The focus areas during the week included

• The S&P 500 index gained a further 0.9% in the week, pushing the market to another record high. Year-to-date the S&P 500 is up 17.7% (NASDAQ is up 20.8% in the year to date). It is interesting that the small-cap Russell 2000 Index gained an impressive 6%, delivering its best week since early November 2023. That suggests investor interest is broadening into companies that could benefit proportionally more from successive interest rate cuts.
  
  
• SA’s All-Share index also had a good week, gaining a very welcome 1.1%. The market has risen by 7.4% since 11 June and is up 6.2% year-to-date, helped by improved investor sentiment associated with the Government of National Unity.
  
  
• The yield on the benchmark US 10-year government bond declined sharply after the release of the better-than-expected June inflation data, briefly touching its lowest level (4.16%) since 12 March. The 10-year bond yield ended the previous week at 4.28%.
  
  
• Most emerging market currencies have benefited from a slightly weaker US dollar in the past week, but the emerging market currency index is still down -3.3% year-to-date. In contrast, the rand is up 1.6% against the dollar year-to-date, making it the best-performing emerging market currency this year. The rand continues to benefit from the country’s improved risk premium following the recent formation of the Government of National Unity and its potential to change the trajectory of SA’s growth rate. Political stability and an improved economic outlook are key for sustained rand strength.
  
  
• US headline inflation fell by 0.1% m/m in June, which was below market expectations for a rise of 0.1% m/m. This is the first monthly decline in headline CPI since May 2020, and it pulled the annual rate of inflation down from 3.3% to 3%. Even more encouraging was that core inflation rose by a less-than-expected 0.1%, its slowest pace in over three years, which resulted in the annual rate slowing from 3.4% to 3.3%. Energy prices eased, with the cost of gasoline down 3.8%, used vehicle prices declined by 1.5%, and airline fares fell by 5%. Crucially, shelter and rent prices, among the key drivers of core inflation over the past year, were up only 0.2%, which is the slowest pace of increase since August 2021. Chicago Federal Reserve President Austan Goolsbee called the data “profoundly encouraging” and a sign that inflation was on its path back to the Fed’s annual target of 2%.
  
  
• US PPI inflation rose by a higher-than-expected 0.2% m/m in June 2024. May data was revised upwards from an initial decline of -0.2% m/m to 0% m/m. This pushed the annual rate of increase in headline PPI to 2.6%. As recently as January 2024, US PPI inflation was measured at a mere 1% y/y. Core PPI also rose more than expected, gaining 0.4% in the month versus expectations for a rise of only 0.2% m/m. This pushed the annual rate of core PPI up to 3% from 2.6% in the prior month and the consensus estimate of 2.4%. As with CPI, the higher components of PPI inflation remained concentrated in services. Despite the higher-than-expected PPI data, the market is expecting the Fed to cut rates two or possibly three times in 2024, including at the Federal Open Market Committee (FOMC) meeting on 18 September (94% probability of a rate cut), the meeting on 7 November and the meeting on 18 December. Market expectations of US rate cuts have fluctuated substantially in 2024.
  
  
• SA’s mining production fell by -0.6% m/m in May 2024. This is down from growth of 0.8% m/m in April and far below market expectations for a gain of 1.1% m/m. On a yearly basis, mining growth was flat (growing by 0% y/y), despite the suspension of load shedding towards the end of March 2024. This highlights that there are deeper issues plaguing SA’s mining sector beyond just erratic electricity supply. Overall, the underlying performance of SA’s mining sector remains weak. In fact, mining production is still 12.3% below the level of production that prevailed in January 2020, prior to the Covid-19 outbreak.
  
  
• SA’s manufacturing production declined by a substantial -3.2% m/m in May 2024 after rising by 5.2% in April. The May decline was worse than expected, despite the ongoing improvement in electricity supply, highlighting the underlying weakness in industrial production. Over the past three months, SA’s manufacturing output has fallen by -0.4% q/q and has declined by -0.6% over the past year. A breakdown of manufacturing activity in recent months suggests that the weakness has been broad based, except for the food and beverage sector, which grew by 2% q/q in the three months from March to May.
  
  
• In June 2024, China’s trade balance recorded a surplus of $99.05 billion. This was well above market expectations for a surplus of $85.3 billion (Bloomberg) and the largest trade surplus China has recorded since at least 1990. The improvement was driven by a 1.8% m/m increase in exports (up 8.6% y/y), coupled with a -4.9% decline in imports (-2.3% y/y). China’s exports recorded their third consecutive monthly increase and appear to be benefiting from still solid global demand. In contrast, the sharp decline in imports was largely unexpected and appears to reflect the weakness of China’s domestic demand.
  
  
• China’s consumer inflation rate remained extremely subdued in June, rising by a lower-than-expected 0.2% y/y, which is down from 0.3% y/y in May. Core inflation rose by 0.6% y/y, which is unchanged from May. It is also worth highlighting that producer inflation fell by 0.8% from a year ago, marking its 21stmonth of decline – although the rate of deflation eased from a drop of 1.4% in May. China’s economic recovery has been uneven this year, despite numerous measures to boost growth, as a protracted property sector slump and weak domestic demand have restrained economic activity and consumer prices. China continues to flirt with outright deflation. Many analysts have shifted focus to the Third Plenum, a three-day meeting of the Chinese Communist Party starting on Monday 15 July, when key economic policies for the coming years are expected to be unveiled.
  
  
• Following the discussion by General Sir Nick Carter at a STANLIB presentation last week, it is useful to update the shipping data for the Red Sea. According to port watch data, an average of only 32 ships a day (tankers and container ships) have gone through the Suez Canal in the first 10 days of July. This is down from around 73 ships a day a year ago. In contrast, there has been a sustained increase in the number of ships going past Cape Town each day (85) versus a year ago (around 50).
  
  
• In the week, three Bank of England (BoE) policy officials indicated that they were still reluctant to vote in favour of cutting interest rates. This encouraged markets to scale back expectations for a rate cut at the next Monetary Policy Committee (MPC) meeting on 1 August 2024. Chief Economist Huw Pill said the BoE had made “substantial progress” in bringing down inflation but noted that key drivers, such as wage growth and services inflation, were still showing “uncomfortable strength.” Jonathan Haskel and Catherine Mann, both regarded as hawkish on monetary policy, indicated that they would rather hold rates steady until evidence of a sustained drop in services inflation emerged. The lower-than-expected US inflation data for June might to help ease some of their concerns.
  
  
• In Japan, core machinery orders, a leading indicator of capital spending over the next six to nine months, unexpectedly declined for a second consecutive month in May. Orders fell by 3.2% m/m to JPY 857.8 billion, after dropping by 2.9% m/m in April. In contrast, the growth in industrial production for May was revised up from an initial estimate of 2.8% to 3.6%, helped by robust growth in motor vehicles, electrical machinery, information and communication electronics equipment, as well as general-purpose and business-oriented machinery.
  
  
• During the French National Election, no party won an outright majority of 289 seats in the second round of the parliamentary election process. This suggests there will be a long period of talks to form a coalition government. The left-wing New Popular Front won 182 seats. President Emmanuel Macron’s Ensemble came in second, with 168. The hard-right National Rally won 143 seats.