Global equities recorded their first back-to-back monthly gain in over a year, and investment-grade bonds posted their biggest monthly gain since 2008, buoyed by the possibility that the Federal Reserve may slow the pace of its interest rate increases. Comments from Fed Chair Jerome Powell, signalling smaller interest rate hikes going forward was a major catalyst behind November’s market performance. At the same time Powell highlighted the risk of relaxing monetary policy too soon and reiterated that the peak interest rate for this tightening cycle is likely to be “somewhat higher” than previously estimated.

Friday’s jobs report reaffirmed this cautious approach, with the U.S. adding more jobs than forecast and wages surged by the most in nearly a year, pointing to enduring inflation pressures. Nonfarm payrolls increased by 263,000 in November compared to estimates calling for a 200,000 increase in payrolls. The unemployment rate held at 3.7% as participation eased. Average hourly earnings rose twice as much as forecast after an upward revision to the prior month.

Other economic data releases were mixed, with the U.S. reporting stronger than expected GDP growth for the 3^rd quarter. GDP rose by 2.9% compared to market expectations for a 2.6% increase, following the 2^nd quarter’s -0.6% decline. ISM Manufacturing data came in below estimates (49.0 vs. 49.7 est.), with the Chicago Purchasing Manager’s Index (PMI) unexpectedly falling to a level of 36.20 in November, compared to a level of 45.20 in the previous month.

Cyber Monday spending rose by 5.8% year-on-year to a record $11.3 billion, Adobe said. U.S. stores were saddled with a glut of unsold merchandise, forcing them to offer sharply reduced prices; electronics had average discounts of about 20% and toys 22%.

Civil unrest in China, caused by a fire which killed 10 people due to the country’s stringent lockdown measures, has forced authorities to reassess their zero-tolerance approach. China’s National Health Commission announced that it will boost vaccination rates among the elderly, a move seen as crucial for the economy to fully reopen. Days later, China’s most senior official in charge of the coronavirus response, said that efforts to combat the virus were moving to a “new phase” as the omicron variant weakens and more people are vaccinated. Beijing also plans to start allowing low-risk infected individuals to isolate from home rather than in government quarantine sites.

The economic effects of lockdown measures continue to impact China’s economy, with November manufacturing PMI falling to 48.0, slipping deeper into contractionary territory. The services gauge was also worse than estimated at 46.7.

Inflation in the eurozone slowed in November for the first time in 17 months, coming in at 10% compared to the market’s estimate of 10.4%, also lower than the previous month’s 10.6% reading. Inflation decelerated in 14 of the 19 eurozone member states.

European manufacturing PMI registered a rise to a level of 47.10 in November, less than market expectations for an increase to 47.30. Unemployment unexpectedly declined to 6.5% in October, compared to 6.6% recorded in the previous month.

In the UK, business confidence dropped in both the CBI’s third-quarter survey and in Lloyd’s November survey, reflecting a darkening economic outlook. Research conducted by the London School of Economics also showed that Brexit has added £210 to food bills for the average UK household, with low-income families hardest hit.

The Dow Jones (+0.24%), S&P 500 (+1.13%) and Nasdaq (+2.09%) all ended the week higher. Similarly, the Euro Stoxx 50 (+0.39%) and FTSE 100 (+0.93%) were positive. In Asia, the Hang Seng (+6.44%) and Shanghai Composite Index (+1.76%) ended the week higher, whilst Japan’s Nikkei 225 Index (-1.79%) lost ground.

Brent crude oil rallied after data showed that U.S. government’s stockpiles fell by 12.6 million barrels last week, the most since 2019. OPEC+ meets today. At the same time, the biggest sanction effort against Russian oil to date is about to take effect. On Friday afternoon, European Union officials clinched a deal to cap the price of Russian crude at $60 per barrel. Anyone wanting to access key services that the EU provides will have to pay that price or less.

Market Moves of the Week:

South Africa’s political future was sent into turmoil this week, after an independent advisory panel established by SA’s parliament found that there were grounds for lawmakers to investigate the President over funds stolen from his farm, a finding which could lead to President Ramaphosa’s impeachment.

It was widely speculated that President Ramaphosa was going to announce his resignation on Thursday evening, following the report’s findings. It is however now believed that the President has briefed his legal team to begin a process to take the Section 89 panel report on review, making an about turn, opting to challenge the report legally and fight back politically.

South Africa’s unemployment rate declined to 32.9% in the third quarter, compared to 33.9% in the previous quarter. At the same time, vehicle sales increased by 18% (year-on-year), underpinned by a recovery in business and leisure travel.

Despite a turbulent political week, the JSE All-Share Index (+1.60%) posted strong gains, driven higher by rand hedge and resource shares. For the week, the industrial (+4.86%) and resource (+3.61%) sectors were strong, while SA Inc. shares including the financial (-5.94%) and listed property (-2.87%) sectors sold off. By Friday close, the rand was trading at R17.55 to the U.S. Dollar, depreciating by 2.80% for the week.

Chart of the Week:

U.S. employers added more jobs than forecast and wages surged by the most in nearly a year, pointing to enduring inflation pressures that boost chances of higher interest rates from the Federal Reserve. Nonfarm payrolls increased 263,000 in November compared to estimates calling for a 200,000 advance in payrolls. Source: Bloomberg, Bureau of Labor Statistics.

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.

Minutes from the Federal Open Market Committee’s (FOMC) latest meeting were released earlier this week and the key takeaway was that smaller rate hikes are more likely in the upcoming months as inflation settles down. Markets expect the FOMC to step down to a 50 basis point increase in December, following four consecutive 75 basis point hikes. “A substantial majority of participants judged that a slowing in the pace of increase would likely soon be appropriate,” the minutes stated. “The uncertain lags and magnitudes associated with the effects of monetary policy actions on economic activity and inflation were among the reasons cited regarding why such an assessment was important.” The central bank’s next interest rate decision is scheduled to be on the 14^th of December 2022.

