The Week That Was
The S&P 500 dropped 1% to below 5 000, while the Nasdaq declined over 2% on Friday, exacerbated by significant post-earnings drop in Netflix, which plunged more than 8% after issuing disappointing Q2 revenue guidance.
This downturn was compounded by losses in major technology companies such as Microsoft, Apple, Nvidia, Amazon, and Meta. Meanwhile, Procter & Gamble experienced a slight dip following quarterly sales that fell short of expectations, and Tesla's shares fell by 0.5%, marking its sixth consecutive session of declines, fueled by new security concerns about its vehicles.
In contrast, the Dow Jones Industrial Average rose by over 100 points, driven by a robust 5% increase in American Express after it surpassed earnings and revenue forecasts.
For the week, the S&P 500 is tracking a 4% decline, marking its worst performance in nearly six months, while the Nasdaq is poised to finish the week down by 6.3%, and the Dow has decreased by 1.1%. The JSE All Share index modestly increased to close at 73 363 on Friday, marking its lowest point since 20 March. In business developments, Mondi's stock soared by 9.22% after the company decided against a merger that would have made it one of the world's largest packaging companies.
Additionally, PSG Financial Services announced an 11% rise in recurring headline earnings per share for the fiscal year ending February 29, 2024, indicating a positive outlook for the company.
On the global stage, investors reacted nervously to news of Israel's retaliatory strike on Iran, which escalated tensions in the Middle East. This situation, combined with strong statements from US Federal Reserve policymakers, influenced market sentiment negatively.
Despite the day's gains, the JSE concluded the week with a decline of 2.59%.
The Week Ahead
In the US, traders and investors are preparing for a crucial week in the earnings season, with key reports expected from major technology firms including Alphabet, Microsoft, and Meta. Other significant companies like Verizon, Visa, Tesla, PepsiCo, Danaher, GE, Texas Instruments, and many more are also scheduled to release their earnings, creating a buzz of anticipation.
On the economic front, the US economy is forecasted to grow by 2.1% in Q1, down from 3.4% in the previous quarter. Inflation measures, including both core and headline PCE, are projected to rise by 0.3% in March, mirroring the increase seen in February.
Personal income is expected to grow by 0.5%, while personal spending growth is anticipated to slow to 0.3% from 0.8% the previous month.
Additional economic indicators such as durable goods orders, new and pending home sales, and the final reading of the Michigan consumer sentiment will also be closely watched.
In Europe, attention will focus on the latest flash S&P PMI figures for key economies like the Eurozone, Germany, France, and the UK. Germany's Ifo business climate indicator and GfK consumer confidence will also be significant.
The Euro Area awaits updates on consumer sentiment and the latest government debt and budget figures from Eurostat.
In the UK, market observers will scrutinise the latest CBI business optimism, industrial trends, and distributive trades surveys, as well as public sector net borrowing and GfK consumer confidence data.
Monetary policy updates will come from the People's Bank of China, which is expected to maintain its one and five-year loan prime rates to support the yuan against a backdrop of strong dollar buying. In Japan, while the Bank of Japan is likely to keep its interest rate unchanged after a recent hike, the market will look for clues about future tightening.
Japan will also report its PMI figures and Tokyo’s inflation rate for April. Similarly, India's April PMI data is eagerly awaited.
Key Themes for the Week Ahead
US inflation figures
On Friday, traders and investors will receive updated US inflation data through the personal consumption expenditures (PCE) price index.
This index is the US Federal Reserve's preferred measure of inflation, which is anticipated to remain high for March. This update comes amid signs that efforts to curb inflation might be plateauing. Contributing factors include robust labour market figures, heightened geopolitical tensions in the Middle East boosting oil prices, and remarks from Federal Reserve officials, including Chair Jerome Powell.
These developments have led market participants to adjust their expectations regarding the timing of potential rate cuts.
The week will also see the release of initial estimates for first-quarter GDP, expected to show a slight deceleration, along with new data on home sales, jobless claims, consumer sentiment, and inflation expectations.
Big technology earnings
The forthcoming days will see the release of earnings from major technology companies, following significant weekly losses in major US equity indices—the S&P 500, the Dow Jones Industrial Average, and the Nasdaq.
Despite the early stages of the reporting season, analyst expectations have become more conservative, with projected S&P 500 earnings growth now at 2.9% year-over-year, a decrease from earlier estimates.
Notably, Tesla, Meta (formerly Facebook), Microsoft, and Alphabet (Google's parent company) are among the "Magnificent Seven" tech giants scheduled to report their earnings this week.
The performance of these companies is especially significant due to their substantial influence on the S&P 500 index.
Oil prices
Oil prices concluded last week with a slight increase but faced an overall weekly decline.
This occurred after Iran minimised the potential for escalated conflict following a drone strike by Israel.
Despite the immediate concerns, the risk premium associated with oil receded, causing a roughly 3% drop in prices last week.
Looking ahead, while the potential for further Middle Eastern conflicts affecting supply remains, the International Monetary Fund anticipates that OPEC+ will start to increase oil production in July.
Last month, OPEC+ members, including Saudi Arabia and Russia, agreed to maintain their voluntary output cuts of 2.2 million barrels per day until the end of June, supporting higher oil prices.
PMI data for the Eurozone, US and UK
Market participants will be monitoring PMI data from the Eurozone, the US, and the UK on Tuesday, with a particular focus on indicators of returning inflation, especially within the services sector.
Recent data showed that growth in the US services industry has continued to slow, paired with persisting services inflation.
Additionally, March PMI data indicated that economic activity in the Eurozone is stabilising, and services inflation is easing, which may influence the European Central Bank's decision on an expected rate cut in June.
BOJ meeting
The Bank of Japan (BOJ) is set to release its quarterly growth and inflation forecasts during its policy meeting on Friday.
Traders and investors are keenly awaiting insights into the timing of the next rate hike.
BOJ Governor Kazuo Ueda recently suggested that rate increases are probable if underlying inflation continues to rise, alongside a potential reduction in bond purchases in the future.
These comments have solidified expectations that the BOJ may raise its short-term interest rate target from the current 0-0.1% range within the year.
This follows the BOJ's move last month to end eight years of negative interest rates, although the guidance suggests borrowing costs may remain near zero for the foreseeable future.
South Africa News
President Cyril Ramaphosa stated that the African National Congress (ANC) remains unphased by the emergence of the uMkhonto weSizwe (MK) party in KwaZulu-Natal or any other new political parties in South Africa. He emphasized the ANC's robust support base nationwide and expressed confidence that the party would exceed expectations in the upcoming elections.
Defense Minister Thandi Modise reported that she has received a request from her predecessor, Nosiviwe Mapisa-Nqakula, seeking legal representation assistance from the department for her corruption case. Modise is currently considering this request.
In the Cape Town metro, 300 CCTV cameras have been installed in areas known for high crime rates, with 279 of these cameras currently operational.
Economic Calendar
In the upcoming economic calendar for this week, several significant events are scheduled to take place.
Source: incorporates insights from reports by Reuters and Investing.com.
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