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Thoughts For the Week Ahead

Writer's picture: Peet SerfonteinPeet Serfontein

The Week That Was

US equities struggled to find momentum in the afternoon session Friday, with the three major indexes hovering near the record highs set on Wednesday. The Dow Jones Industrial Average edged closer to the 40 000 mark, rising by 0.2%, while the S&P 500 remained mostly unchanged, and the Nasdaq slipped by 0.1%.


Interest rates and inflation continued to dominate market conversations, with traders and investors keenly observing economic data and US Federal Reserve statements for any hints of changes in rate expectations. Several Fed officials indicated on Thursday that the central bank should maintain higher interest rates for a longer period as policymakers await more definitive signs of easing inflation.


On the corporate front, meme stocks declined for the third consecutive session, with GameStop plummeting 24.2% and AMC falling 4.7%. In contrast, Reddit shares surged by over 11% following the announcement of a content partnership with OpenAI.


For the week, the S&P 500 has risen by 1.5%, and the Nasdaq has gained 2.3%, both on track for their fourth consecutive winning week—the first time since February. The Dow is poised for its fifth positive week in a row, with a 1% gain over the period.


The JSE closed nearly unchanged at 79 531 on Friday, marking its highest level in over a year. Market participants weighed China's stimulus measures against uncertainties surrounding the timing of the Federal Reserve's rate cuts.


Domestically, caution dominated the market ahead of S&P Global's review of South Africa's sovereign credit rating later in the day.


Among individual shares, Karoo led the gains with a nearly 7% rise, followed by Sibanye-Stillwater and Richemont, which climbed 5.8% and 5.1%, respectively. Conversely, tech giants Naspers and Prosus were the biggest laggards, falling 4.1% and 2.8%, respectively, after appointing Fabricio Bloisi, head of their iFood business, as the new CEO, replacing interim CEO Ervin Tu.


For the week, the JSE added approximately 1.4%.


The Week Ahead

This week in the US is expected to be relatively calm, with the market's attention focused on the release of the FOMC minutes and various appearances by Federal Reserve officials.


Traders and investors will be on the lookout for indications of when the Fed might start cutting interest rates, amid economic data suggesting a cooling economy but persistent price pressures. Comments from several officials also hint at maintaining higher borrowing costs for a longer period. Key data releases include S&P Global PMIs, durable goods orders, and the final readings for the Michigan consumer sentiment index.


Durable goods orders are projected to grow for the third consecutive month, albeit at a slower pace. Additionally, market participants will keep an eye on existing and new home sales, both expected to decline. The US earnings season continues with major companies such as Palo Alto Networks, Lowe’s, Nvidia, PDD Holdings, TJX Companies, Analog Devices, Synopsys, Target, and Intuit reporting their results.


The UK's economic calendar is packed with key indicators such as inflation, retail sales, public sector net borrowing, GfK consumer confidence, and CBI factory orders. Annual inflation is likely to have slowed to 2.1% in April, the lowest since June 2021, approaching the Bank of England's target of 2%. Core inflation is expected to decrease to 3.7%, the lowest since October 2021. Retail sales are anticipated to drop for the first time in four months. Flash PMI surveys are expected to show continued growth in the service sector and a smaller contraction in manufacturing.


Elsewhere in Europe, flash PMI data will be released for the Euro Area, Germany, and France, with expectations of faster service sector expansion and less severe manufacturing contraction.


Euro Area consumer confidence is expected to improve to its highest level since February 2022. . Other significant data to watch include the Euro Area's balance of trade and negotiated wages.


Investors will also be on high alert for potential details about China's plans to purchase unsold homes and rescue its troubled property market. These measures are among the boldest yet to stimulate the economy, although the funding pledged by the People's Bank of China represents only a small fraction of China's housing inventory estimates. The Chinese central bank is set to keep its loan prime rates unchanged on Monday, balancing the need for yuan support against Beijing's goal for higher loan demand.


In Japan, April's CPI is expected to show further softening in underlying inflation, while April's trade deficit should narrow, and March's machinery orders are set to decline. Markets will also be awaiting May PMI figures and the Reuters Tankan index. India will also release PMI data.


Key Themes for the Week Ahead


US Federal Reserve minutes and speakers

The Fed is set to release the minutes from its 30 April to 1 May meeting on Wednesday. During this meeting, Fed Chair Jerome Powell indicated that interest rates are likely to remain elevated for an extended period due to persistent inflation pressures.


Since then, recent data showed that US consumer prices rose less than expected in April, suggesting that inflation is continuing its downward trend as the second quarter begins.


Several Federal Reserve officials are scheduled to speak throughout the week.


The economic calendar for the week also features reports on new and existing home sales, durable goods orders, and consumer sentiment.


Nvidia earnings report

Nvidia is set to release its quarterly earnings report on Wednesday, which could significantly influence US equity markets and impact companies in the burgeoning artificial intelligence sector.


The semiconductor company, central to the AI business boom, is expected to report substantial increases in revenue and profit for its fiscal first quarter. Revenue is anticipated to rise to $24.8 billion from $7.2 billion a year earlier, with earnings per share soaring to $5.57 from $1.09, according to data from LSEG cited by Reuters.


For Nvidia's stock to continue its impressive rise—up over 90% this year after tripling in 2023—the company may need to exceed these high expectations. Nvidia has become the third-largest US company by market value due to its significant role in AI advancements.


Global PMI data

May PMI data from the US, China, the Eurozone, and the UK is expected to reinforce a positive global economic outlook.


In the Euro area, a slow recovery seems to be underway after six consecutive quarters of stagnant or negative growth. US inflation is trending downward, and China experienced faster-than-expected growth in the first quarter.


These global PMIs are expected to remain in expansion territory. However, significant US tariff increases on Chinese imports, from electric vehicle batteries to computer chips, pose a threat to global trade and growth, with China promising retaliation.


Manufacturers in Germany, Europe's largest economy, are already feeling the effects of shifting global trade dynamics. Heightened trade tensions, especially with a US election on the horizon, could further disrupt China's recovery and reignite US inflation.


UK inflation data

The UK will release April CPI data on Wednesday, with economists predicting a significant slowdown in the annual inflation rate—potentially dropping by more than a percentage point to near the Bank of England's 2% target.


There is one more inflation report due before the Bank of England's next meeting on 20 June. Continued evidence of cooling price pressures could prompt the BoE to consider cutting interest rates.


Ahead of the inflation data release, Bank of England Governor Andrew Bailey is scheduled to deliver remarks on Tuesday.


South Africa News

  • President Cyril Ramaphosa has signed the contentious National Health Insurance (NHI) Bill into law, sparking a wave of passionate and divisive reactions across South Africa.

  • The DA is well-funded for its election campaign, having declared the majority of political party donations, amounting to R65 million between January and March 2024.

  • African National Congress (ANC) President Cyril Ramaphosa has stated that the party is not concerned about the competition for KwaZulu-Natal as the 29 May elections approach. KwaZulu-Natal remains a crucial battleground for political parties vying for votes in South Africa's second-largest voting bloc, following Gauteng.


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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