Economic activity in Britain declined for a fourth month running in November. The ‘flash’ or preliminary version of the IHS Markit/CIPS composite purchasing managers’ index (PMI) for Britain edged up to 48.3 from 48.2 in October, which was its lowest reading since January 2021. PMI readings below 50 represent economic contraction. Official data indicated that the UK’s economy shrank by 0.2% in the three months to the end of September, and last week, Britain’s Office for Budget Responsibility said it estimated the economy had entered a recession which would last until late next year.

Just like Britain, November saw business activity fall across the Eurozone for the fifth month running as indicated by flash PMI data.  The seasonally adjusted S&P Global Eurozone PMI® Composite Output Index rose from 47.3 in October to 47.8 in November, according to the preliminary flash reading based on approximately 85% of usual survey responses. Of this data, the German and French PMIs were the most influential.  Manufacturing led the downturn, with factory output dropping for a sixth consecutive month. Service sector output also fell for a fourth consecutive month.

China’s daily COVID-19 infections rose to a record high on Friday since the pandemic began, despite the stringent measures designed to eliminate the virus. Several major cities, including Beijing and Guangzhou, have imposed restrictions on movement and have introduced mass testing. These restrictions have further disturbed economic activities across the country, raising further concerns about the economic outlook in China. The central city of Zhengzhou, home to Apple’s largest iPhone manufacturing site, Foxconn, is to enforce an effective lockdown for five days from Friday. The district around Apple iPhone production facilities will not be subject to lockdown. Violent protests, however, recently broke out after workers at Foxconn clashed with security personnel over unpaid wages and poor hygiene conditions. Foxconn reportedly began offering workers CNY 10,000 to leave the company.

Black Friday online sales are expected to top USD 9 billion, according to Adobe, which tracks sales on retailers’ websites. This record-breaking spending is expected to immediately occur after a strong day of Thanksgiving shopping. Thanksgiving Day online spending hit a record of USD 5.29 billion, an increase of 2.9% year over year, according to Adobe. Typically, shoppers spend about USD 2 billion to USD 3 billion online in a day. Adobe noted that mobile shopping also hit a record high this year, with sales from smartphones accounting for 55% of online sales on Thanksgiving Day. These sales are expected to account for 53% of total Black Friday sales, the company predicts.

Markets overcame worries early in the week about the potential impact of a new round of coronavirus-related lockdowns in China on global economies. All major U.S indices ended the week higher; the Dow Jones rose by +1.78% followed by the S&P 500 which also rose by 1.53% and the tech-heavy Nasdaq which rose by 0.72%. The Euro Stoxx 50 and FTSE 100 indices also closed with a positive weekly move of 0.96% and 1.37% respectively. In Asia, both the Nikkei 225 index and Shanghai composite secured weekly gains of 1.37% and 0.14% respectively, while the Hang Seng index fared worst with a weekly move of -2.32%.

Market Moves of the Week:

The South African Reserve Bank’s Monetary Policy Committee (MPC) announced its second consecutive 75 basis point interest rate hike this week. Interest rates are now at their highest level since 2016, with the move bringing the repo rate to 7% and the prime rate to 10.5%. The latest interest rate hike marks the eighth hike in the current cycle, with the total adjustment being 350 basis points since the hiking cycle started in November 2021. 

South Africa’s headline consumer inflation increased from 7.5% in September to 7.6% in October, going against consensus expectations for a decline to 7.4%.  The rise comes after South Africa’s headline consumer inflation slowed for the second month in a row in September. Core inflation (which excludes prices of food, non-alcoholic beverages, fuel, and energy) also rose to 5.0% in October from 4.7% in the previous month. In early November, the central bank governor, Lesetja Kganyago, said that South Africa would need to get inflation expectations more anchored around the midpoint of its 3%-6% target range as there is still space to raise interest rates. The MPC expects the headline inflation rate to remain above its maximum target rate of 6% until the second quarter of 2023

In company news, Clicks has announced that it is set to acquire beauty salon franchise chain Sorbet for a cash consideration of R105 million. The transaction will result in Clicks holding 100% of the issued share capital of all Sorbet group entities. Clicks are buying Sorbet from Old Mutual Private Equity, who acquired the business as part of the previously listed Long4Life group.
 
The JSE all-share index rose by 0.79% this week, driven by gains in the resource sector which rose by 2.17%, followed by financials (2.11%), then the property sector (0.99%). Industrials detracted from these gains, however, with a weekly move of -0.76%. The rand further strengthened this week, ending at R17.07 to the dollar.

Chart of the Week:

Under the surface of one of the quietest weeks on Wall Street all year, some money managers are renewing speculative bets, hoping against hope that a more friendly — or at least less-hostile — Fed, is back in their corner.

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.

U.S. Federal Reserve policymakers expressed a variety of interest rate views this week, after last week’s lower than expected U.S. inflation print. Governor Christopher Waller said he’d be more “comfortable” stepping down to a 50-basis point hike after the past few weeks of data, while Atlanta Fed’s Raphael Bostic mentioned there’s “glimmers of hope” that inflation may be easing, and Fed vice chair Lael Brainard said it will probably be appropriate soon to dial back the pace of hikes. St. Louis Federal Reserve President James Bullard was more hawkish saying on Thursday that “the policy rate is not yet in a zone that may be considered sufficiently restrictive.” He suggested that the appropriate zone for the federal funds rate could be in the 5% to 7% range, which is higher than what the market is pricing. Pricing for the Fed’s implied terminal rate drifted higher over the week to about 5.14% after being in the 5% range.

As anticipated the Republicans secured a narrow majority in the U.S. House of Representatives, the lower chamber of Congress a week after the midterm elections. The Republicans – who had hoped to win back control of both chambers – underperformed expectations in last week’s midterms with the Democrats managing to retain control of the Senate. While the Republicans margin in the House of Representatives is slim, it will be enough to stall President Biden’s agenda for the next two years.

On Tuesday night, former U.S. president Donald Trump formally announced a third bid for the White House in 2024 from his Mar-a-Lago estate in Florida.

