The focus areas during the week included:

The S&P 500 Index gained a welcome 0.5% in the week, despite increased concerns that the US Federal Reserve (Fed) might have to increase interest rates further in November. The US equity market (S&P 500) has lost 4.4% of its value since the middle of September 2023, but is up 12.2% (in dollars) year-to-date. In contrast, the SA All Share Index is down -1.9% (in rands) year-to-date, which is further aggravated by the fact that the rand has lost 12.3% of its value against the dollar since the beginning of the year.

The yield on the benchmark US US 10-year government bond spiked to another 16-year high of around 4.89% in early trading on Friday, but then eased back to close the week at 4.78%, as investors digested a broader array of US employment data, in particular another moderation in wage growth. The 10-year bond yield has risen appreciably since May 2023, pushing other key borrowing rates sharply higher, including the 30-year fixed mortgage rate, which is approaching 8%. In general, financial markets appear to be finally digesting the reality that US interest rates are likely to stay higher for longer, especially if economic growth remains strong.

Year-to-date the rand/dollar is down by -12.3%, while emerging market currencies are down by an average -4% against the US dollar. The weakness in emerging market currencies appears to be largely due to increased concerns that the Fed is likely to keep interest rates high well into 2024 and only look to cut interest rates gradually towards the end of 2024. The rand is sometimes seen as a proxy for emerging market uncertainty, which helps to explain some of its recent weakness, but this is being accentuated by evidence of further fiscal slippage in the South African economy, including a tax revenue shortfall that is currently being projected at around R65 billion. The extent of the fiscal deterioration will be updated in the government’s Medium-Term Budget Policy Statement on 1 November, suggesting that the rand will struggle to gain significant strength prior to that announcement.

The US economy added an incredible 336 000 jobs in September, well above market expectations and the largest rise since January 2023. In addition, the previous two months’ data were revised higher for the first time this year and by a total of 119 000 jobs. The job gains were largely driven by leisure & hospitality (96 000 jobs) government (73 000) and health care (41 000 jobs). The acceleration in job gains could entice the Fed to hike one more time this year. However, average hourly earnings rose by only 0.2% in the month, bringing down the year-on-year growth to 4.2%, its lowest level since June 2021. The workforce participation rate also stayed steady at 62.8%, its best level since the eve of the pandemic lockdowns in February 2020. Taken together, the data suggests that an increasing supply of labour rather than a surge in demand is driving the US labour market now, which is a little more encouraging from an inflation perspective.

On Wednesday, the private sector ADP labour market report fell recorded a gain of only 89 000 jobs in September. This is the smallest increase since January 2021. Most of the jobs were added in the leisure and hospitality sector.

US job openings rose by around 700 000 in August to 9.6 million, the highest level since May 2023. Job openings data can be particularly volatile, especially given the low survey response rates that continue to plague the data. Since the beginning of the year, job openings have fallen by a total of 1.6 million, while the labour market has added 2.3 million jobs. At the same time, the labour demand-supply gap has narrowed substantially since peaking in April 2022 and is trending toward the pre-pandemic average.

Last weekend the US Congress, unexpectedly and with only three hours to spare, voted to avert a government shutdown by passing a resolution to keep the government funded until 17 November. This (presumably) should allow Congress enough time to negotiate a fiscal spending package for the next year. However, to get the deal done, House Speaker Kevin McCarthy negotiated the agreement with the Democratic party and was subsequently voted out of his position by his own party on Tuesday evening. Patrick McHenry (Republican) will temporarily serve as speaker until a new one is elected – which could become a protracted exercise.

SA’s PMI manufacturing index has been below the key 50 index level for the past eight consecutive months, dropping to 45.4 in September 2023. This is the lowest index level since the looting/unrest in July 2021. The manufacturing sector appears to be heading into recession, aggravated by a range of factors, including ongoing electricity outages and high interest rates.

SA’s petrol price (95 ULP, Gauteng) rose by a further R1.14/l in October reflecting a combination of the high oil price (59c/l), the weaker exchange rate (24c/l) and a sizeable adjustment to the Slate account (31c/l). The petrol price has risen by a total of R2.85/l during the past two months, which is not yet reflected in SA’s inflation data. Over the past year the price of petrol has risen 14.8% y/y compared with -16% y/y as recently as July 2023.

The final estimate of euro area PMI for September was 47.2, its fourth consecutive monthly contraction. In addition, euro area retail sales fell more than expected in August, declining 1.2% m/m, due to a sharp drop in gasoline sales and internet shopping. The data highlights the ongoing weakness in the euro area.