The focus areas during the week included:

The S&P 500 S&P 500 gained 1% in a quiet, holiday-shortened trading week (US equity markets were closed on Thursday due to the Thanksgiving holiday and closed early on Friday). Year-to-date the S&P 500 is up an impressive 18.7%, having gained 8.7% since the beginning of November 2023. SA’s All-Share Index also rose by an encouraging 2.4% in the week but has gained only 3.6% year-to-date. In contrast, the Shanghai Composite Index declined by 0.44%, despite the government announcing new measures to support the property sector. Year-to-date the Shanghai Composite Index is down a disappointing -0.8%.

The systematic slowdown in US inflation appears to have boosted demand for US government bonds, including Monday’s successful $16 billion auction of 20-year US government bonds. The success of the auction (reflected in a good bid-to-cover ratio) appeared to offset concerns about a weak 30-year bond auction earlier in the month. This also helped to drive down the yield on the benchmark 10-year government bond to an intraday low of 4.37% on Wednesday – its lowest level in over two months. Still, the 10-year yield ended the week slightly higher at 4.47%.

US durable goods orders fell by a substantial 5.4% in October, the second-largest decline since April 2020. The decline was largely due to a sharp drop in civilian aircraft orders (-49.6%), which can be extremely volatile. However, durable orders, excluding aircraft and defence purchases, which are a good proxy for business investment, also fell, but only modestly (-0.1% m/m, after declining by -0.2% m/m in September).

The S&P PMI for the US economy indicated a modest pick-up in the services sector in November, which compensated for a bigger-than-expected slowdown in manufacturing. Importantly, S&P noted that “relatively subdued demand conditions and dwindling backlogs led firms to cut their workforce numbers for the first time since June 2020”.

US weekly initial jobless claims were reported lower than expected, at 209 000 vs an expected 227 000, partly reversing the recent increase in claims. Overall, the US labour market remains supportive of economic growth, but there are some signs of slowing, which is encouraging from a monetary policy perspective.

The minutes of the FOMC meeting did not contain any significant surprises. Instead, the minutes confirmed that the Fed has not ruled out a further increase in interest rates if consumer price pressures do not continue to abate. Overall, we expect the Fed to continue to talk tough on inflation for a while longer, until there is additional confirmation that inflation is moving closer to its 2% target.

In October 2023, SA’s headline CPI inflation index rose by a significant 0.9% m/m, which was largely due to higher food, fuel and hotel prices. This was well above market expectations for CPI to rise by 0.6%, pushing the annual rate of headline inflation up to 5.9%. Positively, core inflation rose by a more modest 0.4%, with the annual rate of core inflation remaining around the midpoint of the inflation target at 4.4%. This suggests that the underlying level of inflation remains well under control, despite currency fluctuations, some upward pressure on wages and higher energy prices.

The South African Reserve Bank kept the repo rate unchanged, as expected, but warned about the upside risks to inflation and said it was willing to hike if inflationary pressures worsened. The decision was unanimous and in line with market expectations. The repo rate has been unchanged at 8.25% since May 2023. Overall, the interest rate decision appears entirely appropriate, given SA’s economic conditions and international trends.

On Friday, Eskom, together with the Minister of Electricity, announced that it was introducing Stage 6 load shedding from 12:00 on Friday until 05:00 on Monday. The Minister said that this was due to a combination of increased unplanned outages, as well as a surprise 1 500 MW increase in demand. The Minister suggested that the increase in demand related to the current heatwave and increased use of air-conditioning. The latest deterioration in Eskom’s output is not yet reflected in Eskom’s EAF data.

SA’s petrol price is expected to decline by about R1/l at the beginning of December, which will help to ease concerns about inflation and provide some relief to households during the end-of-year festive season.

Chinese regulators announced additional measures to support the property sector. In particular, financial institutions were encouraged to deliver a range of financing measures to strengthen the balance sheets of 50 private and state-owned property developers. Separately, the National People’s Congress, China’s parliament, encouraged banks to accelerate support measures for real estate developers to reduce the risk of further defaults and ensure the completion of outstanding housing projects.

European Central Bank (ECB) policymakers reiterated that the fight to curb inflation was not over and that interest rates would not be cut any time soon. ECB President Christine Lagarde said rates could be steady over “the next couple of quarters,” while France’s François Villeroy de Galhau said rates have reached a plateau where they will probably remain for the next “few quarters”. Belgium’s Pierre Wunsch said the ECB was likely to keep rates unchanged in December and January. Separately, the minutes of the ECB’s October meeting revealed that policymakers insisted that another rate hike should be kept on the table, even if further policy tightening was not part of the main scenario.

The HCOB Flash Eurozone Composite PMI Output Index was 47.1 in November, up from a three-year low of 46.5 in October. The index has been below the key 50 index level for six consecutive months, highlighting the ongoing weakness in the euro area economy.

In October, Japan’s core consumer inflation rate accelerated for the first time in four months, rising to 2.9% y/y compared with 2.8% in September. Although core inflation was below market expectations for a rise to 3%, it remained above the Bank of Japan (BoJ)’s 2% target for the 19th straight month, fuelling speculation that the BoJ will introduce tighter monetary policy.