%, while the S&P 500 advanced 1.84%. The Nasdaq was the outperformer, rising 3.09% over the week.

In Europe, ECB President Christine Lagarde said in an interview on Thursday that she thought “the worst part is behind us” in the battle to bring down inflation. She also asserted that interest rates had probably reached their peak and that interest rate cuts would begin once data confirmed that inflation is on a path to reach the central bank’s target. In local currency terms, the pan-European STOXX Europe 50 Index ended the week up 0.37%, while the UK’s FTSE 100 Index fell 0.84%.

Over the weekend Taiwanese voters elected the ruling Democratic Progressive Party (DPP), which champions Taiwan’s separate identity and rejects China’s territorial claims, candidate Lai Ching-te as its next president, marking the party’s record third win in a row. In the parliamentary elections, the DPP took 51 out of a total of 113 seats, losing the parliamentary majority for the first time since 2012 and leading to a divided government for the first time since 2004. China sees Taiwan as part of its territory and Xi Jinping has made unification a goal. Saturday’s verdict will mean a continuation of the very tense situation that already exists in the Taiwan Strait.

Japan’s stock markets registered strong gains over a holiday-shortened week, with the Nikkei 225 Index rising 6.6% supported by continued stimulative monetary policy and weakness in the yen (boosting Japanese exports).

In contrast, Chinese equities retreated over the week with the benchmark Shanghai Composite Index declining 1.61%. Investor sentiment was impacted by the fall of China’s consumer prices for a third straight month in December, a sign of continuing weak domestic demand.

In Crypto news, the U.S. securities regulator on Wednesday approved the first U.S.-listed exchange-traded funds (ETFs) to track bitcoin, following a decade-long tussle with the crypto industry. Following the approval, U.S.-listed bitcoin exchange-traded funds (ETFs) saw $4.6 billion worth of shares trade hands as of Thursday afternoon with the price soaring to $46,900 level. Friday saw a sharp reversal in pricing to end the week at the $43,200 level.

Market Moves of the Week:

In local news, South African manufacturing production rose 1.9% year-on-year in November, whilst seasonally adjusted manufacturing sales increased by 2.1% over three months. The positive manufacturing print was supported by the release of the Absa Purchasing Managers Index (PMI) for December, a key gauge of manufacturing activity, which rose 2.7 points to 50.9.

The improved data prints will add a ray of hope to South Africa avoiding a recession (two successive negative quarters) in the fourth quarter of 2023. South Africa’s economy contracted 0.2% in the third quarter (Q3) last year.

The JSE All Share index was marginally lower on the week (-0.34%), with the resource sector sharply lower on the week, investors remain concerned around the recovery of the Chinese economy. On the currency front, dollar strength hit emerging market currencies across the board, with the rand ending the week at R18.61/$ level.

Chart of the Week:

The US consumer price index, the most widely used measure of inflation rose a more-than-expected 0.3% in December from the month before after rising only 0.1% in November. On a year-over-year basis, prices rose 3.4%, up from November’s 3.1% pace. Elevated housing and auto insurance costs stood out. Excluding volatile food and energy prices, core CPI also rose 0.3% for the month and 3.9% from a year ago, marking the slowest 12-month pace since mid-2021.

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As we approach the festive season, this will be the last weekly note for 2023. The information covered in this note is up until Friday, December 22nd, at 11:30. We are grateful for your ongoing interest and support, and we wish you and your families a happy and joyful festive season and a prosperous 2024.

In the United States, there was a significant increase in housing starts of 14.8% in November, exceeding expectations and driven by a strong rise of 18.0% in single-family starts. Building permits, however, decreased by 2.5% in November. Existing home sales reported a 0.8% increase in November, beating consensus expectations. Consumer confidence rose in December, influenced by increases in both the expectations and present situation components. Real GDP growth for the third quarter was revised down to +4.9% annualized, below consensus expectations.

In recent geopolitical developments, disruptions in the Red Sea shipping route have occurred as Houthi rebels target oil tankers and container vessels. The U.S. Secretary of Defence announced plans to establish a naval task force to counter these attacks, emphasizing the need for collective international action. Brent Crude Oil rose 4.25% during the week, reaching $80.13/bbl.