Earlier in the week China’s leader Xi Jinping and President Biden met face-to-face on the sidelines of the Group of 20 summit in Bali, Indonesia, on Monday evening. Their three hour discussion touched on the war in Ukraine, military tension in the Taiwan Strait and North Korean missile tests and while Biden and Xi did not resolve any key issues both leaders expressed an openness to restoring channels of communication. Biden said he and Xi were “very blunt with one another.” Xi, according to his spokesperson, viewed the meeting as “in-depth, candid and constructive.” The meeting appeared to boost investor sentiment and was the first face-to-face exchange between the two since Biden became president.

On Thursday, UK Chancellor of the Exchequer Jeremy Hunt unveiled a £55 billion budget consolidation package of tax hikes and spending cuts with government raising taxes by GBP 25 billion and cutting spending by GBP 30 billion by 2027–2028. On Friday, European Central Bank President Christine Lagarde said that interest rates may need to rise to levels that restrict economic expansion to drive down inflation. Shares in Europe and the UK ended the week modestly higher in local currency terms, with Euro Stoxx 50 advancing 1.46%, and the UK’s FTSE 100 Index rising 0.92%.

All of the major U.S. averages posted losses for the week. The Dow ended 0.01% lower. The S&P 500 lost 0.69% for the week, while the Nasdaq ended 1.57% lower. In Asia, Japanese equity markets also fell over the week, with the Nikkei 225 Index declining 1.29%, while the Shanghai Composite Index in China rose 0.32% for the week.

Market Moves of the Week:

Retail trade sales in South Africa declined by 1.9% in the third quarter (Q3), data released by Statistics South Africa (Stats SA) showed on Wednesday, the second straight quarterly decline on the retail front. The weaker retail sales are in line with a tough consumer environment with rising interest rates curbing demand and the high unemployment rate.

Eskom, implemented Stage 4 rolling blackouts on Friday as a number of generating units at power stations went down and also because of the lack of emergency generating capacity – a large part of which is provided by diesel generators.

Late Friday, S&P Global Ratings retained its positive outlook on SA’s credit rating, citing the country’s strong financial markets and an improved fiscal and debt position. “Although power and logistical bottlenecks continue to weigh on the economy, we expect that government measures to increase private sector activity and reform some key government-related enterprises could support stronger growth outcomes over the next two to three years,” it said.

South Africa’s Reserve Bank is widely expected to hike its repo rate by another 75 basis points to 7.00% when it meets next week Thursday, a Reuters poll found on Friday. A majority of economists polled in the last week, 12 of 20, predicted another 75 basis point hike. Seven expected a half-point move while one expected a full percent. South Africa’s headline consumer inflation slowed for a second month in a row in September to 7.5% from 7.6% in August. It is expected to slow again next week when Stats SA releases figures for October. Inflation in South Africa is estimated to average 6.8% this year, above the SARB’s 3%-6% target range but projected to slow to 5.4% next year and to 4.6% in 2024.

The JSE ended the week lower with the all-share index giving up 0.56%, mainly pushed lower by resource counters as global risk appetite moderated after more hawkish remarks from U.S. Federal Reserve officials. By Friday close, the rand was trading at similar levels to the previous week’s close, trading at R17.25 to the U.S. Dollar.

Chart of the Week:

The Federal Reserve’s implied terminal rate drifted higher over the week to about 5.14% after being in the 5% range. The final Federal Open Market Committee meeting of 2022 is scheduled for 13-14December and is expected to see a smaller hike of 50 basis points.

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.

Investors celebrated reassuring inflation data this week, as U.S. inflation fell in October by more than expected. The headline consumer price index (CPI) rose 0.4% m/m (0.6% expected) and 7.7% y/y, down from the 8.2% y/y rise in September. More importantly for the central bank, the core measure that excludes food and energy also slowed more anticipated. Core inflation rose 6.3% y/y, from a 40-year high of 6.6% y/y in September. Both stocks and bonds soared on hopes that the U.S. Federal Reserve will hike rates in smaller increments in their upcoming meetings. Various regional Federal Reserve Bank presidents spoke after the CPI print on Thursday, saying they welcomed the inflation slowdown but reiterated that rates will need to rise further and remain in restrictive territory for a while to ensure that inflation stays on a sustainable downward path.

In U.S. political news, interim results from the U.S. midterm elections show that Republicans are expected to win a narrow majority in the House of Representatives, while control of the Senate may come down to a runoff election in Georgia in early December. The predicted “red wave” by the Republican Party has, however, failed to materialise.

In another major setback for Russia’s president Vladimir Putin, Russian troops were ordered to withdraw from Kherson on Wednesday, the first major urban centre captured in its invasion, after Kyiv’s troops launched a counter-offensive. The withdrawal is the most significant military moment in the war since Ukrainian forces swept through the northern Kharkiv region in September.

In the UK, Chancellor of the Exchequer, Jeremy Hunt plans to reduce a surcharge on bank profits to preserve the industry’s competitiveness when its corporate tax rate rises from 19% to 25% in April. The surcharge tax was introduced after the global financial crisis to help offset the costs of government bailouts. In other news, the UK’s GDP contracted by -0.2% in the third quarter, the first quarterly decline since the start of 2021, when the country was in a coronavirus lockdown.

Covid-19 cases surged in China, with new cases in Beijing jumping to the highest level in more than five months. Total daily cases in China reached above 10 000 for the first time in over a year, dampening investor sentiment. However, in a major turning point, China relaxed part of its strict zero Covid policy. On Friday, the government announced reductions in the mandatory quarantine time for inbound travellers as well as testing requirements.

The crypto market was rocked this week after the collapse of one of the world’s largest cryptocurrency exchanges, FTX. Concerns about FTX’s financial health reportedly triggered $6bn of withdrawals in just three days, leading to the exchange facing a capital shortfall. FTX now has an $8bn gap in its finances according to Bloomberg and the Financial Times. On Friday, the company entered Chapter 11 bankruptcy proceedings in the United States, with the CEO Sam Bankman-Fried resigning. The news has sent shockwaves through the digital assets market, with cryptocurrencies falling sharply (Bitcoin down -21.44% w/w).

