Hurricanes impact U.S economic outlook
Driven by the temporary effects of the recent hurricanes, Investec expects that October’s US payrolls report (out Nov. 1) will show a negative -10,000 jobs change, which would be the first negative print since December 2020, and well below the consensus forecast of 125,000. Investec estimates about 175,000 of the slowdown is due to hurricanes in the South. While this effect should reverse in the coming months, there’s weaknesses elsewhere, with the Boeing strikes, layoffs announced by manufacturers and unseasonably slow education-sector hiring due to local government budget woes also likely contributing to the negative print. However, Investec expects a boost in government workers related to the election to support employment.
Bearish U.S. debt view
Bloomberg reports that concerns over a second wave of inflation in the US are causing billionaire investors such as Paul Tudor Jones and Stanley Druckenmiller to either avoid or bet against Treasuries. The bearish narrative compares the current inflation trajectory to the path seen in the 1970s when bonds slumped and gold rallied.
U.S. elections defining new world order
Bookies now ascribe a ~60% probability to Trump winning a second term in office and the market is very clearly starting to price this in, with the dollar going on a tear since late September. A Trump victory will likely accelerate ECB president, Christine Lagarde’s base case that suggests a fragmentation of the global economy into competing blocs is underway, “with each bloc trying to pull as much of the rest of the world closer to its respective strategic interests and shared values”. This theme, coupled with another round of substantial China tariff increases to offset domestic largess or tax cuts will likely have an inflationary effect.
Dollar bulls on U.S. election outcome
The U.S. dollar has more upside as investors position for the U.S. election, according to a Bloomberg article. Bearish greenback wagers have been pared back, CFTC data showed, while money managers cut long yen positions further and leveraged funds increased their net short position on the euro. “The decks are being cleared” ahead of the vote, SocGen’s Kit Juckes said.
According to JPMorgan, the most popular trades paired buying the U.S. currency in the options market with selling Singapore and Australian dollars, a sign that investors are hedging exposure to China-linked currencies. There was also strong demand to buy the dollar against the Mexican peso and the euro.
Lower U.S. equity returns expected
The S&P 500 Index (VOO-NASQ) is expected to post an annualised nominal total return of just 3% over the next 10 years, according to an analysis by GS strategists shared by Bloomberg. That compares with 13% in the last decade and a long-term average of 11%. They also see a roughly 72% chance that the benchmark index will trail Treasury bonds and a 33% likelihood they’ll lag inflation through 2034. Furthermore, Citigroup Inc. strategists recently stated that exposure to the S&P 500 has reached levels that were followed by a 10% slump in the past. Long positions on futures linked to the benchmark index are at the highest since mid-2023 and are looking “particularly extended,” the team led by Chris Montagu wrote in a note. “We’re not suggesting investors should start to reduce exposure, but the positioning risks do rise when markets get extended like this.”
Trading update : 31 October 2024
US Updates
Hurricanes impact U.S economic outlook
Driven by the temporary effects of the recent hurricanes, Investec expects that October’s US payrolls report (out Nov. 1) will show a negative -10,000 jobs change, which would be the first negative print since December 2020, and well below the consensus forecast of 125,000. Investec estimates about 175,000 of the slowdown is due to hurricanes in the South. While this effect should reverse in the coming months, there’s weaknesses elsewhere, with the Boeing strikes, layoffs announced by manufacturers and unseasonably slow education-sector hiring due to local government budget woes also likely contributing to the negative print. However, Investec expects a boost in government workers related to the election to support employment.
Bearish U.S. debt view
Bloomberg reports that concerns over a second wave of inflation in the US are causing billionaire investors such as Paul Tudor Jones and Stanley Druckenmiller to either avoid or bet against Treasuries. The bearish narrative compares the current inflation trajectory to the path seen in the 1970s when bonds slumped and gold rallied.
U.S. elections defining new world order
Bookies now ascribe a ~60% probability to Trump winning a second term in office and the market is very clearly starting to price this in, with the dollar going on a tear since late September. A Trump victory will likely accelerate ECB president, Christine Lagarde’s base case that suggests a fragmentation of the global economy into competing blocs is underway, “with each bloc trying to pull as much of the rest of the world closer to its respective strategic interests and shared values”. This theme, coupled with another round of substantial China tariff increases to offset domestic largess or tax cuts will likely have an inflationary effect.
Dollar bulls on U.S. election outcome
The U.S. dollar has more upside as investors position for the U.S. election, according to a Bloomberg article. Bearish greenback wagers have been pared back, CFTC data showed, while money managers cut long yen positions further and leveraged funds increased their net short position on the euro. “The decks are being cleared” ahead of the vote, SocGen’s Kit Juckes said.
According to JPMorgan, the most popular trades paired buying the U.S. currency in the options market with selling Singapore and Australian dollars, a sign that investors are hedging exposure to China-linked currencies. There was also strong demand to buy the dollar against the Mexican peso and the euro.
