Crude oil surged above the $90 per barrel mark for the first time since November 2022. Concerns around supply shortfalls heading into the last quarter of 2023 saw the commodity catch a strong bid, at Friday’s close Brent Crude was up 4.16% week-on-week, to close at $94.20 ($/bbl). Rising oil prices resulted in mixed market performance across the major US indexes. Value outperformed growth, the Dow Jones Industrial Average closed the week in positive territory, outperforming both the S&P 500 and Nasdaq Composite.

Treasury Secretary Janet Yellen expressed growing confidence in the US economy’s ability to manage inflation without harming employment levels. Yellen cited encouraging data showing a steady deceleration in inflation and an increase in job seekers. She reiterated her positive outlook on the US avoiding a recession while keeping consumer-price gains in check.

The Federal Reserve faces a challenging situation as August’s core Consumer Price Index (CPI) rose by 0.28%, surpassing consensus expectations. However, the year-on-year inflation rate dropped to 4.3%, prompting questions about the necessity of another interest rate hike to combat rising prices. Producer price index (PPI) data, released on Thursday, revealed that headline producer prices surged above expectations. Meanwhile, core PPI met anticipated levels. This indicates potential inflationary pressures within the producer sector.

In share specific new, Arm Holdings, the chip designer owned by SoftBank, has successfully pricing its initial public offering (IPO) at the upper end of its range, raising an impressive $4.87 billion. This remarkable IPO now stands as the world’s largest in 2023, surpassing Johnson & Johnson’s Kenvue, which raised $4.37 billion. Arm issued 95.5 million American depositary shares (ADS) at $51 per ADS. Many tech startups and companies in the US have faced obstacles due to a prolonged and challenging listing environment, making Arm’s successful IPO a potential catalyst for others in a similar position.

The U.K. experienced an economic setback in July, with a contraction of 0.5% in monthly GDP, which was worse than expected. All major sectors, including services, production, and construction, reported declines. Goldman Sachs downgraded their 2023 annual growth forecast to +0.3%, aligning with consensus expectations but falling below the Bank of England’s latest projection of +0.5%. Bond yields in the U.K. have weakened as a result of the significant and unexpected decline in monthly gross domestic product (GDP) during July.

The European Central Bank (ECB) made a significant move by increasing key policy rates by 25 basis points. The ECB justified the decision by stating that these rates had reached levels that, if maintained long enough, would contribute substantially to bringing inflation back to its target. Despite this hike, the ECB’s formal guidance continues to pledge that rates will be “set at” sufficiently restrictive levels, with the Governing Council remaining data dependent.  In July, industrial production in the Eurozone dropped by 1.1%, above consensus expectations, primarily driven by sharp declines in durable consumer and capital goods output. The European Commission has revised down its 2023 GDP growth forecast for the Eurozone to 0.8% from 1.1%, reflecting increased economic uncertainty.

China’s economic performance in August exceeded expectations and improved from the previous month. Industrial production growth increased, driven primarily by higher output in computers, chemicals, and automobiles. Year-on-year growth in retail sales and the Services Industry Output Index also saw improvements, mainly due to stronger sales in the automotive and gasoline sectors, although restaurant sales growth slowed. Additionally, fixed asset investment growth rose in August, particularly in manufacturing and infrastructure sectors, although the magnitude of improvement slightly missed expectations, partially due to ongoing challenges in the property investment sector. Despite these economic dynamics, property-related activity remained sluggish, with a sequential decline in property prices in the primary market observed in August.

North Korean leader Kim Jong Un’s visit to Russia ahead of a summit with President Vladimir Putin drew global attention. The summit is expected to focus on Moscow’s supply of weapons for the ongoing conflict in Ukraine. Meanwhile, Ukraine’s military intelligence service reported regaining control of critical Black Sea drilling platforms that Russia had used for helicopter stations and radar activity. Ukraine has also sought substantial financial aid from the US, ranging from $12 billion to $14 billion, as it continues to grapple with high budget spending due to Russia’s ongoing invasion.

US stocks ended the week mixed, with the S&P 500 down 0.16%, the more value orientated Dow Jones Industrial Average up 0.12%, and the tech heavy Nasdaq Composite closing in the red, down 0.39%.

Outside the US, other global markets ended the week in the green. Euro Stoxx 50 ended the week higher, up 1.34%, the FTSE 100 had a strong week, ending the week up 3.12%. Japan’s Nikkei 225 index gained 2.83% this week. Chinese equities ended the week in positive territory, although with modest gains, the Hang Seng Composite up 0.13% and Shanghai Composite up 0.03%.

Market Moves of the Week:

In South African news, Public Protector Busisiwe Mkhwebane faced official removal from her office one month before the end of her term. President Ramaphosa formally dismissed advocate Mkhwebane on Monday following the National Assembly’s adoption of the section 194 inquiry report. This report concluded that Mkhwebane was both incompetent and guilty of misconduct. Notably, this action makes Mkhwebane the first head of a Chapter 9 institution to be impeached from office.

What adds to the astonishment is that the process of her removal has incurred a cost of R160 million to taxpayers. This development highlights significant political and legal implications within South Africa, raising questions about the role and accountability of public officials.

This week’s value bias played out positively in the local equity market, with the resource sector catching the tailwind of the oil price gains and more positive China economic data. Resources ended the week up 8.93%.  The JSE ALSI posted a solid gain for the week up 1.27%, only financials detracted from a sector level, closing the week down 4.24%. The SA listed property sector came under some pressure this week, closing down -1.29%.

The Rand recovered somewhat against the US Dollar, appreciating 0.63% for the week. The currency was trading at R19.00/$ by Friday close.

Chart of the Week:

Oil prices climbed to 10-month highs amid warnings of a supply shortfall. The surge in prices was driven by forecasts from both OPEC and the US. OPEC predicts a substantial shortfall of 3.3 million barrels per day (depicted above) in the fourth quarter, indicating tightening market conditions. Conversely, the US Energy Information Administration anticipates a more modest 230,000-barrel deficit. These projections are influencing the oil market’s direction as it navigates changing supply and demand dynamics. Source: OPEC, Bloomberg.

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. 

In a shortened holiday week, U.S. stock markets closed with losses primarily due to an upward shift in the interest rate outlook, driven by positive economic signals. Apple, a significant component of the S&P 500, saw a decline, attributed to reports of Chinese government employees discontinuing iPhone usage and concerns regarding the upcoming iPhone 15. NVIDIA and other chip manufacturers also contributed to the market’s challenges.

Despite these hurdles, the economic calendar for the week delivered positive news. The Institute for Supply Management reported that August’s services sector activity reached its highest level since February, surprising analysts. New orders displayed robust growth, although order backlogs witnessed a significant drop. Export orders remained healthy, although concerns arose regarding a potential slowdown in the Chinese economy.