Global equity markets, with the exception of the UK, rallied this week as risk-on sentiment took hold. In the U.S., the S&P 500 Index recorded its best week since June, surging +5.90%. The Dow Jones jumped +4.15%, while the tech-heavy Nasdaq composite rallied +8.10%. Growth stocks (technology/internet-related) in particular, benefited the most from falling yields, which typically increase the perceived value of future profits.

In Europe, the Euro Stoxx 50 rose by +4.88%, while the FTSE 100 dropped -0.23% – lagging behind its developed market peers. Asian markets caught a bid; with the Hang Seng rising +7.17%, while the Nikkei 225 managed a +3.91% gain. Brent oil prices declined this week, dropping -2.79%, while gold jumped +5.42%. 

Market Moves of the Week:

In South Africa (SA), September’s mining and manufacturing data surprised on the upside, with both sectors posting gains despite ongoing loadshedding. Mining production managed a 0.1% rise m/m (August -0.6% m/m) and a quarterly gain of 2.2%. On an annual basis, however, mining production fell by -4.5% y/y, continuing a longer-term downward trend. The largest negative contributors were iron-ore (-23.1% y/y) and gold (-12.4% y/y). September’s manufacturing production expanded at its fastest pace since November 2021 rising 4.9% m/m (August +2.2% m/m) and 2.9% y/y, overshooting Bloomberg’s consensus estimate of -2.4% y/y. The surprise in both sectors has boosted market sentiment, however retail trade sales for the month due next week will help to complete the picture.

Striking public servants have warned of a bigger strike later this month if the government does not meet their wage demands. On Thursday, roughly 500 workers marched to Parliament and delivered a memorandum of demands to a parliamentary official. The action was headed by members of the Public Servants Association (PSA). The PSA has given President Cyril Ramaphosa and his government seven days to respond to its demands, or face a national shutdown. The association is looking for a 6.5% wage increase after the government implemented a 3% baseline increase in October.

In business news, the construction of Amazon.com Inc.’s planned offices in Cape Town should be allowed to go ahead, according to a South African court, in a setback for the indigenous people attempting to stop the development. 

The JSE rallied +5.31% over the week, following global markets higher. Resources (+8.63%) surged after metals’ prices rallied and China’s outlook improved. The rand strengthened against the U.S. dollar over the week to end at R17.25/$. 

Chart of the Week:

The last time core inflation came in this far under the consensus expectation compiled by Bloomberg was in early 2020, just as the pandemic took hold. So, at last, the problem seems to be improving better than people had feared. 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.

The U.S. Federal Reserve (Fed) raised interest rates by a further 75 basis points to the 3.75%-4% range on Wednesday, its fourth consecutive hike this year. During the press conference, Fed Chair Jerome Powell suggested no plans of a pause in hikes any time soon but rather that the size of future hikes would likely be in smaller increments. The Fed’s next meeting is scheduled on the 14^th December 2022.

The US labor market continued to show resilience in October, as employers added 261 000 jobs on a seasonally adjusted basis according to data released on Friday by the Bureau of Labor Statistics. The gain was lower than the 315 000 jobs recorded in September, while the unemployment rate ticked up to 3.7% from 3.5% a month earlier.

The U.S. midterm election is next week Tuesday with Republicans’ well positioned to regain control of the House of Representatives and possibly the Senate as more and more voters identify the economy as their top priority.

U.S. equities ended the week lower, with the benchmark S&P 500 falling -3.35%, the Dow Jones dropping -1.40% and the tech-heavy Nasdaq ending -5.67% lower. 

Conversely, shares in Europe rose for the week as investor sentiment was buoyed by central bank signals that the pace of interest rate increases may be slowed. Both the Euro Stoxx 50 (+2.08%) and UK’s FTSE 100 (+4.07%) indices ending strongly positive for the week.

The second round of the presidential election was held in Brazil last Sunday, with former president Luiz Inácio Lula da Silva narrowly beating incumbent President Jair Bolsonaro with 50.9% of the vote to the incumbent’s 49.1%. Lula won his first presidential election in 2002, serving two terms and leaving office in 2010. In 2017 he was implicated in a vast corruption scheme and sentenced to nearly 10 years in prison. In 2021, Brazil’s Supreme Court overruled Lula’s conviction, clearing him to run for re-election against Bolsonaro. 

On Thursday the Bank of England (BoE) also raised its benchmark interest rate by 75bps to 3%. The hike matched moves made by the Fed and European Central Bank. The BoE’s Monetary Policy Committee noted that its updated projections for growth and inflation indicate a “very challenging” outlook for the U.K. economy.  

In Asia, the Hang Seng Index secured a weekly gain of 8.97%, bouncing back from the 13-year lows hit in previous weeks. The Shanghai Composite Index (+5.31%) also recorded a strong gain for the week amid speculation that authorities in China are preparing for a gradual relaxation of its zero-tolerance COVID policy. The Chinese government is yet to announce any official policy changes.

Market Moves of the Week:

South African (SA) factory activity improved in October according to the Absa Purchasing Manager Index (PMI). The seasonally adjusted PMI improved from 48.2 index points in September to 50 (the expansion level) in October, recent challenges including rolling power cuts, faltering global demand and the Transnet strike prevented a stronger recovery. SA’s trade data for September rebounded strongly from a R2 billion deficit in August to a surplus of R23 billion in September. The monthly improvement was driven by a rebound in exports and a moderation in imports.

Moody’s Investors Service raised its outlook on Eskom Holdings SOC Ltd.’s debt ratings to positive for the first time since 2007. This was reported after the announcement made by South African Finance Minister Enoch Godongwana indicating that government planned to take over a considerable portion of Eskom’s debt.

Miners pushed the JSE all-share index 5% higher on Friday, with the benchmark index ending the week 4.40% in the green. The resources sector led the gains (+6.39%) supported by several reports that China was preparing to retreat from its zero-Covid policies, followed by industrials (+6.21%) and then financials (+0.51%), while the SA Listed property sector ended marginally lower (-1.04%) over the week. The rand also rallied on Friday, strengthening to end the week at R17.90/$ after weakening to above R18.40/$ on Thursday.

