The focus areas during the week included

• Very little key economic data was released during the week, which probably provided an opportunity for global equity markets to regain some the value lost in the immediate aftermath of the release of worse-than-expected US employment data for July 2024. Initially, the S&P 500 equity index lost a little over 6% of its value in just three trading days, but then regained most of the loss to end the week around 3% below the level prior to the release of the July employment data. Year-to-date the S&P 500 is still up 12%, although as recently as 16 July it was up 18.8% year-to-date.

A similar analysis of other major equity indices since the end of July 2024 reveals the following:

• • S&P 500: initially down -6.1% over three trading days, but then up 3%
  • Nasdaq 100: initially down -7.6% over three trading days, but then up 3.5%
  • Russell 2000: initially down -9.6% over three trading days, but then up 2%
  • Stoxx 600: initially down -6% over three trading days, but then up 2.5%
  • UK FTSE 100: initially down -4.3% over three trading days, but then up 2%
  • Shanghai: initially down -2.7% over three trading days, but then up 0.1%
  • Nikkei 225: initially down -19.5% over three trading days, but then up 11.3%
  • SA All Share: initially down -3.9% over three trading days, but then up 1.5%
    
    
• Despite the recovery in global equity markets over the past four trading days, sentiment remains fragile, as analysts debate the path of US interest rates and the risk of the US going into recession.
  
  
• Understandably, US government bonds rallied strongly after the release of the weaker-than-expected US employment data for July 2024 (the yield on the US 10-year government bond fell from 4.1% at the end of July 2024 to 3.79% on Monday 5 August), before giving up some of the gains over the next four trading days. The yield on the 10-year US government bond ended the week at 3.94%.
  
  
• The rand depreciated by 0.5% m/m against the dollar last week, falling by a substantial 1.8% on Monday, 5 August. Year-to-date the rand is down a very modest -0.2% compared with emerging market currencies (in aggregate), which are down -3.7% against the dollar. This relative outperformance continues to reflect SA’s improved economic outlook following the formation of the GNU in early June 2024.
  
  
• US weekly jobless claims fell to 233 000 during the week, below market expectations for a total of 240 000 claims. This is down from an upwardly revised 250 000 claims the previous week. It helps to ease some of the concerns that quickly emerged as a result of the weaker-than-expected July US labour market report the prior week – although the number of continuing claims rose by 6 000 to 1.875 million. Overall, though, a broad array of data indicates that the US labour market is systematically softening and, if this is sustained, it could push the US economy into recession. Given the recent weakness in US employment, markets have now priced in a roughly 51.5% chance of a 25-basis point (0.25%) Fed interest rate cut at the September meeting and a 48.5% chance of a 50 bps cut.
  
  
• The S&P Global PMI data for the US services sector fell slightly in July to 55.5 from 56 in June – but remained solidly in expansionary territory. This is the US service sector’s best three-month growth phase in two years. However, the data does not align with the US ISM services index, which improved in July to 51.4 from a contractionary 48.8 in June – its lowest reading in over three years.
  
  
• SA’s manufacturing production declined by -0.5% m/m in June, after falling by -3.6% m/m in May. This was well below market expectations for production to rise by 1.3% m/m. Over the past year production has fallen by a very substantial 5.2%, indicating that the improvement in electricity production has not provided a significant uplift to SA’s industrial output. A breakdown of the annual decline in production for June reveals that eight of SA’s ten major manufacturing sectors contracted, including food (-6% y/y), motor vehicles (-15.6% y/y), cement (-5.7% y/y), footwear (-13.2% y/y), and publishing (-11% y/y).
  
  
• China’s consumer inflation rate rose more than expected in July 2024 to 0.5% y/y from 0.2% y/y in June and above market expectations for a rise of 0.3% y/y. The larger-than-expected rise was partly due to a low base set for pork prices in 2023. This is partly reflected in the fact that core inflation rose by 0.4% y/y in July, which is down from 0.6% y/y in June and the lowest level of core inflation since January 2024.
  
  
• In July 2024, China’s trade balance (in dollars) recorded a surplus of $84.65 billion, below market expectations for a surplus of $98.35 billion and down from a record surplus of $99.05 billion in June. The moderation was due to a decline in exports (-2.4% m/m), which fell for the first time since October 2023, while imports unexpectedly rose by 3.4% m/m in the month – the first increase since March 2024.
  
  
• Retail sales in the Eurozone declined by 0.3% m/m in June after increasing 0.1% in May. The market expected retail spending to decline by only -0.1% m/m. This weakness reflected a drop in the sales of food, drinks, and tobacco. It suggests that consumers are taking longer to recover from the earlier inflationary pressures, adding to doubts about the strength of Eurozone final demand in the second quarter of 2024.
  
  
• In June 2024, German industrial output rose 1.4% m/m, while industrial orders increased by 3.9% m/m. Both data points exceeded market expectations. This strength contradicts the latest PMI data for Germany, which suggested that the downturn in the manufacturing sector worsened in July. Over the past year, German industrial production contracted by 4.1%, which is far less severe than the annual decline of 7.2% y/y recorded in May 2024.