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The week Ahead

August Market Roundup

Global Economic Uncertainty Persists Global Markets Performance: Global markets have faced a challenging month, marked by uncertainty over the direction of inflation and economic growth worldwide. Investors grappled with mixed signals, leaving them uncertain about future policy actions. The MSCI All-Country World Equity Index experienc...

Fact: Stock Markets Are Influenced By Economic Data

Macro Week Ahead! Stay informed.

eNCA Business | Market Wrap Phaswane Mphahlele, senior portfolio manager at Makwe Fund Managers gives us the day's market wrap. Courtesy

Market Wrap | 18 July 2023 Makwe Masilela from Makwe Fund Managers gives us the day's market wrap. Courtesy .

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Market Round Up: Jittery June In The Manufacturing Sector Global Market Performance: In June 2023, global markets witnessed a positive overall performance, with the MSCI All-Country World Equity Index rebounding by more than 5%. Investor sentiment improved as volatility in equities was suppressed, primarily due to the belief that inflation had peaked, and....

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Market Round Up: These Are "Interesting" Times Market activity was positive in April, with most equity markets up more than 1%, as volatility eased and investors were optimistic that banking crises jitters are easing along with inflationary pressures, especially as CPI continues to cool in some major economies as factors such as oil prices ease....

Could April Fool Us? This is quite a possible scenario considering that the stock market is pricing in bets that slowing inflation could yield loosening financial conditions and increase speculative investment supported by slowing volatility. Meanwhile, the more influential bond market is breaking down in yields as it i...

It's a big week for market watchers...

Please find the weekly market roundup from Phaswane Mphahlele, Senior Portfolio Manager at MFM.



Market activity has been rather sideways during the week as investors had to deal with the developments from the macro and stock levels. The big driver of mixed reactions was the improved job numbers in the US. This was a positive development; however, it also encourages more interest rate hikes. As it stands, developed nations raised rates to continue to break down demand as they fight off high inflation and the consensus is it has peaked. It is important to note that signaling a future slower interest hike is not considered a dovish pivot.

What this means is that we can expect short-term yields to remain elevated supporting the dollar. Meanwhile, the longer-term bond yields to break down as economies continue to record slowing down economic activity driven higher rates, looking at recent economic reports. Thus, we will continue to have inverse bond yield signaling a recession. This will also negatively impact company earnings that are decelerating from a Rate of Change and increasing the risk of credit risk events.

Taking the above into consideration general sentiment of investors was weak for the week driven by hawkish central bank commentary, and this ticked up volatility.

Our asset allocation remains with sectors that do well within cooling the growth and inflation environment. We continue to take opportunities in precious the metal sector and China-related stocks as the economy recovers from lockdowns. However, our portfolio remains overall in a defensive position as the reality of the recession is still within our scenarios.

Global Data Picture

The macroeconomic picture continues to indicate pressure points following recent efforts by central banks to cool down demand by tightening the money supply due to higher inflation globally. This has now already made its way into the real economy as business activities are still not signaling a strong trend.

The latest surveys for January 2023, in summary, state that business activity in the service and manufacturing sector is noting a slight uptick in overall activity along with confidence, supported by easing inflation but buying remains low as new orders are still in contraction (

Please find the weekly market roundup from Phaswane Mphahlele, Senior Portfolio Manager at MFM.



Investors have kept a positive stance in trading stocks as the overall stock prices were higher for the week supported by less volatility. This was all thanks to various factors such as the ongoing China economic recovery that boosted trading partners, and news of better-than-expected GDP data from the US that is up by 2.9% in Q4 2022, Lastly was a slower pace in interest rate hikes back home in South Africa, which means the cost of borrowing will be slightly cheaper for everyone and the general pace of price increases of goods/services will slow down.