Chart of the Week:

The rate increase comes as recent inflation readings show prices remain near 40-year highs. A historically tight jobs market in which there are nearly two openings for every unemployed worker is pushing up wages, a trend the Fed is seeking to head off as it tightens money supply.

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.

U.S. and European financial markets recorded a second week of strong gains, despite mixed economic and company earnings signals. Growing hopes that the Federal Reserve might slow its pace of rate hikes drove markets higher, after the Bank of Canada unexpectedly hiked rates by only 0.50% instead of the expected 0.75% increase, fuelling hopes that the Fed might follow its example next week.

Weak U.S. manufacturing data and disappointing earnings results from mega-cap technology companies against data showing that the U.S. economy grew faster than expected in the 3^rd quarter were also key features of the week.

U.S. manufacturing activity slipped into contraction territory for the first time since June 2020, after U.S. Manufacturing PMI recorded a reading of 49.90 in October (below 50 signals contraction). Services PMI also declined to 46.60, from a reading of 49.30 last month.  

Meanwhile, the first estimate of gross domestic product (GDP), showed that the U.S. economy grew by 2.6% (annualised) in the 3^rd quarter, ahead of expectations (2.4%). This follows the two previous quarters of negative growth. Economists point out however, that most of the growth came from rising exports.

U.S. mortgage rates have more than doubled this year, crossing 7% for the first time in more than two decades. The average for a 30-year fixed-rate loan rose to 7.08% from 6.94% last week, according to Freddie Mac. House prices have also started to come under pressure, with new home sales recording a 10.9% (month-on-month) drop in September. A measure of prices in 20 large U.S. cities fell by 1.3% in August (month-on month) for a second consecutive month, the most since March 2009, according to the S&P CoreLogic Case-Shiller index.

Mega-cap technology companies, including Microsoft, Amazon, Alphabet and Meta Platforms disappointed investors, following sub-par earnings releases and lowered outlooks. Amazon projected sluggish sales for the holiday quarter as the e-commerce giant contends with slower growth and consumers cutting spending in the face of economic uncertainty.

Following Prime Minister Liz Truss’s resignation last week after only 45 days in office, members of the UK Parliament elected Rishi Sunak as prime minister. Sunak has appointed Jeremy Hunt as Chancellor of the Exchequer as he seeks to calm markets. Sunak and Hunt are already exploring tax hikes and spending cuts worth up to £50 billion, the FT reported.

In Europe, the ECB raised rates by 0.75% for the second consecutive time. The central bank also warned that it may raise rates further as inflation in the region is still “far to high”. Like the U.S., European and UK manufacturing and services data surprised to the downside. October data slipped into contraction territory in both economies.

The Bank of Japan (BOJ) announced a ¥71.6 trillion ($490 billion) stimulus package to bolster growth and ease the impact of rising prices. At the same time, the BOJ held its key short-term interest rate unchanged at -0.1%. Inflation in Tokyo reached its fastest pace since the late 1980s, with CPI ex-fresh food rising 3.4% in October.

Chinese shares saw their steepest sell-off since 2008 on Monday as investors become increasingly concerned about China’s growth outlook. Despite China reporting better than expected GDP growth of 3.9% for the 3^rd quarter, authorities doubled down on its zero-Covid policy, announcing new lockdowns in several parts of China after the country reported three straight days of more than 1,000 new cases nationwide.

The Dow Jones (+5.72%), S&P 500 (+3.95%) and Nasdaq (+2.24%) all ended the week higher. Similarly, the Euro Stoxx 50 (+3.92%) and FTSE 100 (+1.12%) were positive. In Asia, the Nikkei 225 (+0.80%) ended the week higher, whilst Chinese equities sold off with the Hang Seng Index (-8.56%) and Shanghai Composite Index (-4.05%) both sharply lower.

Market Moves of the Week:

Finance Minister, Enoch Gondongwana delivered South Africa’s 2022 Medium-Term Budget Policy Statement (MTBPS) this week.

Key Features from the 2022 MTBPS Speech Include:

• SA GDP revised down from 2.2% to 1.9%.
• Government is expecting to collect R1.68 trillion in tax revenue, which is R83.5 billion above the budgeted tax revenue presented in the Feb 2022 Budget, driven by higher commodity prices and a return to profitability for many large SA businesses.
• Government is looking to take over a significant portion of Eskom’s R400 billion debt.
• Spending on infrastructure such as roads, bridges, storm water systems and public buildings will increase from R66.7 billion in 2022/23 to R112.5 billion in 2025/26.
• Government debt is projected to peak at 71.4% of GDP in 2022/23 before moderating to 70% of GDP by 2025/26.
• The government’s offer on public wage negotiations was a 3% salary increase.
• The current social relief of distress (SRD) grant of R350 a month has been extended for one more year until March 2024. The grant currently benefits 7.4 million people at a cost of around R44 billion a year. This is over and above the existing social security grants. Currently 18.6 million South Africans receive a social grant, which is around 31% of the population.

 The JSE All-Share Index ended the week up +1.29%, with strong performances from the resource (+2.29%) and financial (+5.23%) sectors. The Industrial sector (-1.29%) faced pressure as industrial heavy-weights Naspers (-15.05%) and Prosus (-14.86%) sold-off in line with their Chinese technology company counterparts, including Tencent. By Friday close, the rand was trading at similar levels to the previous week’s close, trading at R18.11 to the U.S. Dollar.

Chart of the Week:

Chinese imports of Malaysian crude oil have surged to almost 800,000 barrels a day — more than what Malaysia actually produces. The waters of Malaysia are a hot spot for ship-to-ship transfers, allowing unscrupulous traders to mix crude from other origins and rebrand it as Malaysian. The actual origin is likely from a mix of Iranian, Venezuelan and Russian crude oil. Source: Bloomberg calculations based on Chinese custom data; IEA

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

British Prime Minister Liz Truss resigned on Thursday after just 45 tumultuous days in office, making her the shortest-serving prime minister in British history. Her government collapsed in the wake of the market turmoil sparked by her proposals to cut taxes for the country’s top earners and boost borrowing and spending. The frontrunners to replace Truss as prime minister are former chancellor of the Exchequer (finance minister) Rishi Sunak and former prime minister Boris Johnson.

