The focus areas during the week included

• The S&P 500 gained an impressive 1.9%, despite the absence of any key economic data and relatively low trading volumes. Year-to-date the S&P 500 is up 9.5% and it is now close to another record high. The lack of key economic data allowed equity markets to continue to benefit from positive corporate earnings results and increased expectations that the Federal Reserve (Fed) will start its rate cutting cycle before the end of the year. (Almost 90% of US companies have reported their earnings update for Q1 2024, with more than 75% of companies beating consensus estimates.)

• The European STOXX 600 Index also had a good week, gaining a further 3%, helped by increased optimism that major central banks, including the European Central Bank and Bank of England, would soon start their interest rate cutting cycles. Year to date the STOXX 600 is up 8.7%.

• SA’s All-Share Index has finally turned positive for the year to date (up 2%). It gained 2.7% in the week, helped by some easing of concerns over the outcome of the National Election on 29 May. Since 25 April (when the results of the most recent Ipsos poll were released), the market has gained a very welcome 5.6%.

• The yield on the US 10-year government bond ended the week relatively unchanged at 4.5%, after dropping to a near one-month intraday low on Tuesday. In general, US bond yields have declined, albeit modestly, in May as markets have become more confident that the Fed is not considering a rate hike in response to the higher-than-expected inflation readings in the first three months of the year and that the Fed could start to cut rates before the end of 2024.

• Year-to-date emerging market currencies have depreciated by -3.5% against the US dollar while the rand is down only -0.9%. Since 24 April, the rand has gained an impressive 4% against the dollar. While it is unclear what contributed to this outperformance, the rand was significantly oversold in the second and third weeks of April.

• US weekly jobless claims rose to 231 000, which was higher than market expectations for claims of 212 00 and above last week’s reading of 208 000. This is the highest weekly jobless claims figure year-to-date and the highest since August 2023. While this is just one week of data and not yet a trend, the jobless claims data follows last week’s employment report for April which also surprised on the downside. Overall, while the US labour market has been an impressive source of strength for the economy, a range of recent data suggests some moderation. The supply of labour (participation) appears to be increasing, while the demand for labour has been softening as job openings have decreased. This is helping to ease the pressure on wages, which should support lower services inflation.

• US consumer confidence (as measured by the University of Michigan) fell unexpectedly in May 2024 to 67.4 from 77.2 in April. This is the lowest level of consumer confidence in six months. According to the report, “while consumers had been reserving judgment for the past few months, they now perceive negative developments on a number of dimensions. Consumers expressed worries that inflation, unemployment and interest rates may all be moving in an unfavorable direction in the year ahead”.

• Data provided this week by the Federal Reserve Bank of San Francisco shows that US household excess savings finally turned negative in March 2024 at -$71.6 billion. In August 2021, US household excess savings peaked at an incredible $2 136.7 billion, which heavily supported US consumer spending in 2022 and 2023.

• US rental data for April 2024, as compiled by the “Apartment List”, indicates that over the past year market rentals for residential property have declined by -0.8% y/y. This is significantly below the April estimate provided by Zillow of +3.6% y/y.

• South African manufacturing production declined by a substantial 2.2% m/m in March 2024 compared with a decline of 1.1% m/m in February. The March reading was well below market expectations for an increase of 0.4%. Over the past year, manufacturing has fallen by 6.4%, declining by 1% q/q in the first quarter of the year – which will substantially undermine SA’s GDP performance for the quarter. The decline in production over the past year includes a massive 29.4% y/y drop in vehicle production, although most manufacturing sectors have experienced significant downward pressure in recent months. Hopefully, improved electricity output since the end of March, coupled with a revival in the manufacturing PMI for April, signals an improvement in manufacturing activity in Q2 2024.

• Eskom’s Energy Availability Factor remained relatively high in the first 10 days of May, recording a daily average of 63.2%. Importantly, planned maintenance has declined significantly since the beginning of the year, falling to its lowest level since August 2023. Equally, unplanned outages have also moderated and are at their lowest level in years. SA last experienced load shedding on Tuesday 26 March 2024.

• The Bank of England (BoE) kept its key interest rate unchanged at 5.25% but indicated that it could ease policy as early as June. Deputy Governor Dave Ramsden joined Swati Dhingra in voting for a rate cut of 0.25%. BoE Governor David Bailey said rates may need to be reduced more than markets expect, although he highlighted that the decision would depend on incoming data. The BoE also updated its economic forecasts. It now expects inflation to slow more sharply to 1.9% in 2026 and to 1.6% in 2027.

• In Q1 2024, the UK economy grew by a much stronger-than-expected rate of 0.6% q/q, which means the country has effectively exited the recession that started in the second half of last year (data provided by the UK Office for National Statistics).

• The Riksbank (Sweden) lowered its key interest rate by 25 bps to 3.75%. This is Sweden’s first rate cut since 2016. (In the developed world, only Switzerland and Sweden have started their rate-cutting cycles). The Risksbank indicated that if the outlook for slowing inflation continues, the policy rate could be cut twice more in the second half of 2024.

• China’s exports rose by 1.5% y/y in April from a decline of 7.5% y/y in March, which was broadly in line with consensus estimates. Exports to Southeast Asia improved, while European shipments declined and sales to the US were little changed. Imports rose more than exports in April to 8.4% y/y, reversing March’s decline of 1.9% y/y, which some analysts attributed to increased raw material shipments rather than improved consumer demand. China’s overall trade surplus increased to $72.35 billion in April from $58.55 billion in March.

• In the past week, the daily average number of tankers and container ships moving through the Suez Canal fell further to 30. In comparison, in 2023 the daily average was consistently between 70 and 80 ships. The decline in the number of ships using the Suez Canal has resulted in an equivalent increase in the number of ships moving past Cape Town each day.