What keeps gains capped were the developments, within the geopolitical space with US and Europe giving more weapons to Ukraine to defend itself. Meanwhile, business activity globally remains under pressure as it is still below expansion levels. This is evident in recent company earnings that are decelerating compared to previous periods and forward-looking guidance shows concerns about future growth prospects.

Taking into consideration the above. The inflation peak has become a consensus; therefore, we are seeing longer-term bond yields begin to break down with support by slowing down economic activity. The ongoing trend is encouraging us to add more capital toward precious metal opportunities and China-related stocks as the economy recovers. However, our portfolio remains in a defensive position as the reality of the recession in 2023 will have challenges before stocks can bottom out for a rally.

As a side note, with Brent crude oil hovering at $82 and higher, we can expect inflation to be sticky and keep rates ongoing, especially with the US planning on refueling their SDRs and China steering reopening.

Global Data Picture

The macroeconomic picture continues to indicate pressure points following recent efforts by central banks to cool down demand by tightening the money supply due to higher inflation globally. This has now already made its way into the real economy as business activities are still in contraction across most nations.

The latest surveys for the month of January 2023, in summary, state that business activity in the service and manufacturing sector is noting a slight uptick in new orders, along with confidence supported by easing inflation but buying remains low as the overall number is in contraction (

The SARB is still expected to do more price stability efforts!

Please find the weekly market roundup from Phaswane Mphahlele, Senior Portfolio Manager at MFM.



Market trading was rather flat for the week as investors’ sentiment was focused on US Fed comments on interest rates that were hawkish, and economic data that reflected the rate of change declining in consumer spending, which drives over 65% of GDP. This development triggered growing worries about a global recession.

With that said, the general market sentiment continued to be supported by optimism around China’s recovery and lower expected interest rate hikes, especially from the US, as economic data reflected weakness in the biggest economy, this is not surprising considering how bank lending had slowed sequentially. It is also important to note for readers that, with Brent crude oil above $82, we can expect inflation to be elevated and keep rates ongoing.

Taking into consideration the above. The inflation peak has become a consensus, and therefore we are seeing longer-term bond yields beginning to break down with support by slowing down economic activity. The ongoing trend is encouraging us to add more aggressive capital toward precious metal opportunities. However, our portfolio remains in a defensive position as the reality of the recession in 2023 will have challenges before stocks can bottom out for a rally.

Global Data Picture

The macroeconomic picture continues to indicate pressure points following recent monetary policy action to tighten the money supply due to higher inflation has made its way into the real economy as business activities are still in contraction in most nations and the latest showing consumer spending through retail sales, signaling a recession warning.

Locally

The stock market managed to deliver slight losses for the week. Investors were not doing a lot of buying but rather profit-taking and balancing portfolios ahead of economic data coming. The weekly performance for the All-Share Index was flat at -0.08%. The biggest gainer was only the industrial counters up 0.6%, supported by a recovery Chinese economy and unchanged interest rates.

South African 10-year bond yields saw a positive appetite following cooling inflation in the US and Europe, which raised expectations for lowers rates moving forward. The yields are at 9.7%.

Rand’s performance is a good indicator of confidence and a commodity currency traded stronger against the dollar due to weaker dollar and falling bond yields as economic data was weaker globally.

In the commodity market, the dollar weakens allowing for buying opportunities in commodities as they are negatively correlated. Brent crude prices traded stronger for the week, as renewed optimism around China’s recovering economy. Currently, oil trade is bearish below its immediate support level of $90 as investors sold futures on recession fears but have shown an upward trend in the short term.

The Gold price was in favor for the week again, as demand picked up as the dollar weakened along with bond yields, following fears of economic recession, following a breakdown in demand for goods/services and cooling inflation. Currently, the gold chart is bullish from a trade and trend perspective. Bitcoin remains vulnerable for the week.

Please find the weekly market roundup from Phaswane Mphahlele, Senior Portfolio Manager at MFM.