The U.S. also reported weekly jobless claims that exceeded expectations. Despite a minor increase in the August unemployment rate, the number of Americans seeking unemployment benefits hit a six-month low, accompanied by a reduction in ongoing claims.

In the Eurozone, there was a downward revision of Q2 GDP growth to 0.1%, a decrease from the initial estimate of a 0.3% expansion. This revision was largely due to a decline in exports, highlighting the region’s economic challenges.

The UK experienced declines in its services PMI and house price index. The Halifax house price index recorded a significant 1.9% month-over-month decline in August. Bank of England (BoE) Governor Andrew Bailey hinted at a potential shift in the central bank’s interest rate policy, expressing uncertainty about an imminent rate hike at the September 21 policy meeting. Bailey emphasized the need for a more nuanced decision-making process.

In China, economic concerns led to declines in Chinese stocks, while the services sector showed signs of slowing. Exports and imports contracted but exceeded expectations. China’s renminbi currency hit a record low against the U.S. dollar, reflecting economic uncertainties. In other China-related developments, authorities are contemplating expanding the ban on iPhones’ use in sensitive departments, government-backed agencies, and state-owned enterprises as part of a broader effort to restrict foreign technology usage in sensitive environments.

Japan’s GDP growth slightly missed expectations. Speculation swirled about a potential political reshuffle within the Liberal Democratic Party.

On a global scale, Copernicus confirmed record-breaking summer heatwaves, highlighting the urgent need to address climate change. Extreme temperatures affected North America, Europe, and Asia, underscoring the imperative to reduce greenhouse gas emissions.

Global equity markets concluded the week with losses. In the U.S., the Dow Jones (-0.75%), S&P 500 (-1.29%), and Nasdaq (-1.93%) all closed the week in the red. Similarly, European and Asian markets, including the Euro Stoxx 50 (-1.04%), Nikkei 225 (-0.31%), Hang Seng (-1.02%) and Shanghai (-0.53%) indices, experienced declines, with the FTSE 100 Index (+0.18%) being the exception.

Market Moves of the Week:

SA’s economy showed some resilience, with GDP increasing from +0.4% QoQ in Q1 to +0.6% QoQ in Q2. Growth exceeded consensus and SARB forecasts, fuelled by a significant increase in private sector fixed investment, despite a drop in household consumption. At the same time, SA’s current account deficit increased from 0.9% of GDP in Q1 2023 to 2.3% in Q2, less severe than expected.

Nevertheless, National Treasury faces significant challenges amid shrinking tax revenue and mounting debt. SA’s budget deficit reached R143.8 billion in July, the largest since 2004, with the debt-to-GDP ratio at 73% and potentially reaching 80% by end-2024. Finance Minister Enoch Godongwana has subsequently hinted at potential tax increases to address revenue shortfalls but acknowledged limitations due to ongoing tax collection underperformance. Budget cuts were also highlighted as an option, but less likely in an election year.

The JSE All-Share Index (-1.52%) was negative this week. Weaker performances came from the resource (-3.59%) and industrial (-1.46%) sectors, while the financial sector (-0.04%) was largely unchanged. By Friday close, the rand was trading at R19.12 to the U.S. Dollar, depreciating by -1.74% for the week.

Chart of the Week:

Amid ongoing negative developments in China, the world’s second-largest economy faces an uncertain future. The $18 trillion economy is slowing down, with low consumer sentiment, export challenges, price deflation, and a youth unemployment rate exceeding 20%. Bloomberg Economics predicts that China may not surpass the U.S. in gross domestic product until the mid-2040s. This represents a significant departure from pre-pandemic expectations, where China was anticipated to secure and maintain the top spot as early as the beginning of the next decade. Source: Bloomberg.

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. 

An increase in the number of job seekers caused the U.S. unemployment rate to rise in August, climbing from 3.5% to 3.8%. The collapse of a major trucking company resulted in the loss of 37,000 jobs in that industry, while the Hollywood writers’ strike led to 17,000 people losing their jobs, as reported by the Bureau of Labor Statistics. Nonfarm payrolls in August exceeded expectations, increasing by 187,000 jobs. The Federal Reserve (Fed) will find solace in the rising labour force participation rate, indicating a healthier labour market balance. The participation rate reached 62.8%, its highest level since the start of the pandemic. Average hourly earnings increased by 4.3% year-on-year last month, slightly slower than July’s 4.4% growth rate. As a result of this data, the market’s odds of another Fed interest rate hike before the end of the year have decreased to approximately 35%.

On the inflation front, core Personal Consumption Expenditures (PCE) Price Index inflation (the Fed’s preferred inflation measure) in the United States increased to 4.2% in July from its June level of 4.1%. This reading came in line with the market’s expectations. Personal Income grew 0.2% while personal spending showed strong growth, rising by 0.8%, indicating ongoing robust consumer demand.

The eurozone’s yearly inflation rate remained stable at 5.3% in August (slightly above the 5.1% consensus expectation). Core inflation, which is a measure of underlying price pressures that excludes the volatile costs of food and energy, decreased as expected, coming in at 5.3% y/y – representing a 20-basis-point improvement compared to July. The minutes from the July meeting of the European Central Bank highlighted the robust labour market in the eurozone and indicated the potential for a possible soft landing scenario.

China intensified efforts to stimulate the economy and support its currency, as investor concerns over the growth outlook persist. Some of the changes implemented this week include reducing the transaction tax on stock purchases by half, lowering reserve requirements, reducing downpayment requirements for both first-time and second-time homebuyers, and decreasing the mortgage rates for existing first-time home buyers. The country’s massive property sector continued to worsen in August, a new business survey found. The sector has slumped in the last few years amid a government crackdown on high debt levels in the industry and remains a key constraint on economic growth. In other news, China’s Purchasing Manufacturing Index (PMI) rose to 49.7 from 49.3 in July but remained in contraction for a fifth straight month. 

On the market front, global indices ended the week higher. In the U.S., smaller-cap stocks outperformed, narrowing the significant year-to-date gap with large-caps. The S&P 500 Index rose by +2.50%, while the Dow Jones gained +1.43%. The technology-heavy Nasdaq Composite had a strong end to the week, rising +3.25%. Shares in Europe (Euro Stoxx 50) and the UK ( FTSE 100) rose by +1.10% and 1.72% respectively. 

Chinese shares rose after the government issued a series of stimulus measures aimed at reviving the economy. The Shanghai index ended the week up +2.26%, while in Hong Kong, the benchmark Hang Seng Index increased +2.30%. In Japan, the Nikkei 225 rallied +3.44%. Gold rose by +1.29% while Brent Oil surged +5.72% over the week. 

