The Week That Was
The S&P 500 closed 0.8% higher on Friday, while the Dow surged by 574 points, buoyed by gains in Salesforce and UnitedHealth. Meanwhile, the Nasdaq remained relatively unchanged. Tranders and investors were closely watching for clues on the potential timing of US Federal Reserve rate cuts, particularly after PCE inflation data met expectations.
On the corporate front, UnitedHealth shares rose 2.9%, and Salesforce rebounded 7.5% following a 20% drop the previous day due to missed revenue and sales growth targets, which significantly boosted the Dow. Gap soared 28.6% after its first-quarter earnings exceeded estimates, and Nordstrom climbed 5% on strong quarterly sales growth. Conversely, Dell Technologies plummeted 17.9% due to a lower-than-expected AI server backlog despite posting strong earnings. Costco slipped 0.8%, even though it reported better-than-expected earnings and revenue.
For the week, the S&P 500 remained flat, the Nasdaq lost 0.4%, and the Dow declined by 1%. The JSE index closed approximately 0.6% lower at 76 704 on Friday, marking its lowest point since early May. Traders and investors remained focused on the national election results while also assessing the latest inflation report from the US.
On the corporate front, industrials and resource-linked shares were among the worst performers. The JSE rose about 0.8% this month but recorded a weekly decline of 3.1%.
The Week Ahead
In the US, nonfarm payrolls will be closely monitored as traders and investors adjust their expectations for the Federal Reserve's rate policy, now anticipating only one rate cut.
The US economy is projected to add around 180 000 jobs in May, following a 175 000 increase in April. The unemployment rate is expected to hold steady at 3.9%, while wage growth is likely to rise to 0.3% from 0.2%. Additional labor market data, including the JOLTS report, ADP employment figures, Challenger job cuts, and final estimates for unit labor costs and productivity, will also be released.
Furthermore, the ISM Manufacturing and Services PMI are expected to indicate growth in the US private sector. Other key releases include the final S&P Global PMIs, trade balance, factory orders, and construction spending.
In Europe, the ECB's monetary policy decision will take center stage. The central bank is widely expected to implement a 25 basis points cut, marking the first interest rate reduction since 2016. Market participants will closely watch for any indications of further moves beyond June, especially as inflation accelerated more than expected in May.
On the data front, Eurostat will release final Q1 GDP growth, employment estimates, producer prices, and retail sales. Final PMIs for the Euro Area, Germany, and France, along with figures for Italy and Spain, are also due.
The week will be relatively light in the UK, with only the final PMIs and Halifax house prices scheduled for release.
In China, markets are keenly awaiting the broader Caixin PMI figures for May, following the official PMI's unexpected contraction in manufacturing activity and slowdown in construction.
Chinese trade figures will also be in focus for insights on whether foreign demand will continue to support a significant portion of Chinese economic growth.
Key Themes for the Week Ahead
US jobs data
Friday's closely watched nonfarm payrolls report is expected to show that the US labour market remained strong in May. Economists anticipate the economy to have added 185 000 jobs, a modest increase from the previous month.
Traders and investors were concerned that an overly robust economy might prevent the Federal Reserve from lowering rates this year or even necessitate a rate hike. However, those worries were temporarily eased last month by data indicating slowing inflation and a cooling labor market.
Despite this, policymakers have emphasised patience regarding rate cuts, stating they would like to see several months of data to ensure inflation is heading back towards their 2% target. The employment report could indicate the economy is losing momentum if it shows a continued slowdown in job creation.
ECB rate decision
The European Central Bank (ECB) is poised to become the first major central bank to cut interest rates this cycle on Thursday.
With a 25 basis point rate cut nearly assured by policymakers, market observers will be keen to hear what ECB President Christine Lagarde has to say about future policy moves.
Inflation in the bloc's dominant services sector remains persistent, and its economy is recovering faster than expected. A closely watched wage growth figure also accelerated last quarter, making the outlook beyond June more uncertain.
Markets still expect the ECB to cut rates multiple times this year, although expectations for future cuts have been scaled back. They now anticipate two cuts, with less than a 50% chance of a third, compared to three cuts expected at the ECB's last meeting and at least five at the start of the year.
OPEC output cuts
OPEC+ is likely to agree on Sunday to extend its deep oil output cuts into 2024 and possibly 2025, according to Reuters. This move is aimed at supporting the market amid weak global demand growth, high interest rates, and rising US production.
Oil prices are trading near $80 per barrel, below the level many OPEC+ members need to balance their budgets. Concerns over slow demand growth in top oil importer China have pressured prices, leading analysts to expect OPEC+ to extend cuts to balance supply.
The Organization of the Petroleum Exporting Countries and its allies, led by Russia and collectively known as OPEC+, have implemented a series of deep output cuts since late 2022. OPEC+ members are currently cutting output by a total of 5.86 million barrels per day (bpd), or about 5.7% of global demand.
Wall Street
Despite all three major US equity indexes posting losses last week, they still ended the month of May higher, with the S&P 500 rising about 4.8%, the Nasdaq jumping 6.9%, and the Dow climbing 2.4%.
While it has been a strong year for the major US equity indexes, one economically sensitive sector remains a concern. The Dow Jones Transportation Average has fallen about 5% so far this year. Some traders and investors believe that the struggles of this 20-stock transport index—which includes railroad operators, airlines, package shipping companies, and trucking firms—could signal economic weakness or hinder the broader market from making significant gains unless there is a recovery in this sector.
South Africa News
With nearly all ballots counted in South Africa, the ruling African National Congress (ANC) has secured only 40.21% of the votes in last week Wednesday’s election, falling short of a majority. For the first time since the end of apartheid in 1994, the historically dominant party will need to negotiate with other parties to form a coalition government.
Jacob Zuma’s MK party has alleged—without providing evidence—that the election was so compromised that it warrants a complete rerun.
President Cyril Ramaphosa has signed into law the Revenue Laws Amendment Bill of 2023, introducing a "two-pot" system. This system allows members of retirement funds to access a portion of their retirement savings without the need to resign or cash out their entire pension funds.
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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