The focus areas during the week included:

The lower US job openings data, coupled with a softer ADP employment report, seemed to support a continued decrease in US long-term interest rates during most of the week, with the yield on the benchmark 10-year government bond reaching an intraday low of 4.10% on Thursday. However, bond yields increased noticeably after the November employment report was released on Friday, with the 10-year government bond ending the week at a yield of 4.23%.

European government bond yields ended the week (generally) lower as comments by some European Central Bank (ECB) policymakers fuelled hopes that interest rates could be cut in the first half of 2024. The yield on the benchmark 10-year German bond ended the week at 2.26%, down from 2.36% at the end of the previous week and a recent peak of 2.9% in mid-October 2023.

Year-to-date, the rand has weakened by -10.2% against the US dollar, while the basket of emerging market currencies (in aggregate) is down only -1%. Transnet’s massive port and rail constraints have become a very visible problem, undermining the country’s export performance and disrupting the supply of goods into the local economy. This has undoubtedly contributed to the rand’s relative under-performance.

US non-farm employment rose by a substantial 199 000 jobs in November 2023, above market expectations for an increase of 185 000, while the US unemployment rate declined from 3.9% to 3.7% – below market expectations for the unemployment rate to remain unchanged at 3.9%. Over the past six months the US has added an average of 186 000 jobs a month, which is well down from a monthly average of 399 000 in 2022. It is worth noting that employment gains occurred mostly in the service sectors, while the government has added 636 000 jobs in the past eleven months and the health care and education sectors have created another 866 000 jobs over the same period. In other words, government, healthcare and education (which are largely interest rate insensitive) account for almost 59% of the total jobs gained in 11 months, highlighting that the cyclical part of the US economy is not adding many jobs at this stage of the business cycle.

In October 2023, US job openings fell for the third consecutive month to 8.773 million, down from a revised 9.35 million in September and an incredible peak of 12.3 million in March 2022. Although job openings are on a downward trend, the number of job openings remains above the 2019 pre-pandemic average, and still exceeds the 6.29 million unemployed workers. It is also encouraging that the number of people quitting their jobs remained unchanged, suggesting an ongoing easing in labour market conditions. Historically, there is a strong correlation between the quit rate and wage growth. With the quit rate at its lowest level in almost two years, wage growth is expected to moderate further.

On Wednesday, ADP Research indicated that the US private sector added 103 000 jobs in November. This was below market expectations for an increase of 130 000. This underscores the recent softening of labour market conditions. The ADP report also pointed to a further slowing in wage gains. Workers who stayed in their jobs recorded a 5.6% y/y median pay increase, which is the lowest since 2021.

The University of Michigan’s preliminary gauge of consumer sentiment in December jumped to its highest level since August, helped by the ongoing moderation in inflation. Importantly, households expect prices to increase by only 3.1% in the coming year, down sharply from 4.5% in November. This is the lowest rate since March 2021. There was also a noticeable drop in the household sector’s longer-term (3-5 years) inflation expectations.

ECB Executive Board member Isabel Schnabel signalled a shift to a dovish stance in an interview with Reuters. In the interview, she indicated that “the most recent inflation number has made a further rate increase rather unlikely”. Euro area consumer inflation has slowed sharply for three consecutive months to just above the ECB’s 2% target. Schnabel, the first policy hawk to change her view, also warned – as have other policymakers – that the fight against inflation is not over. Prices may rise again as budget subsidies expire and high energy prices fall out of annual comparisons. Meanwhile, Governing Council member Francois Villeroy de Galhau told a French newspaper that disinflation was happening faster than previously thought. “This is why, barring any shocks, there will not be any new rise in rates. The question of a rate cut could arise in 2024, but not right now,” he said.

Industrial production in Germany declined by 0.4% m/m in October, below market expectations for a decline of 0.2% m/m. This is the fifth consecutive monthly decline in German industrial production, signalling a steady slide into recession.

Comments by Bank of Japan (BoJ) officials during the week were taken by some investors as suggesting that the central bank could be preparing for an earlier-than-expected shift in its ultra-accommodative monetary policy. They also speculated that the removal of its negative interest rate policy could come soon after any potential lifting of the BoJ’s yield curve control policy. In particular, one of the BoJ’s two deputy governors, Ryozo Himino, speaking hypothetically, said that Japan’s economy could benefit from an exit from ultra-loose monetary policy, as rising wages and prices would be favourable for households and firms. He stressed that the BoJ should tread carefully. Separately, BoJ Governor Kazuo Ueda said that the handling of monetary policy would get tougher in the new year, anticipating an even more challenging situation. He reiterated the importance of closely watching whether a virtuous cycle of rising wages and prices becomes stronger.

Japan’s GDP contracted by a larger-than-estimated 2.9% q/q (annualised) in Q3 2023, compared with an initial estimate of -2.1% q/q. The downward revision was due to a larger than initially reported decline in private sector inventories as well as slightly lower private consumption expenditure.

On Wednesday, the Bank of Canada (BoC) kept its interest rates steady at 5%. This was in line with expectations. Consumer inflation in Canada has eased considerably (falling from over 7% in mid-2022 to 3.7% currently) and economic growth continues to soften. Unsurprisingly, the BoC warned about a possible rate hike if inflation starts to reaccelerate.

China’s trade surplus rose to US$68.39 billion in November, above market expectations for a surplus of US$54.9 billion, with exports increasing at a much faster pace than imports.

Moody’s cut its credit rating outlook for China’s government bonds to “negative” from “stable” on Tuesday. It highlighted that the country’s high debt levels within local governments and SOEs represented downside risks to the economy.

In the third quarter of 2023, SA’s GDP declined by -0.2% q/q, (non-annualised). This compares with growth of +0.5% in Q2 2023 and +0.4% in Q1 2023. Over the past year, the economy declined by a disappointing -0.7% and has grown by only 0.3% y/y in the first three quarters of the year. SA’s economic performance in Q3 2023 was worse than market expectations for GDP to remain unchanged quarter-on-quarter. The economic weakness in Q3 2023 was relatively broad-based, with agriculture, mining, manufacturing, construction, and retail all declining. While the declines were not substantial, they highlight the ongoing stagnation of the local economy. Fortunately, the broad business services sector (including finance) grew by 0.5% q/q, while transport activity expanded by 0.9%. Local industry is clearly struggling to cope with the combination of ongoing electricity outages, substantial port and rail constraints, sustained high interest rates, softening global demand, and a general lack of consumer and business confidence. This means that is possible for SA to experience a technical recession over the next couple of quarters, with the current depressed level of economic activity likely to persist during the early part of 2024.

In Q4 2023, South African consumer confidence index remained depressed at -17, down from -16 in Q3 2023. The latest reading of -17 reflects the lowest festive season consumer confidence in more than two decades, suggesting that consumers will keep tight control over their spending during the holiday shopping season.