Market Moves of the Week:

South Africa’s producer price index hit a near three-year-low in July. Producer inflation dropped to 2.7% y/y from 4.8% in June, driven by lower gasoline and other fuel prices. The median forecast of the eight economists surveyed by Bloomberg was 3%. The move marks the 12th consecutive month of slowing inflation, raising the prospects that the South African Reserve Bank may yet again hold rates steady when its Monetary Policy Committee meets later in September. Downside risks remain though, with producer food inflation (+6.8% y/y) remaining a key driver of the overall rate, which will keep feeding into consumer food inflation (+10% y/y in July).

In August, there was a slight improvement in the seasonally adjusted Absa Purchasing Managers’ Index (PMI), which increased by 2.4 points to reach 49.7 – falling just short of the critical 50-point threshold that separates expansion from decline. The surge in the primary PMI was driven by a nearly 12-point surge in the business activity index, pushing it to 50. The PMI figures for July and August do not instill confidence that there will be a recovery in the factory sector job market during the third quarter, Absa warns.

Eskom reported a R5 billion loss before tax in the first quarter of the 2023/24 financial year ended June 2023. This was revealed in Eskom’s unaudited quarterly results released on Tuesday, 29 August. Eskom’s net revenue increased to R70.9 billion for the quarter, up from R66.3 billion for the same quarter in 2022. The company could not generate enough electricity to meet demand. As such, electricity sales and revenue did not meet expectations. Some consolation was that Eskom’s primary energy costs were R3.5 billion lower than budgeted at R43.4 billion.

The JSE (+1.29%) ended the week in the green, following global markets higher. Sectors were mixed with Resources catching a bounce (+2.75%) and Financials dipping -0.51%. The local currency weakened against the U.S. dollar over the week, rising to R18.80/$ from last week’s R18.64/$ level.

Chart of the Week:

U.S. 10-year yields broke decisively above 3% last August and have climbed since. While this August saw 10-year yields climb for a fourth straight month, a big bid returned to the bond market in recent weeks: after rocketing as high as 4.36%, the rate is sitting at about 4.1%. However, various U.S. money managers expect yields to resume their climb higher as a still-strong U.S. economy threatens further Fed hikes. Source: Bloomberg.

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. 

The annual Jackson Hole symposium hosted by the Federal Reserve Bank of Kansas City commenced on Thursday. During the event, several Federal Reserve officials indicated that although there might not be an immediate need to increase rates, they are likely to keep rates at a restrictive level for an extended period. Jerome Powell, the Chair of the US Federal Reserve, stated on Friday that even though there has been progress in controlling high inflation, it is still a work in progress. He emphasized that the Fed plans to stick to a restrictive policy until there is a significant reduction in inflation and is willing to raise rates further if required. Powell restated the Fed’s commitment to the 2% inflation target and dismissed any notion of accepting a higher inflation rate. He acknowledged the potential lingering impact of previous rate hikes and noted that if the job market remains strong, adjustments in monetary policy might be necessary.

In August, the growth of U.S. business activity approached a point of stagnation, representing its most subdued expansion since February. This deceleration was particularly pronounced within the service sector, where the demand for new business declined. According to S&P Global, the flash U.S. Composite Purchasing Managers’ Index (PMI), which assesses both the manufacturing and service sectors, saw a notable decline from 52 in July to 50.4 in August. This decline marks the most significant drop since November 2022. While the streak of growth continued for the seventh consecutive month, the reading for August was only marginally above the pivotal 50 threshold, demarcating the boundary between expansion and contraction.

Meanwhile, the British economy is showing early indications of heading toward a contraction in the ongoing quarter, raising concerns about a potential recession. A recent survey conducted on Wednesday highlighted a sharp downturn in factory output and broader economic frailty in response to elevated interest rates. The preliminary estimate of the S&P Global/CIPS composite PMI revealed a drop from 50.8 in July to 47.9 in August, falling below estimates. This reading, the lowest since January 2021 during a COVID-19 lockdown, marks the first instance of falling below the 50 mark — indicative of a contraction — since January of this year.

In the Eurozone, business activity suffered a more pronounced blow than initially projected in August, with Germany experiencing a notable decline. Simultaneously, certain inflationary pressures resurfaced, further complicating the scenario. The eurozone composite PMI also came in below economists’ projections at 47.0 compared to 48.6 in July. The weaker PMI data poses a significant challenge for the European Central Bank, which aims to curb rising prices while avoiding a recession.

Growth stocks saw robust performance over the week, buoyed by significant earnings and revenue achievements from artificial intelligence chipmaker NVIDIA. In the US, major indexes ended a volatile session higher on Friday. For the week, the S&P 500 Index recorded a 0.82% gain, while the Nasdaq Composite gained 2.26%. In contrast, the Dow Jones ended the week 0.45% lower.

In spite of the less favourable PMI data, both the pan-European STOXX Europe 50 Index and the UK’s FTSE 100 Index concluded the week on a positive note, marking weekly gains of 0.55% and 1.05% respectively.

After last week’s drop, Japanese stocks rebounded over the week, with the benchmark Nikkei 225 closing 0.6% higher. Conversely, Chinese equities faced a weekly decline as investor confidence in the country’s economic outlook decreased. The Shanghai Composite Index saw a weekly decrease of -2.17%, reaching its lowest point since December, while in Hong Kong, the Hang Seng Index gained some momentum, wrapping up the week with a modest 0.15% increase, although remaining at its lowest level since November.

Market Moves of the Week:

In July, South Africa saw another year-on-year decline in headline inflation, providing a measure of relief for consumers. Stats SA’s data revealed that annual consumer price inflation (CPI) dropped from 5.4% in June to 4.7% in July, marking the lowest reading since July 2021 when it stood at 4.6%. Inflation is now close to the midpoint of the South African Reserve Bank’s inflation target range of 3% to 6%. Inflation first fell to within the central bank’s target range of 3%-6% in June of this year for the first time since April 2022, allowing the South African Reserve Bank (SARB) to leave its repo rate on hold at its last monetary policy meeting in July after 10 consecutive hikes. The SARB’s Monetary Policy Committee (MPC) has emphasized that it wants to see inflation sustainably around the midpoint of its target range, around 4.5% before it contemplates rate cuts.

President Cyril Ramaphosa hosted Chinese President Xi Jinping on a State Visit in Tshwane on Tuesday, coinciding with eminent global leaders assembling in Johannesburg for the 15^th BRICS Summit in Sandton, Gauteng. During this event, the Chinese government extended their support to South Africa’s energy crisis by providing R170 million worth of emergency power equipment and offering a development assistance grant of approximately R500 million. Subsequently, on Wednesday, Minister of Electricity Kgosientsho Ramokgopa, acting on behalf of the government, formalized cooperation through the signing of a collaborative memorandum with Chinese entities.

