The focus areas during the week included:

The S&P 500 gained another 1.3%, overcoming a decline of 0.8% on Thursday. Year-to-date the S&P 500 is up a robust 15%, gaining an impressive 5.3% during the month-to-date. In contrast, the South African equity market declined by 2% in the week and is down -2.3% year-to-date.

US government bond yields generally decreased during the first three days of the week, but then increased on Thursday. They were hurt, in part, by a disappointing 30-year bond auction, which also seemed to negatively impact the US equity market. The market also reacted negatively to comments from US Federal Reserve (Fed) Chair Jerome Powell, who told a gathering of the International Monetary Fund that policymakers were “not confident” that they had achieved “a stance of monetary policy that is sufficiently restrictive to bring inflation down to 2% over time”. Quite simply, the prior week’s optimism about a peak in interest rates has dimmed.

During the week the rand resumed its weakening bias, losing 2.9% of its value against a slightly stronger dollar. (The dollar gained 0.5% against the euro during the week). Year-to-date the rand/dollar has weakened by -9.3%, although in the first five months of this year the rand had weakened by 14.1%, highlighting the unpredictability of the currency as well as its persistent volatility. Year-to-date the basket of emerging market currencies is down only -2.75% against the dollar.

Internationally, there were very few key economic data releases, and most were in line with expectations. The one key exception in the US was the University of Michigan’s preliminary gauge of consumer sentiment, which was released on Friday. The confidence index fell unexpectedly from 63.8 to 60.4, its lowest level in six months. According to the survey’s chief researcher, consumers have remained concerned about high interest rates, and the wars in Gaza and Ukraine have aggravated their concerns. US long-run inflation expectations among households rose to 3.2%, the highest level in the survey since 2011, which will concern the Fed.

On 10 November, Moody’s revised its credit rating outlook for the US to negative from stable. The credit rating itself remained unchanged at Aaa. Moody’s has kept the US on an Aaa credit rating since 5 February 1949. On 13 July 2011 it revised the rating outlook to negative, but removed the negative outlook on 18 July 2013. Both S&P and Fitch have put the US on an AA+ credit rating, one notch below the top rating of AAA.

US credit card balances have reached an all-time high of almost $1 trillion. They represent the fastest-growing area of household credit – which is in sharp contrast to the fall-off in mortgage finance. Over the past year individuals have increasingly used credit card debt to finance their consumption activity, despite the rapid increase in the interest charged on outstanding credit card debt.

European Central Bank (ECB) President Christine Lagarde said it will take more than “the next couple of quarters” for the ECB to start cutting rates. Consequently, the yield on Germany’s 10-year government bond rose above 2.7%, while Italian bond yields also ticked higher.

Bank of England (BoE) Governor Andrew Bailey said at a central bank conference in Ireland that it was “really too early” to talk about cutting interest rates. He spoke after BoE Chief Economist Huw Pill had said that financial markets pricing in an initial rate cut in August next year “doesn’t seem totally unreasonable,” which triggered a sharp decline in short-dated UK government bond yields.

Euro area retail sales declined by 0.3% in September, after falling by 0.7% in August. Over the past year retail spending in the euro area has declined by a significant -2.9%, highlighting the risk of recession. In addition, the economic sentiment index produced by Sentix consultancy was -18.6 in November. While this is an improvement relative to the -21.9 recorded the previous month, it still suggests that levels of confidence remain weak.

Bank of Japan (BoJ) Governor Kazuo Ueda, speaking at a conference organised by the Financial Times, warned that normalising short-term interest rates will be a serious challenge, due to the potential impact on financial institutions, borrowers, and aggregate demand. He said it was too early to determine what the central bank will do when it normalises its policy stance.

SA’s manufacturing production declined by a further -0.5% in September 2023. This is the third monthly decline in manufacturing activity in the past five months. Importantly, during Q3 2023, production fell by a substantial -1.2% q/q, which will hurt the third quarter estimate of SA’s GDP performance. Over the past year manufacturing production is down -4.3%, which means that output is almost 5% below the level that prevailed prior to the start of Covid-19. South African manufacturing has been undermined by a range of factors, including electricity outages, a lack of efficient rail and port capacity, periodic strike activity and rising interest rates.

SA’s mining output fell by -0.3% in September. While the decline was not as severe as expected, mining production has declined in three of the past five months and is down -1.9% year-on-year. More importantly, production fell by -1.6% q/q in Q3 2023, which, with the quarterly decline in manufacturing activity, will significantly undermine SA’s Q3 estimate of GDP growth.

According to monthly data provided by NERSA, the number of rooftop solar projects announced by the local business sector increased by 33 in October. This takes the year-to-date total to an impressive 317 projects. These 317 projects represent installed capacity of 4 126 MW, which is already helping to ease electricity outages. These investments, together with residential investment in rooftop solar, ongoing improvements to Eskom’s Energy Availability Factor, and an increase in imported electricity should result in substantially less load shedding in 2024.

Chinese consumer inflation slipped back into deflation in October. It was -0.2% y/y, as consumer demand remained muted and travel faded. Inflation has been below the People’s Bank of China’s implicit target for 42 months. Core inflation remained subdued at 0.6% y/y.

China’s trade surplus fell to $56.53 billion in October, as exports declined at a much faster pace than imports. Imports, surprisingly, rose year-on-year for the first time in 13 months while exports fell for a sixth consecutive month amid uncertain global conditions. Volumes of imported commodities such as iron ore, crude oil, coal, natural gas and soybeans rose on a year-on-year basis. In contrast, imports of steel declined year-on-year. Overall, it appears that government support measures are gaining traction, which is lifting business confidence.