In the UK, November inflation figures surprised to the downside for services, core, and headline inflation. Core inflation cooled notably to 0.04%, primarily driven by a slowdown in core goods. The FTSE 100 gained 1.56% during the week.

In Japan, there was a slight downturn in export value in November, marking the first decrease since August, while import value continued to decline significantly. Consequently, Japan’s trade deficit narrowed to -¥776.9 billion, an improvement from -¥2.1 trillion in November 2022. The Nikkei 225 closed the week in positive territory up 0.52%, with a strong YTD move of 27%.

Global equity markets showed mixed performance during the week. In the U.S., major indices saw positive gains, with the S&P 500 up 0.58%, the Dow Jones Industrial Average up 0.27%, and the Nasdaq Composite up 1.01%. Euro Stoxx 50 had a tough week, closing lower by -0.80%. Chinese equity markets also ended the week lower, with the Hang Seng dropping -1.13% and the Shanghai Composite down -0.81%.

Market Moves of the Week:

In South Africa, a new nuclear procurement process for 2,500 MW has been initiated, with plans to launch Requests for Proposals (RFP) by March 2024. The National Energy Regulator of South Africa (NERSA) approved the Department of Mineral Resources and Energy (DMRE) to proceed with the procurement process, subject to certain conditions. These conditions include establishing a demand and generation profile analysis and ensuring the use of engineering, procurement, and construction contract principles during the procurement phase.

Additionally, the National Treasury is reportedly considering withdrawing up to half of the R497 billion ($27.3 billion) of contingency reserves held by the central bank. This move is being contemplated to help reduce the government’s debt load or fund public-sector wages. Discussions between the Treasury and the central bank are reportedly close to finalising the terms of the draw-down from the Gold & Foreign Exchange Contingency Reserve Account.

On the local equity front, the JSE ALSI ending the week down -1.06%. Sectors performance was mixed, with Resources up 5.77%, and Financials up 0.56%. Conversely Industrials had a tough week closing down -7.03%. SA Listed Property continued its recent positive trend, ending the week higher up 1.05%.

Chart of the Week:

Despite significant intra-year fluctuations in the US 10-Year yield, the benchmark bond has returned to a yield similar to its starting point in 2023. The bond market is currently pricing in expectations of interest rate cuts for 2024, reflecting the belief that inflation is once again under control. The recent release of the Core Personal Consumption Expenditure on Thursday indicated that it ended the third quarter exactly at 2%, aligning with the Federal Reserve’s target. Source: Bloomberg.

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In November, U.S. job growth gained momentum while the unemployment rate declined, indicating a robust underlying labor market. According to the Labor Department’s report on Friday, employers added 199,000 jobs last month, while the unemployment rate dropped to 3.7 percent, from 3.9 percent. This increase in employment includes the return of tens of thousands of autoworkers and actors to their jobs post-strikes, along with other workers in related industries previously affected by these walkouts. Additionally, average hourly earnings saw a 0.4% uptick for the month, maintaining a steady 4% increase year-over-year. This positive data has helped cool speculations about the Federal Reserve’s potential rate cuts in the first half of next year.

Meanwhile, the U.S. services sector exhibited growth driven by increased business activity. According to the Institute for Supply Management (ISM) report released on Tuesday, the non-manufacturing Purchasing Managers’ Index (PMI) climbed to 52.7 in November from a 5-month low of 51.8. A PMI reading above 50 indicates expansion in the services sector, a pivotal component accounting for over two-thirds of the economy.

A late rally helped the major U.S indices end flat to modestly higher for the week. The S&P 500 saw a modest increase of +0.21%, while the Nasdaq Composite closed higher, up by +0.69%. Conversely, the Dow Jones Industrial Average ended the week almost flat, showing a minimal increase of +0.01%.

In November, both the Eurozone and the United Kingdom observed increases in their composite purchasing managers’ indices. The eurozone’s composite rose from 46.5 in October to 47.6, while an upturn in the UK services sector elevated the country’s composite from 48.7 to 50.7.

The pan-European Stoxx Europe 50 Index emerged as a notable performer, experiencing a significant surge of +2.37% in the week. Stocks seemed to benefit from anticipations of potential interest rate cuts by central banks next year, driven by concerns over slowing inflation and indications of economic slowdown across European nations. Meanwhile, the FTSE 100 recorded a modest rise of +0.33% for the week.