The summit of the BRICS major emerging economies, consisting of Brazil, Russia, India, China, and South Africa, took place from August 22 to 24. The expansion of the BRICS bloc was the central discussion point during the three-day summit. While all BRICS members publicly support its growth, there were varying opinions among leaders regarding the extent and speed of expansion. Notably, the BRICS nations have chosen to invite six countries — Argentina, Egypt, Iran, Ethiopia, Saudi Arabia, and the United Arab Emirates — to join the bloc, as stated by South African President Cyril Ramaphosa on Thursday.

During the past week, the JSE All-Share Index recorded gains of +1.03%, attributed to notable performance in the financial (+3.19%), property (+2.09%), and resource (+1.68%) sectors, while the industrials sector experienced a decline of -1.25%. By Friday’s close, the rand was trading at R18.64 against the U.S. Dollar, marking an appreciation of +1.85% for the week.

Chart of the Week:

The estimated size of the global artificial intelligence hardware market was valued at USD 10.41 billion in 2021 and it is projected to surpass around USD 89 billion by 2030,  growing at a compound annual growth rate (CAGR) of 26.96% from 2022 to 2030.

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. 

Longer-dated U.S. Treasury yields hit a 10-month high this week as investors focused on the prospects of longer-lasting high-interest rates and a struggling Chinese economy. This week’s broad risk-off follows the publication on Wednesday of minutes from the last Federal Reserve (“Fed”) meeting that suggested officials are considering tighter policy, dampening hopes that the central bank was done raising rates. Fed officials meet next month (September 19-20, 2023) to determine whether to raise interest rates for the 12^th time or hold them steady. Chairman Powell’s upcoming remarks at the annual economics symposium in Jackson Hole, Wyoming, later this month will be closely scrutinized by investors listening for any clues or indications of the Fed’s view on rates going forward.

The Fed hiked interest rates by 25 bps to 5.25%-5.50% at its July 2023 Federal Open Market Committee (“FOMC”) meeting. Powell, following the July decision, emphasized that each meeting will be open to evaluation depending on the data at hand.

Some officials think the Fed has already raised its benchmark lending rate enough to curb inflation, with financial markets seeing more than a 90% chance the central bank will agree to pause rate hikes next month, according to the CME FedWatch tool.

U.S. consumer spending held up well in July as inflation slowed, with retail sales turning in a stronger-than-expected showing for the month, the Commerce Department reported Tuesday. Retail sales jumped 0.7% over the month, roughly double consensus estimates. Excluding the volatile auto segment, sales rose 1.0%, bringing their year-over-year gain to 3.2%.

Major US indices ended lower this week, with the Dow Jones off 2.2%, the S&P 500 2.1% lower and the Nasdaq Composite shedding 2.6%.

European markets retreated on Friday, tracking cautious global sentiment. In local currency terms, the pan-European Stoxx 50 index fell 2.51% for the week on intensifying concerns about the outlook for the Chinese economy and the prospects of higher European interest rates. The UK’s FTSE 100 Index followed the negative global sentiment dropping 3.48% for the week.

The UK’s annual inflation rate dropped sharply in July to a 15-month low, according to official data, driven lower by falling energy and food prices. July’s price growth of 6,8% (from 7,9% in June) was in line with analyst predictions, including the Bank of England.

In other economic news, data published on Tuesday showed that UK unemployment increased in the three months to the end of June. The one exception to this evidence of a cooling labour market was annual pay growth, which at 7.8% was the highest recorded since 2001. The increase in earnings may well persuade the Bank of England to announce yet another increase in interest rates when its monetary policy committee (MPC) meets next month.

In Asia, shares headed for their sixth daily decline against the backdrop of continued worries about China’s flagging economic recovery and higher global interest rates. Official data for July revealed that China’s economic activity continued to weaken as well as further evidence of a property market downturn. The People’s Bank of China delivered its strongest ever pushback against a weaker yuan via its daily reference rate, cutting its medium-term lending facility rate by 15 basis points to 2.5% as well as lowering its seven-day reverse repurchase rate (a short-term policy rate) by 10 basis points. Over the week the Shanghai Stock Exchange Index gave up 1.80%, while in Hong Kong, the benchmark Hang Seng Index plummeted 5.89%, its biggest weekly drop in five months.

Amid concerns of China’s slowing, Japan’s stock market also declined over the week, with the Nikkei 225 Index ending 3.2% lower. On the data front, Japan’s economy posted its third straight quarterly expansion, government data showed Tuesday, as robust export growth contributed to an annualized 6% expansion in the second quarter. This followed an annualized 2.7% growth in the first quarter, pointing to a continued post-Covid recovery for Japan’s economy.

Oil headed for its first weekly loss since June as concerns over economic weakness in China and potentially even tighter monetary policy in the US combined to overshadow signs of a healthy physical market. Oil prices dropped about 2% for the week but remain markedly higher from its lows in June, driven largely by supply cuts by OPEC+ members Saudi Arabia and Russia.

Market Moves of the Week:

South Africa’s second-quarter unemployment rate fell to its lowest level since the first quarter of 2021, beating analysts’ expectations, as employers added jobs in sectors including construction and trade. The official jobless rate fell to 32.6% in the second quarter from 32.9% in the prior quarter. Statistics South Africa said the number of people with jobs rose to 16.3 million in April-June, approaching the pre-COVID level of 16.4 million and the seventh consecutive quarterly rise in employment. The South African Reserve Bank estimates the economy will grow at 0.4% this year, compared with about 2% had it not been for the power rationing.

On the political front, a group of South African opposition parties that aims to end the ruling African National Congress’ three-decade hold on power agreed Thursday to form a coalition government should they collectively win a majority in next year’s Parliamentary elections. The seven signatory parties to the so-called Multi-Party Charter for South Africa also agreed that they won’t enter into any “working arrangement or co-governing agreements” with the ANC or the populist Economic Freedom Fighters at national or provincial government level following the elections. The parties will contest the elections as individual entities, and representation in a post-election coalition government would be “approximately proportional” to electoral support.

Chinese President Xi Jinping will attend the BRICS summit in South Africa next week, amid heightened China-US tensions. Xi will make the trip to Johannesburg starting Monday at the invitation of South African President Cyril Ramaphosa. The trip will also give Xi a chance to make his case for BRICS expansion, something India and Brazil have opposed. China has been a keen proponent of the bloc comprising the Asian nation, Brazil, Russia, India and South Africa that was officially formed in 2009-2010. Russian President Putin will participate virtually to avoid South Africa having to carry out an International Criminal Court arrest warrant on him.