U.S. stocks recorded strong gains over the week, as investors reacted to some prominent earnings reports and signals that the Federal Reserve might need to moderate its pace of interest rate hikes. The S&P 500 and Dow Jones gained 4.7% and 4.9%, respectively, while the Nasdaq rose 5.2%. It was the best week since June for all three major averages.

About 20% of the constituents of the S&P 500 Index have so far reported third-quarter results, with 73% of companies exceeding bottom-line expectations, while 53% of companies have beaten sales projections. Mega-tech counters, Apple and Microsoft are among the 150 S&P 500 companies reporting in the week ahead.

The twice-a-decade Communist Party Congress ended on the weekend with China’s President Xi Jinping securing a historic third term as the country’s leader, cementing his place as the nation’s most influential ruler since Mao Zedong (the founding leader of the People’s Republic). The Central Committee of the Chinese Communist Party (CCP) elected Xi as its general secretary for a precedent-breaking five-year term. The CCP also named a seven-member Politburo Standing Committee (PSC) led by Xi, its inner circle of power dominated by the party leader’s allies.

Shares in Europe were also stronger on the week following the resignation of Prime Minister Liz Truss and the scrapping of her fiscal policies. In local currency terms, the pan-European STOXX Europe 50 Index ended the week 2.81% higher, while the UK’s FTSE 100 Index added 1.62%.

The U.K. consumer price index rose 10.1% in September (year over year), while core prices rose 6.5%. Increasing food, transport and energy prices were the biggest contributing factors to the higher inflation print. Investors are pricing in a significant chance of a 100-basis-point rise in the Bank of England’s policy rate at the central bank’s next rate-setting meeting on 3^rd November.

China’s stock markets recorded a weekly loss after Beijing delayed releasing key economic data with the broad, capitalization-weighted Shanghai Composite Index ending 1.1% lower.

Market Moves of the Week:

The Consumer Price Index (CPI) in South Africa declined slightly in September to 7.5% from 7.6% in August.  The main drivers of inflation in September were food and transport. Core inflation, which excludes volatile items like food and fuel, accelerated to 4.7% from 4.4%, suggesting that underlying prices pressures are still building. The slight easing of inflation is unlikely to sway the Reserve Bank from raising interest rates in November as inflation remains above their 4.5% year-on-year midpoint target.

In the week ahead, Finance Minister Enoch Godongwana is expected to deliver his Medium-Term Budget Policy Statement on 26 October.

In corporate news, MTN Group has walked away from talks to buy Telkom SA in a deal that would have created South Africa’s largest mobile phone operator.

South Africa’s financial regulator, the Financial Sector Conduct Authority (FSCA), posted a brief notice this week indicating that cryptocurrency assets will now be classified as financial products, enabling them to be regulated. The regulator indicated that the 2002 Financial Advisory and Financial Intermediary Services Act (FAIS) has now been updated to include a definition of crypto assets, a move that has been anticipated for several months. With its implementation, cryptocurrencies will be regulated in South Africa for the first time.

The JSE All-Share Index ended the week 1.9% stronger with the financial and resource sectors gaining 5.2% and 2.03% respectively. By Friday close, the rand was trading at R18.08 to the U.S. Dollar.

Chart of the Week:

Holding office for only 45 days, Liz Truss has become the shortest-serving prime minister in British history after announcing her departure from Number 10. George Canning previously held the record, serving 119 days in 1827, when he died. Rishi Sunak, who served as chancellor under Johnson, is now one of the favourites to succeed Truss.

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.

Third quarter earnings reporting season began in earnest this week with major U.S. banks reporting strong numbers. JPMorgan Chase, Wells Fargo and Citigroup beat Wall Street expectations while Morgan Stanley reported earnings and revenue that missed analysts’ forecasts, sending the stock lower. Strong earnings sent the banks’ share prices higher amid a largely declining market, proving how significant the third-quarter earnings season is for investors. A big week of earnings lies ahead, with Goldman Sachs (GS), Netflix (NFLX), Tesla (TSLA) and IBM (IBM) being among the many blue chips on tap to report results.

Inflation in the U.S. slipped to 8.2% y/y in September from 8.3% in August, but the core reading (excluding food and energy prices) rose 6.6% from 6.3% – a forty-year high. Even though energy prices declined over the month, rising prices for services, which are stickier in nature, fuelled the advance. Worker wages were lower, falling 0.1% monthly and 3% y/y when adjusted for inflation. Markets are now expecting that the Fed could initiate consecutive 0.75 basis point rate hikes in November and December, with next month’s 0.75bp hike fully priced in. 

The minutes of the Federal Reserve Open Market Committee’s September meeting, released this past week, showed that the Committee believed the cost of doing too little to rein in inflation outweighed the risk of doing too much. The minutes also signalled that the Committee will keep hiking the policy rate, and then maintain a restrictive stance, in an effort to bring inflation down.

The International Monetary Fund (IMF) has warned that the risk of a global recession is increasing as nations continue to battle rising inflation. In the U.S., the labour market is still strong but is losing momentum due to the impact of higher borrowing costs. The eurozone is slowing as natural gas prices soar, as is China due to Covid-19 disruptions and instability in the housing sector. The IMF calculates that about one-third of the world economy will have at least two consecutive quarters of contraction this year and next year, and that the lost output through 2026 will be $4 trillion. 

Continued fallout in the U.K prompted Liz Truss’s government to significantly alter its proposed tax plan. Kwasi Kwarteng was replaced by Jeremy Hunt, a former health and foreign secretary, as chancellor of the exchequer. Prime minister Liz Truss also reversed a key proposal to scrap the increase in corporation tax, having earlier abandoned her plan to reduce the U.K’s top tax rate from 45% to 40%.