It’s the second week of 2023 and market performance has been very positive. The sentiment was driven by China’s news of committing to open their economy by continuing to loosen restrictions. The momentum was further supported by recent inflation data from the US, which reflected a cooling price and therefore optimism has risen that lower interest hikes are expected.

However, it is important to note that this doesn’t mean a FED pivot, so caution needs to be applied as the FED is committed to reducing inflation. The outright implication of the action will be continued global demand to slow down, which will have company earnings falling from a rate of change perspective and this could trigger a credit event risk for various companies who are over-leveraged as their cashflows go negative.

Taking into consideration the above. The inflation peak is behind us, therefore longer-term bond yields are beginning to break down support by slowing down economic activity. The ongoing trend is encouraging us to add more aggressive capital toward precious metal opportunities. However, our portfolio remains in a defensive position as the reality of the recession in 2023 will have challenges for us before stocks can bottom out for a rally.

Global Data Picture

The macroeconomic picture continues to indicate pressure points following recent monetary policy action to tighten the money supply due to higher inflation has made its way into the real economy as business activities are still in contraction in most nations, signaling a recession warning.

The US inflation rate slowed for a sixth straight month to 6.5% in December of 2022, the lowest since October of 2021. A slowdown was also seen in energy and food prices, the CPI edged 0.1% lower, the first decline since May 2020.

Meanwhile, US business activity for the manufacturing and service industry, which accounts for over majority of GDP, was revised slightly lower to 45 in December 2022, compared with November's 46.4. The latest reading indicated a strong decline in private sector business activity, led by sharp manufacturing and services output declines.

Overall new business dropped the most since May 2020 amid a broad-based downturn in client demand, while the rate of job creation was only marginal overall and the second weakest since September 2021. On the price front, inflationary pressures eased notably at the end of the year, as cost burdens rose at the slowest pace since October 2020 and selling prices increased the least in over two years.

In China, the inflation rate rose to 1.8% in December 2022. The latest result largely reflected a 4.8% rise in food prices, even as domestic demand was sluggish amid a spike in COVID infections. Core consumer prices, excluding the volatile prices of food and energy, rose 0.7% YoY in December, after a 0.6% gain in November. For the full year of 2022, inflation was 2%, below the government target of around 3%.

The above slow-down signaling is also seen in business activity. The Caixin China General Composite PMI rose to 48.3 in December 2022 from November's six-month low of 47.0. However, the latest result pointed to the fourth straight month of contraction in private sector activity, amid a spike in COVID cases after Beijing abruptly decided to exit strict pandemic curbs. The services sector contracted at a softer rate, despite falling for the fourth month running; factory activity dropped the most in three months, shrinking for the fifth month.

New orders fell at a slightly quicker rate amid a stronger fall at manufacturers, export sales declined the most since September, while the rate of job shedding eased from November. Turning to prices, input cost rose at the slowest rate since September and only marginally. Prices charged were stable, meanwhile, as discounting at manufacturers was offset by price hikes at services firms

The UK follows other global countries’ weaknesses, despite edging up to 49 in December 2022, from 48.2 in November. The services business activity recorded a very fractional fall in activity, the overall decline in output signaled by the index was only marginal and the slowest since September. Both services and manufacturing recorded falls in new business, equating to a fifth successive monthly reduction in new work.

The latest decline enabled firms to lower their work outstanding, most notably in manufacturing, where jobs were also lost for the third month running. Input cost inflation headed sharply downwards during December, reaching its lowest level since May 2021. Average prices charged similarly rose to a lesser degree, with inflation its softest in 16 months. Nonetheless, costs and output prices continue to increase at elevated rates.

The Euro-Area is under the same pressure. Manufacturing output contracted for a seventh straight month and services activity was down for a fifth month in a row, although rates of decline moderated in both cases. New orders dropped the least since July, with firms citing generally weak demand conditions, while backlogs of work were also down. Meanwhile, the rate of job creation was broadly unchanged from the 21-month low seen in November.