The FTSE/JSE All Share Index ended the week 5% lower. Resources were the worst performing sector on the JSE – down 9.3% for the week, followed by the Financial (-4.68%) and Industrial sectors (-2.95%). The rand firmed on Friday to end the week below R19 to the US dollar after another volatile week in currency markets.

Chart of the Week:

As per the chart above the current fed funds futures market is pricing in a small chance of another hike by November, when the terminal rate is predicted to be reached. The Federal Open Market Committee meeting in July as well as this week’s publication of the minutes of the meeting hasn’t shifted that market view.

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. 

The past week witnessed a varied performance in the major U.S. stock markets. Investors grappled with the implications of subdued inflation data against concerns stemming from the recent uptick in long-term interest rates. Notably, value stocks displayed stronger performance compared to growth stocks. The trading activity remained subdued, partially attributable to the ongoing summer vacation period and the gradual conclusion of the quarterly earnings reporting season.

U.S. inflation continued to show signs of moderating, core CPI rose 0.16% month-on-month, below market consensus, matching the lowest previous reading since February 2021. Headline CPI rose 0.17% in July and up 3.2% from last year, as food prices rose 0.2% and energy prices rose 0.1% over the month. Initial jobless claims increased by 21k to 248k this week, above consensus expectations of a 3k increase. The current path of inflation is easing concerns that the Federal Reserve will continue its current interest rate hiking cycle.

President Joe Biden recently introduced strategic measures to limit U.S. investments in China, specifically targeting firms involved in next-generation military and surveillance technologies. This move aims to curtail China’s advancements in these critical sectors. The regulations encompass certain Chinese semiconductor, quantum computing, and artificial intelligence companies. President Biden’s commentary on China’s economic challenges, referring to the economy as a “ticking time-bomb,” and his candid remarks about the leadership in Beijing, including labelling Communist Party leaders as “bad folks,” highlight a complex diplomatic landscape. While the Biden administration aims to enhance overall relations with China, these statements and regulations could potentially strain bilateral ties once more.

The Chinese economy is faced with the opposite problems to the U.S., China is in the uncomfortable position of managing deflation, as CPI continues to sink, and the economy weakens. High youth unemployment, falling exports and a challenging property sector are all weighing on the world’s second largest economy. Recent inflation data revealed a tandem fall in both consumer and producer price inflation, this for the first time since November 2020, underscoring the weak demand throughout the economy.

The U.K.’s economic trajectory continues to show resilience. June witnessed a 0.5% month-on-month expansion in the country’s Gross Domestic Product (GDP), surpassing consensus expectations. The production and construction sectors were notable contributors to this growth, with a 1.8% and 1.6% increase, respectively. Services output also played a positive role. Goldman Sachs’ 2023 forecast for the U.K.’s annual growth stands at +0.6% year-on-year, surpassing both consensus projections (+0.2% YoY) and the Bank of England’s latest estimate (+0.5% YoY). U.K. inflation remains among the highest of developed economies at 7.9%, well above the BoE target range of 2%.

Over the weekend, geopolitical tensions heightened as the conflict in Ukraine extended to the Black Sea region. Innovative sea drones incapacitated a Russian naval vessel and an oil tanker. This unprecedented incident now jeopardises Russia’s commodity exports via this vital route. The Black Sea route constitutes a significant portion of Russia’s daily global sales of grain and approximately 15%-20% of its oil exports. Ukraine’s counteroffensive actions could potentially disrupt Russia’s capacity to deliver oil to its customers.

The European Central Bank indicated that the near-term economic outlook for the block has deteriorated due to weaker domestic demand. The ECB believes that outlook for economic growth and inflation remains highly uncertain. Inflation is expected to moderate in 2023 but will likely remain above the 2% target rate for an extended period.

US stocks ended the week mixed, with the S&P 500 down 0.31%, the more value orientated Dow Jones Industrial Average up 0.62%, and the tech heavy Nasdaq Composite closing in the red, down 1.90%.

The mixed trend carried through to other global markets. Euro Stoxx 50 ended the week marginally lower, down 0.27%, the FTSE 100 also closed the week in negative territory down 0.53%. Japan’s Nikkei 225 index gained 0.87% this week. Chinese equities came under pressure this week, the Hang Seng Composite down 2.29% and Shanghai Composite down 3.01%.

At Friday close, Brent crude oil was slightly higher, up 0.65% for the week at $86.55 ($/bbl).

Market Moves of the Week:

In South African political news, former President Zuma received a ‘special remission’ by Correctional Services Minister Ronald Lamola, effectively nullifying the remainder of his prison sentence. Mr Zuma was found guilty of contempt of court and sentenced to 15-months imprisonment by the Constitutional Court. To date Mr Zuma has only served 2-months of his sentence and was unlawfully released on medical parole in September 2021. The approved remission of non-violent offenders by President Cyril Ramaphosa covers 212,286 inmates, and Minister Lamola has stated that the remission of prison sentences is a crucial part of managing the overcrowding in the correctional services system.  

Global inflation and interest rate uncertainly was digested by the local market, through a shortened trading week. The JSE ALSI posted a modest gain for the week 0.02%, only financials contributed positively from a sector level, closing the week up 0.65%. The SA listed property sector continued to recover, closing this week up 2.11%.

Once again, the Rand came under pressure against the dollar, depreciating 2.61% this week. The currency was trading at R18.94/$ by Friday close.

Chart of the Week:

July core CPI rose by 0.16%, slightly below consensus. The year-on-year rate fell to 4.7%. The print was broadly encouraging from a disinflation standpoint, rent inflation slowed further, the wage sensitive service category was also net softer. The softer core CPI print has further reduced the possibility of a September hike by the FOMC, and called into question whether a final hike in November is still necessary. Source: Department of Labor, Goldman Sachs Global Investment Research.

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Global equity markets had a tough start to August, as Fitch Ratings unexpectedly downgraded the U.S.’s credit rating from AAA to AA+. This marked the second credit downgrade in U.S. history, raising concerns about the country’s fiscal outlook and highlighting ongoing fiscal challenges worldwide. While the impact on financial markets may be limited, it remains an important development.

U.S. employment data was in the spotlight this week, with data showing that 187,000 jobs were added in July, similar to June’s figures. This suggests that the pace of job growth has slowed compared to earlier months, where an average of 287,000 jobs were added per month in the first half of the year. The unemployment rate declined slightly to 3.5%, and wages grew by 4.4% year-on-year, indicating that the U.S. labour market is cooling just enough, adding more support to a possible soft landing for the world’s largest economy.

