Week in Review: Friendlier Fed

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 14th 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%. 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 2023In 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 the 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.