Trading update : 11 October 2024

Don’t stop me now! Tech stocks are keeping the S&P 500 2024 record streak alive with its 44th record high this year. In contrast, trouble is brewing in Europe as China looks set to escalate a trade war and the German economy looks set to contract in 2024.

44 and counting!

Tech stocks helped to drive the S&P 500 (VOO-NASQ) to fresh record highs – the 44th record for 2024 – after Nvidia’s (NVDA-NASQ) five-day rally topped 13%, Apple (AAPL-NASQ) rose 1.7%, Broadcom (AVGO-NASQ) gained 2.9% and Amazon (AMZN-NASQ) climbed 1.3%. Nvidia added further gains after management assuaged investor concerns that the company’s new Blackwell chips will drain economies of energy and plunge the world into darkness. They argued that, while the new chip draws a lot more energy, it is so much more efficient that it takes a fraction of the time to process the same amount of data.

China-EU trade wars

China is investigating whether to raise tariffs on European large-engine vehicles and will start collecting levies on brandy, escalating a trade spat after the European Union (EU) decided to impose tariffs on Chinese electric vehicles (EV). Bloomberg reported that the Ministry of Commerce said Beijing is looking into increasing duties on imported gasoline cars with large engines, shortly after it announced that importers of EU brandy will have to pay a deposit of as much as 39% from 11 October. Shares of European firms slumped in response, with drink brands like Pernod (RIP-TRQX) posting the biggest losses, ending the day -4.2% lower. The action against European car and brandy exporters comes after the EU decided last week to impose tariffs of as high as 45% on imports of Chinese EVs for five years. Talks between the two parties are continuing, and the Chinese announcements may represent an attempt by Beijing to put pressure on Brussels to find an alternative to the tariffs.

German economy may contract in 2024

The German economy is likely to experience another year of contraction with the US election posing an additional risk to Europe’s growth, according to quotes from Bundesbank President Joachim Nagel carried by Bloomberg. “This year we’re not expecting any growth at all, or possibly even a recession, because the second half of the year seems to be significantly weaker than we thought six months ago,” Nagel said. Germany was the only G7 economy to shrink in 2023.

US sees balanced inflation and employment risks

According to a Bloomberg report, Federal Reserve Vice Chair Philip Jefferson said risks to the central bank’s employment and inflation goals are now closer to equal. “The balance of risks to our two mandates has changed — as risks to inflation have diminished and risks to employment have risen, these risks have been brought roughly into balance,” Jefferson said in prepared remarks for an event at Davidson College in North Carolina. Jefferson, in his first public speech since May, said he will assess incoming economic data and the balance of risks “when considering additional adjustments to the fed’s target range.” He added that he is making decisions on a meeting-by-meeting basis.

No more significant rate cuts, believes Dalio

Billionaire investor Ray Dalio said he does not anticipate the Federal Reserve making “significant cuts in rates,” and that bonds are a risky investment given recent fluctuations in Treasury markets. A Bloomberg report quotes the Bridgewater Associates founder as saying: “Treasury bonds have not been a great investment,” while speaking at the Greenwich Economic Forum. “We have an interest rate risk in that bond market.” Investors are getting ahead of themselves by betting on rapid interest rate cuts, according to Dalio. The Fed cut rates last month for the first time in four years, slashing the federal funds rate by a half-point. However, a strong jobs report for September is giving policymakers room to move at a slower pace going forward, suggesting this cutting cycle will prove to be shallower than many predicted.

FirstRand turns more bullish on SA

FirstRand Ltd. (FSR-JSE) has turned more bullish on South Africa’s economy and now sees a greater chance of economic growth accelerating to 2% and the rand strengthening to below R16/$ next year. According to Bloomberg, South Africa’s largest lender by market value lifted the probability of its bull-case scenario unfolding to 25%, from 20%, in a report published by its investment-banking unit RMB. The bear-case probability was reduced to 25%, from 30%.

Mondi to buy European assets from Schumacher for €634m

Mondi (MNP-JSE) agreed to buy the German, Benelux and UK corrugated converting and solid board operations of Schumacher Packaging for an enterprise value of €634 million, according to a statement.

Information correct at time of publishing. It is important to conduct thorough research and analysis using a combination of fundamental and technical analysis techniques to make informed trading decisions. Additionally, consider your risk tolerance, investment objectives, and time horizon when assessing company performance for trading.

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