Major indexes were mostly lower this week, as investors weighed inflation data and its implications for the Federal Reserve’s policy. In the U.S., stocks saw their biggest move on Thursday, with a sharp decline followed by a 5.5% spike to the upside in the S&P 500 index – marking its largest intraday move since March 25, 2020. By weekend, the index was down -1.55%, while the Nasdaq dropped -3.11%. The Dow Jones index ended the week +1.15% higher, held up by moves in banking shares. Shares in Europe rose +0.19% after suffering a sharp pullback last week, while the FTSE 100 ended -1.89% lower. 

In Asia, the Shanghai Composite rose +1.57% after supportive central bank comments boosted investor sentiment. China’s Communist Party congress begins on Sunday, with the party expected to grant President Xi Jinping a third term. In Japan, the Nikkei 225 ended flat over the week. Brent oil prices declined by -6.82%, while gold dropped by -2.95%. 

Market Moves of the Week:

It was a quiet week on the South African economic data front. Mining production fell by 5.9% y/y in August, marking the seventh month of decline. Stats SA said that PGMs production fell by 12.9% in August, while gold output shrank by 17.4% and iron ore by 15.2%. The ramping up of Eskom’s rotational load shedding in the country weighed heavily on the energy-intensive sector as production was continuously disrupted. 

According to a new study, South Africa is likely to be added to a global illicit-finance watchlist and the government must act swiftly to improve compliance measures to limit the economic impact of the decision. There’s an 85% probability that the Financial Action Task Force, which polices compliance with anti-money laundering and terror-financing measures, will add the country to its so-called grey list in February.

Mining companies are losing R815 million in export revenue per day due to an ongoing strike at state-owned logistics firm Transnet which has hit commodity exports, an industry body said on Thursday. Transnet said on Thursday it had raised its wage offer to 4.5% from 3-4% previously, with additional 5.3% annual increases over the next two years. However, the United National Transport Union (UNTU) and the South African Transport and Allied Workers Union (SATAWU), representing most Transnet workers, rejected the latest offer and said they would remain on strike.

The JSE (-2.14%) followed global peers lower this week. Resources (-5.29%) sold off while listed property (+1.84%) was stronger on the week. The rand weakened over the week to end at R18.35/$. 

Chart of the Week:

While headline inflation continues its decline, core inflation is proving harder to tame. Excluding volatile food (+0.8%) and energy prices (-2.1%), the increase in core CPI can be largely attributed to a rise in the closely watched shelter costs (+0.7%), which make up about one-third of CPI, and transportation services (+1.9%). 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.

Markets got off to a strong start in October, with the S&P 500 Index (+5.6%) recording its biggest two-day rise since April 2020, before giving back some of those gains later in the week. The U.S. jobs report released on Friday, suggests that the U.S. economy may not be slowing enough to satisfy Federal Reserve policymakers. Downside economic releases earlier in the week, originally raised hopes that the Fed might slow its rate hiking cycle.

The market’s early week enthusiasm stemmed from weaker than expected manufacturing data. U.S. manufacturing activity fell to 50.9 in September (levels under 50 indicate contraction), below consensus expectations and its lowest level since 2020. Price pressures facing manufacturers also decreased to early pandemic levels, while non-manufacturing prices rose at the slowest pace since January 2021.

Friday’s job report provided a less encouraging signal regarding the inflation outlook, with the U.S. reporting that their economy had added 263,000 jobs in September, a decline from 315,000 in August, but still strong by pre-pandemic standards. At the same time, U.S. unemployment fell to 3.5%, equalling a five-decade low. This was driven by a surprise drop in the participation rate to 62.3%, suggesting that competition for available workers remains robust. Wage growth did however ease, with average hourly earnings continuing to decline on a year-over-year basis to 5.0%, compared to March’s peak of 5.6%.

OPEC+’s decision to cut oil production by 2 million barrels a day, its biggest production cut since 2020, saw brent crude back up at $98.33 per barrel (+15.29% for the week), deepening inflation fears.

U.S. mortgage rates continue to rise and are now at their highest level since 2007. The average for a 30-year, fixed loan increased 6.70% this week, up from 6.29% last week. The effects of this are beginning to be felt in the U.S. housing market, with mortgage applications dropping by 14.2% in the week ended 30 September 2022. U.S. home prices posted their biggest monthly decline since 2009. Median home prices fell 0.98% in August from a month earlier, following a 1.05% drop in July, Black Knight Inc. said in a report. The two periods mark the largest monthly decline since January 2009.

The UK’s credit outlook was lowered to negative from stable by Fitch Ratings, which cited risk of the government’s new growth plan increasing the nation’s fiscal deficit.

Prime Minister Liz Truss has dropped her government’s plan to cut taxes for the highest earners just 10 days after announcing it, in a bid to fend off a mounting rebellion from Members of Parliament in her own Conservative Party. U.K. Chancellor, Kwasi Kwarteng will also bring forward the announcement of his medium-term fiscal plan. He was previously due to publish the proposal on Nov. 23, but the FT said it will now be unveiled later this month.

Like the U.S., the key rate on mortgage borrowing costs in the UK climbed to its highest level in almost 14 years. The average two-year fixed-rate mortgage on a home rose to 6.07% on Wednesday, the highest since November 2008, according to Moneyfacts Group Plc. The average five-year fixed rate also closed in on 6%, a level not seen since February 2010.

In the eurozone, final manufacturing PMI eased to 48.4 in September, compared to a level of 49.6 in the prior month, while final services PMI unexpectedly dropped to a level of 48.8, compared to a reading of 49.8 in the prior month.

Global equity markets ended the week higher, driven by strong gains on Monday and Tuesday. In the U.S., the Dow Jones (+1.99%), S&P 500 (+1.51%) and Nasdaq (+0.73%) all ended the week in positive territory. Similarly, the Euro Stoxx 50 (+1.73%), FTSE 100 (+1.41%), Nikkei 225 (+4.55%) and Hang Seng Index (+2.96%) were stronger. China’s Shanghai Composite Index was closed for the week, as the country celebrated the National Day holiday from October 1 to October 7, otherwise known as Golden Week.