On Tuesday, Moody’s shifted China’s credit rating outlook from stable to negative, citing concerns over prolonged lower medium-term economic growth and ongoing issues in its property sector. This adjustment doesn’t guarantee an immediate credit rating downgrade, but it increases the likelihood.  Moody’s specifically emphasized concerns regarding the potential financial strain on the national government due to supporting debt-burdened regional and local governments, as well as state-owned enterprises. In response, China’s Finance Ministry expressed disappointment, asserting confidence in an economic rebound and claiming control over the property crisis and concerns about local government debt.

Additionally, in November, China experienced an uptick in services business activity, according to a private-sector survey released on Tuesday. The Caixin/S&P Global services purchasing managers’ index (PMI), which assesses China’s private sector services activity, increased to a three-month high of 51.5, rising from October’s 50.4. The gauge remained above the 50 threshold, indicating expansion for the 11th straight month, and recorded its highest increase since August.

Chinese equities experienced a decline following a credit downgrade of China’s sovereign debt by Moody’s, intensifying concerns regarding the country’s economic prospects. The Shanghai Composite Index dropped by -2.05%. In Hong Kong, the benchmark Hang Seng Index also witnessed a decrease, declining by -3.17%. Similarly, Japan’s stocks faced losses during the week, with the Nikkei 225 Index falling by -3.36%.

Market Moves of the Week:

According to Statistics South Africa (Stats SA), South Africa experienced a 0.2% contraction in its real gross domestic product (GDP) during the third quarter of 2023, following two consecutive quarters of growth. Significant declines in output were observed in key sectors such as agriculture, manufacturing, and construction.  South Africa’s stagnant growth and subsequent contraction are attributed to several factors. These include severe power shortages worsened by ongoing issues at Transnet, along with elevated interest rates.

The National Health Insurance (NHI) Bill has been passed by the National Council of Provinces (NCOP) despite facing significant criticism from health professionals, business sectors, and opposition groups. This contentious legislation is now set to be reviewed by President Cyril Ramaphosa, who holds the decision-making power on its fate. As per the Constitution, the bill, previously endorsed by the National Assembly in June, will be referred to President Cyril Ramaphosa. He retains the option to either approve it as law or call for amendments by lawmakers.

During the week, the JSE All-Share Index experienced a notable decline of -2.53%, primarily influenced by a considerable sell-off in the resources sector, plummeting by -9.52%. Additionally, the financial sector faced a weekly loss of -1.91%. Conversely, the industrial sector saw relatively modest gains, rising by +0.96% throughout the week. Meanwhile, the property sector exhibited robust weekly gains, climbing by +3.05%. By Friday’s close, the rand was trading at R18.96 against the U.S. Dollar, marking a weekly depreciation of -1.72%.

Chart of the Week:

Job growth surged as nonfarm payrolls added 199,000 jobs last month, surpassing initial forecasts, according to the Labor Department’s Bureau of Labor Statistics. October’s figure remained unrevised at 150,000.

Investor anxiety has been heightened recently by the war in Ukraine and impending rate rises by the Federal Reserve. As such, we advise investors to maintain a calm stance during the crisis, diversify, and maintain exposure to long-term themes. Investors need to look beyond near-term news and gain exposure to industries benefiting from longer-term growth trends.

As always, we appreciate your support and value your trust in LNKD Investment Managers. 

Headline inflation in the Eurozone cooled significantly in November from the peak levels of 10.6% in October 2022. Annual consumer price growth came in at 2.4%, down from 2.9% in October and below expectations for a reading of 2.7%. Core inflation, which excludes food and energy costs, also dropped more than expected to 3.6% from 4.2% in the previous month. ECB officials continued to stress that it is too early to declare victory over price rises in the 20-member euro zone bloc, as they monitor potential pressures from wage increases and energy markets.

The pan-European STOXX Europe 50 Index ended 1.06% higher, as the lower inflation print and falling bond yields lifted investor sentiment. The UK’s FTSE 100 Index was also stronger on the week, gaining 0.55%.