Lower U.S. equity returns expected
The S&P 500 Index (VOO-NASQ) is expected to post an annualised nominal total return of just 3% over the next 10 years, according to an analysis by GS strategists shared by Bloomberg. That compares with 13% in the last decade and a long-term average of 11%. They also see a roughly 72% chance that the benchmark index will trail Treasury bonds and a 33% likelihood they’ll lag inflation through 2034. Furthermore, Citigroup Inc. strategists recently stated that exposure to the S&P 500 has reached levels that were followed by a 10% slump in the past. Long positions on futures linked to the benchmark index are at the highest since mid-2023 and are looking “particularly extended,” the team led by Chris Montagu wrote in a note. “We’re not suggesting investors should start to reduce exposure, but the positioning risks do rise when markets get extended like this.”
UK Updates
UK consumer confidence edges lower
UK consumer confidence edged lower in October, according to findings from a leading survey published in Bloomberg. The results are fuelling concerns that worry about Labour’s first budget had pushed Britain into a US-style “vibecession.” Research firm GfK’s monthly gauge of consumer confidence ticked down 1 point to -21 in October as households turned more downbeat about the broader economic outlook despite improving sentiment around their personal finances. The data affirms a steep decline in last month’s survey as speculation about the tax and spending plans that Chancellor of the Exchequer Rachel Reeves’ weighed on sentiment.
UK’s Ebury sees ZAR leading pack among African currencies
The outlook for African currencies is mixed, with the South African rand (ZAR) expected to perform well. Bloomberg reports that Ebury Partners Ltd. predicts that four of seven monitored currencies, including the ZAR, will hold steady or gain in 2025, influenced by economic fundamentals and commodity prices.
Local Updates
BlackRock positive on SA
The world’s biggest fund manager BlackRock (BLK-NASQ) says it remains neutral on emerging markets but has turned more positive on South African assets as the country’s inflation outlook improves. Inflation is “coming down to target, and so in our single country selectivity for emerging markets, South Africa is in the positive bucket,” BlackRock Head of the EMEA Investment Strategy, Karim Chedid said at a conference in Johannesburg.
SA set for IPO boom, says JPMorgan
JPMorgan (JPM-NASQ) expects a surge in South African IPOs, fuelled by economic optimism following the implementation of the GNU. This change has led to increased multinational investment, a rally in the rand, and a significant rise in the stock index since June, reports Bloomberg. Upcoming IPOs, such as Pick n Pay’s (PIK-JSE) Boxer unit and plans from Anglo American (AGL-JSE) and Coca-Cola (KO-NASQ), are attracting considerable interest. Despite a $5.5 billion sell-off by foreign investors, domestically focused equities, especially in the banking sector, are gaining momentum. JPMorgan forecasts modest economic growth of 1% this year and 1.4% in 2025, along with increased debt issuance in sub-Saharan Africa.
Inflation eases further in SA
Local inflationary pressures continued to moderate in September, with headline CPI declining to 3.8% from 4.4%, which aligns with Bloomberg’s consensus forecast, and 0.1% month-on-month. Core inflation was unchanged at 4.1%, indicating subdued underlying inflationary pressures. In Q4, base effects could cause headline CPI inflation to recede, averaging 3.3%. October’s print could reach 3.0%, with December at 3.6% and 2025 averaging 4.5%. Monetary policy remains in restrictive territory, with the MPC expected to deliver another 25bps rate cut in November, followed by a further 75bps in H1 25.
Global Updates
G-20 warns of uncertainty, divergence despite soft landing
Finance ministers and central bankers from the Group of Twenty (G-20) countries see a “soft landing” for the world economy but warned of mounting risks. According to a draft of the communique seen by Bloomberg, the group observes “good prospects of a soft landing of the global economy, although multiple challenges remain,” which is mostly unchanged from its July statement. “Growth has been highly uneven across countries, contributing to the risk of economic divergence,” the G-20 said in the statement issued on the sidelines of the recent International Monetary Fund (IMF) and World Bank meetings in Washington this week.
M&A activity in AM sector
Allianz SE (ALVD-TRQX) is considering options for its Allianz Global Investors unit as the German insurer seeks to grow its asset management business, according to comments carried in Bloomberg from a person familiar with the matter. The early-stage considerations may include tie-ups and partnerships, the person said, asking not to be identified because discussions are private. B Allianz GI, which had €555 billion in assets under management at the end of the second quarter, is focused on active asset management.
SAP bucking German industrials trend
SAP (SAPD-TRQX) reported a seriously good set of results that stand in stark contrast to what markets are seeing from most German industrials, with full-year guidance upped and expectations that 2024 revenue growth will kick between 24%-27% on the back of strong demand for the company’s cloud and AI offerings, said management.
Nampak to sell Zimbabwe stake
Nampak (NPK-JSE) accepted a binding offer from TSL to buy its 51.43% stake in Nampak Zimbabwe for a maximum purchase price of $25 million, according to a statement. Nampak will use the proceeds to further settle its debts. The book value of Nampak’s 51.43% share of the net assets of Nampak Zimbabwe as at Sept. 30, which are consolidated into Nampak, was R292.5 million.
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.