Market Moves of the Week:

In South Africa, manufacturing PMI declined to 48.2 in September, compared to a reading of 52.1 in August.

South Africa’s government will seek cabinet approval for an $8.5 billion plan to secure funding from the UK, U.S., Germany, France and the European Union to transition away from the use of coal to generate electricity. A second draft of the investment plan (first announced at COP26) has been completed and is being shared with “key stakeholders” ahead of its submission to cabinet, said Vincent Magwenya, a spokesman for South African President Cyril Ramaphosa.

The JSE All-Share Index ended the week up +3.06%, with all three of the major sectors stronger. The resource sector (+5.09%) was particularly strong, followed by the industrial (+2.72%) and financial (+2.00%) sectors. By Friday close, the rand had lost its mid-week strength, trading at similar levels to the previous week’s close (R18.13 to the U.S. Dollar).

Chart of the Week:

The U.S. economy added 263,000 jobs in September, a decline from 315,000 in August. The number was the lowest since April 2021 but still solid by pre-pandemic standards. The gain was shy of recent monthly totals but still robust, indicating that the economy was maintaining momentum despite higher interest rates. Source: The New York Times, by Sydney Ember.

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.

Concerns about the outlook for the global economy continued to weigh on financial markets amid growing fears of aggressive central bank policy and heightened geopolitical tensions sent stocks in the U.S. to their third consecutive weekly decline. The benchmark S&P 500 index ended the week 2.91% lower, while the tech heavy Nasdaq was 2.69% lower on the week.

Friday’s U.S. core (less food and energy) personal consumption expenditures price index release added to investor concerns. The inflation measure, that the US Federal Reserve focuses on when setting monetary policy, rose 4.9% from a year ago in August from an upwardly revised 4.7% in July. The read was stronger than expected despite the Federal Reserve’s recent rate hikes which are yet to work their way in bringing down prices.

Last week, Japan’s Ministry of Finance intervened directly to avert yen depreciation against the U.S. dollar, this Wednesday brought the Bank of England’s (“BoE”) intervention in the bond market by pledging unlimited purchases of long-dated bonds “to restore orderly market conditions”. The BoE also delayed the start of its plan to start actively selling its existing holdings of bonds.

The rout in bond markets stems from the U.K. government’s determination to slash taxes and regulation through the biggest package of unfunded tax cuts in half a century. The BoE intervention followed criticism on Tuesday from the International Monetary Fund, which argued that Britain’s budget could increase inequality and worsen inflation. UK rates and the pound stabilized after the intervention.

It is suspected that two massive underwater blasts caused ruptures in the Nord Stream 1 and 2 pipelines (two Russian pipelines) this week. Experts say the scale of the damage and the fact that the leaks are far from each other on two different pipelines indicate that the act was intentional and well-orchestrated. The ruptures have generated plenty of theories but few clear answers about who or what caused the damage with both Russia and the European Union suggesting the ruptures were caused by saboteurs. On Friday, Russian President Putin delivered a formal speech announcing that Russia is to annex nearly a fifth of Ukraine following referendums, which have universally been dismissed as an illegal land-grab by the Ukraine and Western countries. On the battlefield, Russian forces continue to suffer losses with the latest being a forced withdrawal from the strategic east Ukraine town of Lyman where Kyiv’s forces were threatening to encircle them.

Shares in Europe were also lower amid growing fears of recession and a higher eurozone inflation print of 10% YoY in September from 9.10% YoY in August. In local currency terms, the pan-European STOXX Europe 50 Index ended the week 0.91% lower while the UK’s FTSE 100 Index lost 1.78%.

Markets in Asia were also under pressure with the Nikkei average falling 4.5% on the week and China’s broad, capitalization-weighted Shanghai Composite Index falling 2.1%, currency weakness and signs of a flagging economy fuelled investor concerns about the region’s economic outlook.

Market Moves of the Week:

Employment in South Africa’s (SA) formal sector fell sharply in the second quarter, as per the recent release of Stats SA quarterly employment survey earlier in the week, largely as a result of falls in the community services, manufacturing and trade sectors.

SA producer price inflation slowed to 16.6% in August from a 14-year-high rate of increase of 18% in July, Statistics South Africa said on Thursday. PPI’s August read follows that for CPI, which slowed to 7.6% in August from a 13-year-high rate of increase of 7.8% in July. The main factor driving both indicators has been the falling global price of oil.

Public Enterprises Minister Pravin Gordhan, announced the appointment of a new Eskom board, replacing its chair and appointing 13 non-executive directors.  The new board combines a mix of legal, engineering and financial skills, of which Mpho Makwana (an independent nonexecutive chair of ArcelorMittal SA and chair of Nedbank) will be chair. Friday marked the 25th straight day of load-shedding (rotational power cuts) as electricity outages reached record levels this year but there was some positive news from Eskom indicating that some larger units were expected to come back online in the week ahead, reducing the need for rotational power cuts completely by next weekend.

The JSE closed firmer on Friday, ending the week up 0.5%, buoyed by strong gains in commodity counters. In currency markets the rand weakened against the dollar on Friday, after data showed the country’s trade surplus narrowed significantly in August (recording a trade surplus of 7.18 billion rand ($397.34 million) in August, down from a 24.81 billion rand surplus in July). By Friday close, the rand was trading at R18.15 to the U.S. Dollar, weakening by 1.17% over the week.

Chart of the Week:

The US dollar is the strongest it’s been for two decades, compared with other major currencies. The dollar index (DXY) – which measures the US dollar against an average of six other major currencies, including the euro, pound and yen – has risen 15% in 2022. By this measure, the dollar is at a 20-year high. This strength has been supported by the relatively strong performance of the U.S. economy, tightening monetary policy by the Federal Reserve, and safe-haven buying (in times of economic and political turmoil, investors historically have moved to the U.S. dollar for safety and liquidity).

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.