On Thursday, the Commerce Department reported that the Federal Reserve’s preferred inflation gauge, the core (less food and energy) personal consumption expenditures (PCE) price index, rose 0.2% in October, a slowdown from September. This brought its year-over-year increase down to 3.5%, its lowest level since April 2021.

Major U.S. indices ended stronger on the week, after strong monthly gains for the month of November. November’s gains snapped a three-month losing streak for the major indices. Moderating inflation, decelerating economic growth and signs that the US economy may achieve a goldilocks soft landing buoyed investor sentiment. For the week the broad-based S&P 500 gained 0.77%, while the Dow rallied 2.4%. The tech-heavy Nasdaq advanced 0.38%.

The yield on the US 10-year Treasury note fell more than 13 basis points to end the week at a yield of 4.22% (the yield was 4.77% at the start of November).

In Asia, Japan’s stock markets ended the week weaker, with the benchmark Nikkei 225 Index declining 0.6%. Prime Minister Fumio Kishida reiterated the government’s resolve to pull the economy permanently out of stagnation.

In China, the benchmark Shanghai Composite Index gave up 0.31% for the week. Economic data for October continued to provide a mixed snapshot of the Chinese economy. Retail sales have generally remained lacklustre since the onset of the Covid-19 pandemic in early 2020 as well as falling global demand for Chinese goods and a slump in the real estate market have weighed negatively on the world’s second-largest economy.

The gold price extended to a new seven-month high after the US Federal Reserve Chair Jerome Powell welcomed recently revealed soft inflation data, though stressed core inflation “is still too high.” US interest rate expectations now include nearly 135 basis points of Fed rate cuts by the end of 2024, as indicated by money market futures, providing a tailwind for gold prices.

Market Moves of the Week:

In corporate news, Naspers doubled its profits over the past six months. The multinational internet and tech group released its interim results on Wednesday for the half-year ending 30 September, alongside those of its Amsterdam-based investment arm, Prosus.

Eskom, SA’s power utility has been spending on average R3 billion a month on diesel to keep the lights on. In the past few years, Eskom has been forced to rely increasingly on its open-cycle gas turbines (OCGTs) because of a rising number of breakdowns within its ageing coal-fired power fleet, with both persistent power cuts as well as rail and port constraints continuing to weigh on the local economy.

National Treasury handed state-owned rail and ports firm Transnet a R47 billion ($2.5 billion) lifeline on Friday, which it said would help Transnet meet its immediate debt obligations. The company will be able to access R22.8 billion immediately under a guarantee facility, the Treasury said in a statement. The statement went on to clarify that Transnet will have to meet “strict guarantee conditions” for the rest of the funds.

The JSE all share index ended the week flat, dragged lower by both the industrial and financial sectors. The resource sector had a stronger showing for the week, gaining over 4%. The rand strengthened against the dollar on Friday, ending the week at R18,63 to the greenback.

Chart of the Week:

Eurozone inflation tumbled more than expected for a third straight month in November. Consumer price growth in the 20 nations sharing the euro currency dropped to 2.4% in November from 2.9% in October, well below expectations for 2.7%. Even underlying price pressures eased more quickly than forecast, with inflation excluding food and energy, which is closely scrutinised by the ECB dipping to 3.6% from 4.2% the month before.

Investor anxiety has been heightened recently by the war in Ukraine and the escalation of geopolitical tensions in the Middle East. As such, we advise investors to maintain a calm stance during the crisis, diversify, and maintain exposure to long-term themes. Investors need to look beyond near-term news and gain exposure to industries benefiting from longer-term growth trends.

As always, we appreciate your support and value your trust in LNKD Investment Managers. 

As the United States celebrated Thanksgiving on Thursday, global markets experienced a more subdued week. Most stock markets have shown a decent recovery from this time last year. Artificial intelligence chipmaker NVIDIA, the sixth-largest global company by market capitalisation, reported its third-quarter earnings, exceeding expectations but provided cautious guidance amid export restrictions to China.

U.S. Black Friday spending showed consumer caution, hinting at a potentially subdued holiday season and lacklustre retailer earnings in early 2024. Unlike pandemic-driven splurges in previous years, spending didn’t maintain the same pace. Salesforce predicted a modest 1% growth in online U.S. sales for November and December, marking the slowest in at least five years.