On the price front, input cost inflation slowed to a 19-month low, reflected also in the inflation number that is now 9.2% from 10.1%, but remained elevated by historical standards, while selling prices rose at the weakest pace in a year. Finally, business confidence picked up to a four-month high but remained weaker than anything seen in the two years before July, amid recession risks, energy market concerns, and high inflation

Locally

The stock market managed to deliver gains for the week again, following last week’s momentum. Investors came into the market to buy a lot of tech-related, industrial-related stocks and resources, supported by a commitment by China to reopen and slow down the central bank’s less tight monetary policy. The weekly performance for the All-Share Index was up 3.4%. The biggest gainer was the resource counters up 3.6%, supported by higher precious metal prices.

South African 10-year bond yields saw a positive appetite following cooling inflation in the US and Europe, which raised expectations for lowers rates moving forward. The yields are at 9.9%. This saw a rand build up some gains that supported the financials index recovery.

Rand’s performance is a good indicator of confidence and a commodity currency traded stronger against the dollar due to weaker dollar and falling bond yields.

In the commodity market, the dollar weakens allowing for buying opportunities in commodities as they are negatively correlated. Brent crude prices traded stronger for the week, as renewed optimism around China’s loosening Covid curbs continued and cooling inflation. Currently, oil trade is bearish below its immediate support level of $90 as investors sold futures on recession fears.

The Gold price was in favor for the week, as demand picked up again as the dollar weakened along with bond yields, following fears of economic recession, following a breakdown in demand for goods/services and cooling inflation. Currently, the gold chart is bullish from a trade and trend perspective. Bitcoin rebounded higher for the week.

💪🏽

Please find the weekly market roundup from Phaswane Mphahlele, Senior Portfolio Manager at MFM



Signaling of an economic recession through the 2/10 bond yields inverting to levels at -83 has had investors worried across the globe which had led to a mixed sentiment week of market performance. What is more concerning is that investors understand that the central banks are going to continue to raise rates in such an economic environment, which will have a lot of consumers’ and businesses’ balance sheets weakening as revenue will decline as consumer spending dries up as already seen in the new business orders from manufacturing to the service sector.

However, not was all gloomy as the 2nd biggest economy China, has provided support to investors’ sentiment by continuing to commit to reopening its economy through the action of loosening covid rules and providing economic stimulus to their property market to support business activity.

Taking into consideration the above. The inflation peak is behind us, and this is opening the door to adding capital toward precious metal opportunities. However, our portfolio remains in a defensive position as the reality of the recession in 2023 will have challenges we must tackle before stocks can bottom out for a rally.

Global Data Picture

The macroeconomic picture continues to indicate pressure points following recent monetary policy action to tighten the money supply due to higher inflation has made its way into the real economy as business activities are still in contraction in most nations, signaling a recession warning.

The US service business activity, which accounts for over 60% of GDP, formed a slowdown trend because in November it recorded below 50 at 46.2 points of business activity. This was driven by further and faster weaker new orders as domestic and foreign client demand remained weak. Efforts to entice customer spending were reflected in the slowest rise in output charges since October 2020. Also, softer upticks in selling prices followed easing cost pressures, as input prices increased at the slowest rate in almost two years. business expectations improved amid hopes of greater client demand and lower rates of inflation over the coming year but remained below average levels.

The above slow-down signaling is also seen in China. As their General Services business activity fell to 46.7 in November 2022. This was also the steepest contraction in the service sector since May, amid anti-COVID containment measures that weighed on demand and operations. New orders fell the most in six months, employment shrank at the steepest rate since the survey began in November 2005, while backlogs rose at the fastest rate in six months.
Looking at the business sentiment, it hit an eight-month low, significantly below its long-term average, amid concerns over how long it will take to contain the virus and the impact of curbs on their businesses.