Other U.S. economic indicators were mixed in July, with some meeting expectations and others falling short. The eurozone, on the other hand, saw a surprising 0.3% growth in Q2, exceeding expectations. Inflation in the euro area slowed to 5.3% in July but remained well above the European Central Bank’s target of 2%.

The Bank of England (BoE) raised its key interest rate to 5.25%, the highest in 15 years, with plans to keep rates high to combat inflation. The BoE’s economic growth estimates for this year and the next remained at 0.5%. However, the UK housing market faces challenges with falling house prices and the first quarterly decline in net mortgage lending since 1987.

China experienced a decline in its manufacturing PMI, signalling contraction, while home sales faced setbacks. However, the services PMI showed growth, highlighting resilience in the services sector. In Japan, the unemployment rate improved, together with services PMI, but the manufacturing PMI fell below expectations.

In other news, heads of state from BRICS nations are set to discuss the enlargement of the group. Twenty-two nations have asked formally to become full-time members of the group, and more than 20 others have submitted informal requests. China seeks rapid expansion, while India and Brazil have concerns about the rules and potential repercussions on international relations.

Global equity markets concluded the week with losses. In the U.S., the Dow Jones (-1.11%), S&P 500 (-2.27%), and Nasdaq (-2.85%) all closed the week in the red. Similarly, European and Asian markets, including the Euro Stoxx 50 (-2.99%), FTSE 100 (-1.69%), Nikkei 225 (-1.73%), and Hang Seng (-1.87%) indices, experienced declines, with the Shanghai Composite Index (+0.37%) being the exception.

Market Moves of the Week:

South Africa’s trade balance saw a sharp decline in June, shifting from a surplus of R9.58bn in the previous month to a deficit of R3.54bn. This was mainly driven by a significant drop in exports, contributing to a projected widening of the overall current account deficit from 1.0% of GDP in Q1 to 2.7% of GDP in Q2.

New vehicle sales saw a year-on-year improvement of approximately 1% in July, with 43,389 units sold compared to 42,822 units in July 2022. The overall trend for the past three months showed a positive growth of 8% year-on-year in total new vehicle sales, driven by strong performance in the light and heavy commercial segments, which grew by 42% and 23% respectively.

Eskom reported a substantial increase in distributed-generation solar PV capacity, with 1.82 GW added in the first six months of the year. Installed solar rooftop PV capacity rose from 983 MW in March to 4,411.5 MW in June. However, there are concerns that the reported figures might be overstated.

The JSE All-Share Index (-1.97%) was negative this week. Weaker performances came from all three of the major indices including the resource (-4.58%), industrial (-1.28%) and financial (-0.59%) sectors. By Friday close, the rand was trading at R18.45 to the U.S. Dollar, depreciating by -4.67% for the week.

Chart of the Week:

Fitch downgraded the United States’ credit rating from AAA to AA+ on Tuesday, triggering strong reactions from the White House and surprising investors. This decision came despite resolving the debt ceiling crisis two months earlier. Fitch cited concerns about the country’s financial outlook over the next three years and the recurring last-minute debt ceiling negotiations that threaten the government’s ability to meet its financial commitments. The chart shows that Fitch downgraded the U.S.’s long-term foreign currency rating to AA+ in 2023, following a similar move by S&P in 2011. Source: Thomson Reuters.

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The Federal Reserve (the Fed), the European Central Bank (ECB) and the Bank of Japan (BoJ) all made significant announcements this week. The Fed delivered another interest rate hike this week, as expected, while Chair Jerome Powell indicated that there might be additional hikes in the future, depending on the incoming data, which has recently shown a robust U.S. economy. The unanimous decision to raise rates by a quarter percentage point has pushed the target range for the Fed’s benchmark federal funds rate to 5.25% to 5.5%, the highest level in 22 years. The Fed revised its evaluation of U.S. growth, upgrading it from “modest” to “moderate,” whilst eliminating its recession forecast. Powell also stated that rate cuts are improbable in the upcoming year and noted that inflation is not expected to reach the target until 2025.

On Thursday, the ECB increased the eurozone’s key interest rate by 0.25 percentage points, bringing its main rate to 3.75%, a record-equalling high. ECB President, Christine Lagarde, said that the bank might hike or hold rates steady in September. “The Governing Council will continue to follow a data-dependent approach to determining the appropriate level and duration of restriction,” the ECB said in its statement. Earlier this week, business activity data from the eurozone indicated declines in the economies of its major players, Germany and France. These figures have heightened concerns that the euro area might face the risk of slipping back into recession in the current year.

In a surprising move, the BoJ made adjustments to its monetary policy, revealing plans to enhance flexibility regarding its yield curve control (YCC) target, which is designed to keep Japanese government bond yields in a narrow corridor. The bank announced that the previous 0.5% cap on 10-year Japanese Government Bond (JGB) yields will now serve as a reference level. Going forward, the bank will intervene in a flexible manner to restrain yields, setting a new cap at 1%. The move is expected to enhance the sustainability of monetary easing under the current framework. Additionally, as anticipated, the BoJ raised its forecast for consumer price inflation in fiscal 2023.

On the economic data front, the preliminary U.S. GDP data revealed a growth of 2.4% in the second quarter, driven by robust consumer spending and non-residential investment – raising hopes of a possible “soft landing”. This rate of growth topped the 2% pace recorded in the first quarter and strongly beat consensus estimates of a 1.8% expansion. Likewise, U.S. consumer confidence increased to a two-year high in July, supporting the economy’s prospects in the near term. In inflation-related news, the core personal consumption expenditures price index, the Fed’s preferred measure of inflation, rose 4.1% y/y, the lowest annual increase since September 2021 and marked a decrease from the 4.6% level in May.

Based on data from FactSet Research, as of Q2 2023, slightly over half of the companies in the S&P 500 Index have reported their earnings. The blended earnings per share, which incorporates both reported data and estimates for yet-to-report companies, indicate a 7.5% decline compared to the same quarter the previous year. The energy and materials sectors experienced the most significant drops, while the consumer discretionary sector exhibited the strongest growth. Additionally, sales remained flat year over year.

On the market front, global indices ended the week in the green. The S&P 500 Index climbed +1.01%, while the Dow Jones rose by +0.66%, notching its 13th consecutive daily gain on Wednesday, which marked its longest winning streak since 1987. The technology-heavy Nasdaq Composite outperformed and ended the week up +2.02%. Shares in Europe rose +1.71% (Euro Stoxx 50) over the week while the FTSE 100 managed a 0.40% gain. 

Chinese equities rallied after Beijing signalled it would provide more stimulus to support the economy. The Shanghai and Hang Seng index ended the week up +3.42% and +4.42% respectively. In Japan, the Nikkei 225 gained +1.41%. Gold dipped -0.09% while Brent Oil rose +4.62% over the week. 