At the same time, Federal Reserve minutes revealed a united front among policymakers to proceed cautiously on future interest-rate moves, emphasising progress toward their inflation goal and acknowledging the impact on households and businesses.

U.S. economic signals were mixed, with the Chicago Fed National Activity Index falling to -0.49 in October, and existing home sales dropping 4.1% month-on-month. Additionally, durable goods orders declined by 5.4% in October, marking the second-biggest decline since April 2020. On a positive note, MBA mortgage applications rose by 3.0% and initial jobless claims fell to 209.00K in the week ending November 17, exceeding market expectations.

At the same time, concerns about U.S. net national savings have risen, as the budget deficit and personal savings turned negative for the second time since 1947. Only 65.8% of surveyed individuals are confident in meeting an unexpected $2,000 expense within a month, according to the NY Fed.

ECB President Christine Lagarde stressed caution, stating it’s too early to declare victory over inflation. Despite some easing in energy and supply-chain shocks, labour markets are adjusting, and wages are rising. ECB officials, including Governing Council member Francois Villeroy de Galhau, ruled out near-term rate hikes but emphasised the ECB’s commitment to the 2% inflation target by 2025.

UK Chancellor Jeremy Hunt aims to stimulate business investment by £20 billion annually through measures, including 100% tax relief on investment spending by British businesses.

In Japan, the year-on-year national Consumer Price Index (CPI) saw a 3.3% increase in October, surpassing the 3.0% rise reported in the previous month.

Over $25 billion in foreign funds have exited the Chinese stock market, despite efforts to restore confidence. Regulators are working on a list of 50 developers eligible for financing to stabilise the property market, with Goldman strategists estimating a 42% default rate this year.

In the Netherlands, far-right politician Geert Wilders secured a resounding victory in recent elections, positioning his anti-EU Freedom Party to lead the country’s next government. Wilders advocates for a binding referendum on EU departure, withdrawal from international climate commitments, and a significant reduction in immigration.

The week concluded with mostly positive outcomes in global equity markets. In the U.S., the Dow Jones (+1.27%), S&P 500 (+1.00%), and Nasdaq (+0.89%) all showed gains. Similarly, European and Asian markets generally performed well, with positive movements in the Euro Stoxx 50 (+0.72%), Nikkei 225 (+0.12%), and Hang Seng (+0.55%) Indexes. Notably, the FTSE 100 (-0.21%) and Shanghai Composite Index (-0.43%) were the exceptions, showing slight declines.

Market Moves of the Week:

South Africa’s Consumer Price Index (CPI) increased to 5.9% YoY in October, exceeding market expectations. The monthly CPI increase of 0.9%, driven by higher food and fuel prices, further contributed to the unexpected inflation. Nevertheless, the South African Reserve Bank (SARB) maintained its key interest rate at 8.25%, in line with expectations.  Consensus expects headline inflation to retreat to its targeted 4.5% midpoint in the first half of 2024.

Economically, a Transnet backlog in Durban’s key port has caused a substantial financial loss, with around 71,000 containers stranded. Transnet predicts a clearance process until March 2024, highlighting the severity of the situation.

The JSE All-Share Index (+2.42%) was positive this week, driven higher by all three of the major sectors including the resource (+1.45%), industrial (+3.07%) and financial (+2.47%) sectors. By Friday close, the rand was trading at R18.82 to the U.S. Dollar.

Chart of the Week:

As winter approaches, the outlook for European natural gas prices seems optimistic, with recent pricing trends indicating a favourable scenario for the continent. Despite concerns, the mild winter in 2022 led to a collapse in natural gas prices. Thankfully, Europe appears well-prepared with alternatives, providing a more favourable situation this winter than previously anticipated. Source: Bloomberg

Investor anxiety has been heightened recently by the war in Ukraine and the escalation of geopolitical tensions in the Middle East. As such, we advise investors to maintain a calm stance during the crisis, diversify, and maintain exposure to long-term themes. Investors need to look beyond near-term news and gain exposure to industries benefiting from longer-term growth trends.

As always, we appreciate your support and value your trust in LNKD Investment Managers.