The UK follows other global countries with weaknesses in service industry business activity. The November month pointed to the lowest since the start of Jan 2021. Levels of incoming new work continued to decrease amid ongoing economic uncertainty and cost of living challenges weighing on discretionary spending. Cost pressures showed little signs of abating, with operating expenses again rising sharply, although pricing power was limited to some degree by rising competition and falling sales. Firms continue to hire additional staff as they sought to address skills shortages at their units, but confidence in the outlook remains historically subdued, despite improving noticeably since October.

The Euro-Area is under the same pressure. The figure at 48.5 signaled a fourth straight month of falling output levels across the service sector. Incoming new business contracted for the fifth month running, with the pace of decline unchanged from October’s 20-month record. Meanwhile, the rate of job creation was the weakest in just over a year-and-a-half, while the level of work pending completion dropped for the second time in the past three months. On the price front, input costs and output charges both increased sharply, although rates of inflation were at their weakest in three months in both instances.

The above means the global service industry is getting closer to the bottom as new orders weaken and haven’t created new lows after economic participants were spooked by inflation and aggressive interest rates. The positive side is that the confidence of business leaders remains, looking ahead.

Locally

South African GDP rose by 1.6% on quarter in the three months to September of 2022, well above market forecasts of a 0.6% increase, following a 0.7% contraction in the prior quarter, partly because of a low base in the second quarter, when floods disrupted operations at a key export port in Durban.

Eight out of ten activities expanded in the third quarter, with the agricultural sector (19.2%) making the biggest contribution to growth, on bumper crops. Significant increases were also seen in transportation & storage (3.7%); construction (3.1%), mining (2.1%); finance, real estate, and business services (1.9%), and manufacturing (1.5%).On the expenditure side, both government spending (0.5%) and fixed investment (0.3%) rose while household consumption shrank (-0.3%).

Meanwhile, net trade contributed positively as exports (4.2%) rose much faster than imports (0.6%). Year-on-year, the economy advanced by a notable 4.1%, the most since Q2 of 2021, beating market estimates of a 2.8% rise.

Meanwhile, Consumer Confidence Index for South Africa improved to -8 points in the fourth quarter of 2022, the highest in two years, from -20 points in the previous period. Still, the index has been in negative territory for 14 straight quarters, the longest stretch since the series began in 1982, signaling depressed consumer sentiment.

The household financial outlook sub-index was the main driver of the improvement, jumping 15 index points to reach 13 during the fourth quarter, despite a challenging economic outlook amid soaring inflation and tighter monetary conditions. "An uptick in employment growth, particularly in the now fast-recovering services sector, and substantially lower petrol prices since the third quarter no doubt bolstered consumer sentiment in the run-up to the festive season”.

The stock market managed to deliver gains for the week following taking on momentum. Investors came into the market to buy a lot of tech-related and industrial-related stocks, supported by a commitment by China to reopen and slow down the central bank’s less tight monetary policy. The weekly performance for the All-Share Index was up 0.3%. The biggest gainer was the industrial counters up 1.1%.

South African 10-year bond yields saw a positive appetite following the news that President Ramaphosa will still seek 2nd term. The yields are at 10.5%. This saw a rand build up some gains that hurt the financials index recovery.

Rand’s performance is a good indicator of confidence and a commodity currency traded with weaker against the dollar due to our local political risk event and a generally stronger dollar.

In the commodity market, the dollar weakens allowing for buying opportunities in commodities as they are negatively correlated. However, Brent crude prices traded weaker for the week, as renewed recession fears gripped financial markets, overshadowing optimism around China’s loosening Covid curbs and persistent supply-side concerns. Currently, oil trade is bearish below its immediate support level of $90 as investors sold futures as the shutdown of the Keystone pipeline also added to the highly uncertain supply outlook

The Gold price was in favor for the week, as demand picked up again as the dollar weakened along with bond yields, following fears of economic recession, following a breakdown in demand for goods/services. Currently, the gold chart is bullish from a trade and trend perspective. Bitcoin rebounded higher for the week.