Market Moves of the Week:

South Africa’s June Producer Price Inflation (PPI) was released this week. The index decelerated to 4.8% y/y, down from 7.3% in May – the biggest drop in more than a decade and the lowest level since February 2021. The main contributor to the downward trend was the category of ‘coke, petroleum, chemicals, rubber, and plastic products’, with the ‘food products’ category following closely behind. The move added momentum to the argument that rate hikes have achieved their objectives.

The International Monetary Fund, on Tuesday, stated that South African output would experience a +0.3% increase in 2023, primarily due to the resilience shown by its services sector during the first quarter, despite the ongoing electricity crisis. This updated forecast represents an increase from the +0.1% growth expectation stated in the IMF’s World Economic Outlook report in April 2023.

According to data from JSE Ltd., foreign investors purchased 14.1 billion rand ($784 million) of the country’s debt last Friday. This represents the largest net inflow recorded since the exchange operator started publishing such data in 2019.

Russian President Vladimir Putin announced that his nation and the African leaders participating in a summit in St. Petersburg have reached a consensus to advocate for a multipolar world order and combat “neocolonialism.” During the two-day summit, Putin offered debt write-offs and grain as incentives to attract allies. He emphasized that Russia’s interest in Africa has been consistently increasing. The meeting was seen as a test of Moscow’s support in Africa, where Russia retains backing despite international isolation sparked by its war in Ukraine. South African President Cyril Ramaphosa said African leaders were looking forward to engaging further with Putin later Friday on their peace proposal.

The JSE (+2.19%) rose over the week, in line with international peers. Resources (-1.38%) were the outlier, as all other major sectors ended in the green. The rand appreciated against the U.S. dollar over the week, strengthening to R17.63/$ from last week’s R17.93/$ level.

Chart of the Week:

The Dollar has been overvalued for almost a decade. Portfolio flows chasing ‘U.S. exceptionalism’ and escaping more challenging risk-adjusted returns abroad (over the past year) provide structural support to the Dollar’s high valuation. However, there is a strong consensus that the Dollar should fall over the next year as the Fed most likely ends its rate hiking cycle. Source: Infront, Goldman Sachs.

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

In June, spending at US retailers continued its positive growth trend for the third consecutive month, showcasing resilience among American consumers. According to the Commerce Department’s report on Tuesday, retail spending increased by +0.2%, adjusted for seasonality but not inflation. However, this growth rate was slower than the revised +0.5% increase observed in the previous month falling short of economists’ expectations. Overall, the Commerce Department’s mixed report highlighted consumer resilience while also indicating a deceleration in spending momentum. Nevertheless, these findings did not alter the expectations that the Federal Reserve would resume raising interest rates this month, following the unchanged rates in June.

U.S. factories also experienced an unexpected decline in production in June. However, there was a notable rebound in the second quarter as motor vehicle output accelerated, following two consecutive quarterly declines. The Federal Reserve reported a -0.3% drop in manufacturing output for the last month, and data for May was also revised down.

In the UK, June’s inflation rate decreased to 7.9%, falling below economists’ expectations. Prior to this, analysts had projected an annual rise in the headline consumer price index of 8.2%, following May’s unexpected higher reading of 8.7%. Despite this reduction, the annual rise in the headline consumer price index remained significantly higher than the Bank of England’s 2% target, indicating ongoing inflationary pressures. Core inflation, which excludes volatile energy, food, alcohol, and tobacco prices, remained steady at an annualized 6.9% but did show a decline from the 31-year peak of 7.1% recorded in May. The persistently high inflation in the UK has raised concerns from both the government and the Bank of England about its potential impact on the economy. Factors such as a cost-of-living crisis and a tight labour market contributing to wage price increases have been cited as contributors to the ongoing inflationary pressures.

The eurozone economy managed to avoid a recession in the first quarter of this year, as per revised figures released by the EU’s statistics agency, Eurostat, on Thursday. The updated data revealed that the Gross Domestic Product (GDP) remained unchanged instead of contracting, as previously estimated. Specifically, the GDP for the first three months of the year was reported as flat, reflecting an improvement from the earlier estimate of a 0.1% contraction.

According to the National Bureau of Statistics (NBS), China’s economy expanded by 6.3% in the second quarter compared to the previous year. However, this growth fell short of market expectations due to tepid export demand and declining property prices, which affected consumer confidence. The 6.3% GDP print for the second quarter reflects a 0.8% pace of growth from the first quarter, slower than the 2.2% quarter-on-quarter pace recorded in the initial three months of the year. Fu Linghui, the spokesperson for the National Bureau of Statistics, highlighted that China faces a complex geopolitical and economic international environment. Nevertheless, he expressed confidence that China can still achieve its full-year growth target, set at around 5% for 2023. Regarding specific economic indicators, retail sales for June rose by 3.1%, slightly below the expected 3.2%, with catering, sports, entertainment products, alcohol, and tobacco recording the highest growth within the retail sector. On a more positive note, industrial production for June rose by a robust 4.4% year-on-year, surpassing the forecasted 2.7% growth rate.

The majority of U.S. equity indexes posted gains for the week driven by optimism surrounding the tight labour market and expectations of moderated inflation, which could potentially safeguard the economy from a hard landing. Notably, the Dow Jones index increased by +2.08% during the week, while the S&P 500 index also rose by +0.69%. However, the tech-heavy Nasdaq Composite was moderately weaker, declining by -0.57%.

In the UK, the FTSE 100 Index gained +3.08%, partly influenced by the depreciation of the British pound relative to the U.S. dollar. Conversely, the Euro Stoxx 50 Index ended the week -0.20% lower.

In Asia, Chinese equities faced a decline as recent economic data pointed to signs of faltering growth, with the Shanghai Stock Exchange Composite Index down -2.16%, while the benchmark Hang Seng Index in Hong Kong fell by -1.74%.  In Japan, the benchmark Nikkei 225 Index also ended lower, falling by -0.27%.

Market Moves of the Week:

Statistics South Africa (Stats SA) published its latest inflation figures for South Africa this week, showing a notable improvement as headline inflation cooled from 6.3% in May to 5.4% in June. This positive development brings June’s inflation rate back below the upper limit (6%) of the South African Reserve Bank’s (SARB) monetary policy target range. Moreover, June’s inflation rate of 5.4% is the lowest recorded since October 2021. Notably, the 0.9 percentage point drop in headline inflation between May and June is the most substantial decline since May 2020. The Consumer Price Index (CPI) analysis showed that six of the twelve main categories experienced a decline in annual inflation, five saw an increase, and one remained unchanged. In terms of specific sectors, annual goods inflation dropped from 8.0% in May to 6.3% in June, while services inflation decreased slightly from 4.6% in May to 4.5% in June. Core inflation, which excludes food and fuel, also showed a slight decrease, reaching 5.0% in June.

In addition to the inflation figures, Stats SA also reported a year-on-year decline of 1.4% in South African retail sales for May, following a revised 1.8% decrease in April. This marks the sixth consecutive month of year-on-year declines in retail activity. The prolonged power crisis has been a significant factor impacting several retailers, leading to a negative impact on their operations. According to Raquel Floris, Stats SA’s deputy director for distributive trade statistics, among the retailer groups, five out of seven registered decreases in May, with general dealers and hardware stores being the largest negative contributors.

South Africa’s central bank made the decision to pause interest rate hikes on Thursday, marking the first such pause since November 2021. However, Governor Lesetja Kganyago was prompt to clarify that this pause does not signal the end of the hiking cycle. During the recent meeting, the South African Reserve Bank’s (SARB) monetary policy committee (MPC) maintained the key repo rate at 8.25% and the prime lending rate at 11.75%, attributing this decision to improved economic conditions and lower inflation forecasts compared to previous projections. Since initiating the hiking cycle in November 2021, the SARB has raised rates by a cumulative 475 basis points. Looking ahead, future rate decisions will continue to be contingent on economic data and risks associated with the inflation outlook. The latest projections from the SARB indicate an expected inflation average of 6.0% in 2023, slightly revised from the previous forecast of 6.2% in May. However, the central bank foresees inflation returning sustainably to the midpoint of the target range only by the third quarter of 2025. Additionally, the GDP growth forecast for 2023 was revised upward to 0.4% from 0.3%. Despite acknowledging improved economic conditions, the SARB cautions about the longer-term outlook, highlighting potential risks to inflation and overall economic stability due to ongoing power cuts, logistical bottlenecks, and sustained food price pressures.

The JSE All-Share Index ended the week lower by -1.19%, mainly impacted by weaker performances in the resource (-1.19%) and industrial (-2.6%) sectors. The financial sector saw a positive gain of +1.02%, and the property sector also ended the week on a positive note, with an increase of +1.56%. By the close of trading on Friday, the rand strengthened against the U.S. Dollar, trading at R17.93 and appreciating by +0.82% for the week.

Chart of the Week:

South Africa’s consumer inflation fell within the SARB’s target range of between 3% and 6% for the first time in 14 months.  Following the improved inflation print, the South African Reserve Bank decided to halt interest rate hikes on Thursday, citing improved economic conditions and lower inflation forecasts. Governor Lesetja Kganyago cautioned that this may not signal the end of the hiking cycle and that future decisions would depend on economic data and inflation risks.

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. 

The Dow Jones Industrial Average notched its best performance since March, gaining 2.3% on the week, as lower-than-expected inflation and strong earnings results from some of the biggest banks and companies kicked off second-quarter earnings season in the US. On a weekly basis, the S&P 500 added 2.4%, while the technology-heavy Nasdaq gained 3.3%.

Investors’ sentiment was lifted by the soft inflation reports, with both the consumer and the producer price indexes reinforcing the notion that inflation is moderating. The Consumer Price Index (CPI) which measures inflation, increased 3% year over year, its lowest annual rate in more than two years. On a monthly basis, the index, which measures a broad range of prices for goods and services, rose 0.2%. That compared with Dow Jones estimates for respective increases of 3.1% and 0.3%.

Producer prices also rose less than expected with the producer price index (PPI), released on Thursday, showing headline producer prices rose only 0.1% over the year ended in June, nearing deflation territory.

When inflation first began to accelerate in 2021, Federal Reserve (Fed) officials thought it would be more “transitory,” but inflation has proved to be more stubborn than anticipated. The Fed began hiking, ultimately raising benchmark rates by 5 percentage points through a series of 10 increases since March 2022.

In the week ahead earnings season picks up steam in the US, with a flurry of releases from some of the world’s most prominent companies, including Elon Musk’s EV giant Tesla, as well as major banks, pharmaceutical firms, prominent airlines, tech and telecom giants.

In Europe, amidst signs of cooling US inflation, the pan-European STOXX Europe 50 Index ended the week 3.86% higher, while the UK’s FTSE Index 100 gained 2.45%.

Earlier in the week Dutch Prime Minister Mark Rutte resigned after 13 years in power after his coalition split over different approaches to immigration. Rutte, who is Europe’s second-longest serving leader, had said that his government would tender its resignation to the Dutch king, triggering new elections to be held in the fall.

In Asia, China extended support measures to the property sector, raising hopes that further support for the country’s flagging economy could be forthcoming. The Shanghai Stock Exchange Index rose 1.29% for the week, while in Hong Kong, the benchmark Hang Seng Index gained 5.71%. In a sign of weakening global demand, exports from China fell 12.4% year over year in June, the largest fall since February 2020, at the beginning of the pandemic.

Japanese equities lagged for the week, with the Nikkei 225 Index ending flat.

Oil headed for a third weekly gain as supply disruptions in Africa and a reduction in shipments from Russia tightened the market, Brent crude gained 1.78% over the week.

Gold notched its biggest weekly gain since April after signs of cooling inflation sparked hopes of a pause in U.S. interest rate hikes (higher interest rates increase the opportunity cost of holding zero-yield gold). Gold traded at $1,954 per ounce at Friday’s close, gaining 1.55% for the week.

Market Moves of the Week:

The rand was a big beneficiary of economic data this week showing cooling US inflation, driving the dollar to its weakest level since April 2022. The rand broke below R18 to the dollar for the first time in three months on Thursday and as of Friday’s close was up more than 3.8% for the week. By Friday’s close, the rand was trading at R18.08 to the U.S. Dollar.

Economic data released on Tuesday showed that the South African manufacturing sector rose 2.5% year on year after a 3.6% expansion in April. The local economy avoided a recession in Q1 when it eked outgrowth of 0.4% after contracting 1.1% in Q4 of 2022.

South Africa’s struggling utility Eskom said on Thursday that it would extend ‘Stage 6’ power cuts, its highest level on record, into the weekend as cold weather drives up demand and power station breakdowns constrain supply. Stage 6 outages mean many businesses and households are in the dark for up to 10 hours or more per day.

On the Johannesburg Stock Exchange, the broader all-share index ended the week 3.9% higher, with strong gains recorded in the resources (6.48%), industrial (3.34%), and financial sectors (3.24%).

Chart of the Week:

The Consumer Price Index (CPI) rose by less than expected, at 0.2% month over month (MoM) and a 27-month low of 3% year over year (YoY). Stripping out volatile food and energy prices, the core CPI rose 4.8% from a year ago while consensus estimates expected an increase of 5%. The annual rate was the lowest since October 2021.

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.