The focus areas during the week included

• The S&P 500 index surged by 3.9%, helped by lower-than-expected CPI and PPI inflation data as well as stronger-than-expected retail spending. The retail spending data helped to ease concerns about July’s weak labour market report and a pending recession. Year-to-date the S&P 500 is up 16.4% (which is close to a record high), while the Nasdaq 100 is up 15.9%. This week the focus will be on US Federal Reserve (Fed) Chair Jerome Powell’s speech at the Jackson Hole symposium, especially his assessment of the labour market.
  
  
• The yield on the US government 10-year bond decreased through most of the week, helped by the improved inflation data. It weakened after Thursday’s better-than-expected retail sales data. The 10-year bond ended the week at a yield of 3.89%, down from 3.94% the prior week.
  
  
• The South African equity market gained a very welcome 2.6% and is up 7.7% year-to-date. All the gain has occurred since the Government of National Unity (GNU) was announced.
  
  
• Japan’s equity markets rebounded strongly over a holiday-shortened week. The Nikkei 225 Index gained 8.7%, helped by the yen weakening to almost JPY 149 against the US dollar on Thursday from around JPY 146.7 the prior week. Sentiment was boosted by the better-than-expected US economic data, which eased concerns about a recession in the world’s largest economy. It also helped that Japan’s GDP expanded by more than anticipated in the second quarter of the year.
  
  
• Since the beginning of August 2024, the US dollar has lost 1.7% of its value against the euro, hurt by heightened expectations that the Fed will start its interest rate cutting cycle in September. This has benefited emerging market currencies: the EMCI is up 1.6% month-to-date. Interestingly, over the past year, the rand is the best-performing emerging market currency, gaining an impressive 6.5% against the dollar. In comparison, the EMCI is down 0.67% over the same period. In the first few months of 2024, the rand was considered significantly undervalued due to sluggish economic growth and ongoing concern about electricity supply and other infrastructural failings. However, the improvement in electricity production, coupled with the GNU and the new administration’s endorsement of policy reforms that are focused on using private-public partnerships to help develop SA’s business infrastructure, has boosted investor sentiment. This has narrowed the perceived country risk premium that investors associate with the rand.
  
  
• In July 2024, US consumer inflation rose by a modest 0.2% m/m, which pulled the annual rate of inflation down fractionally from 3% to 2.9%. The market was expecting headline CPI to remain unchanged at 3%. Unfortunately, shelter inflation was unchanged at 5.1%, rising by a relatively large 0.4% in the month. If shelter inflation is excluded from the data, then the inflation rate would be a mere 1.7% y/y, which is well inside the Fed’s inflation target. Core consumer inflation also increased by 0.2% m/m in July 2024, in line with market expectations. This resulted in the annual rate of core inflation easing to 3.2% from 3.3% in June. While core inflation has slowed meaningfully in recent months, dropping from 5.6% as recently as March 2023, it is not yet within sight of the inflation target. Headline inflation is expected to slow further during 2024, falling to around 2.5% within the next couple of months, but it appears unlikely that inflation (CPI) will slow to within reach of the magical 2% target before the end of 2024. Under current circumstances, getting headline inflation back down to around 2% is highly dependent on a very noticeable softening of shelter inflation as well as a moderation in the inflation rate for vehicle insurance, which is currently at 18.6% y/y.
  
  
• US producer inflation (PPI) for July was lower than expected, with headline PPI rising by only 0.1% m/m versus market expectations for a gain of 0.2% m/m. Equally, PPI excluding the volatile food and energy components was also below expectations, recording no change in July versus market expectations for an increase of 0.2% m/m. The latest PPI data (together with the further moderation in CPI and softening labour market) supports the view that the Fed will start to cut interest rates in September. Futures markets are pricing in roughly a 75% chance of a 25 basis-point (0.25% bps) cut at the September FOMC meeting and a 25% change that the Fed could decide to cut rates by 50 bps (0.50%) in September.
  
  
• US retail sales grew by a robust 1% m/m in July (the largest increase in 18 months, boosted by vehicle sales), which was well above market expectations for growth of only 0.3% m/m. The data was, however, flattered by the downward revision to the June retail data from 0% m/m to -0.2% m/m. Retail spending, excluding motor vehicles and fuel, grew by a more modest 0.4% m/m, although this also beat market expectations for growth of 0.2% m/m. Walmart reported strong results for the second quarter of 2024 that beat analysts’ estimates, and raised its profit and revenue outlook for the remainder of the year. This would suggest a resilient consumer that is only gradually pulling back on spending.
  
  
• US weekly jobless claims fell for the second consecutive week, to 227 000, below market expectations for claims of 233 000. The trend in jobless claims is consistent with a labour market that is softening but not weakening appreciably, and it supports the “soft landing” outlook for the US economy.
  
  
• The US Commerce Department reported that building permits fell below 1.4 million in July 2024, for the first time since the impact of Covid in 2020. In addition, actual housing starts also fell to their lowest level in four years, while the NAHB housing market sentiment index fell to its lowest level since the end of 2023.
  
  
• In Q2 2024, there were 16.652 million people employed in SA, which is 92 000 less than during the first quarter of the year. This equates to an official unemployment rate of 33.5%. The market expected the unemployment rate to decline to 31.8%. SA’s extremely weak labour market reflects a combination of cyclical and structural factors, including an extreme lack of fixed investment activity as well as downward pressure on household disposable income. The labour market has simply not kept pace with the ongoing growth in the labour force, resulting in a record number of people being unemployed in Q2 2024 (8.38 million).
  
  
• SA’s mining production fell by -1.6% m/m in June 2024, well below the revised growth of 0.1% m/m recorded in May. On a yearly basis, mining production declined by -3.5% y/y, far below market expectations for production to fall by only -0.1% y/y (Bloomberg). Importantly, in Q2 2024 mining production fell by -0.9% q/q. This follows a decline of -1.3% q/q in the first quarter, suggesting that the sector is in recession despite the suspension of load shedding since March. This weak performance highlights that there are numerous structural issues affecting the mining sector, beyond just erratic electricity supply.
  
  
• In June, SA’s retail sales grew by an encouraging 1.6% m/m after declining by -0.2% in May. June’s performance was the strongest since January 2023 and easily beat market expectations for growth of only 1%. The improved level of consumer spending could reflect the impact of increased employment associated with the National Election held at the end of May and is not indicative of the underlying trend. In general, consumer spending remains under pressure due to declining disposable income as well as elevated interest rates. In Q2 2024, retail spending grew by 1.5% q/q, which will help SA’s second quarter GDP growth estimate.
  
  
• In Q2 2024, Eurozone GDP grew by a modest 0.3% q/q. This was in line with market expectations, and unchanged from the growth rate recorded for Q1 2024. GDP growth in France (0.3% q/q), Italy (0.2% q/q), and Spain (0.8% q/q) offset an unexpected contraction in Germany (-0.1% q/q). In general, growth in the Eurozone remains lacklustre, especially industrial production, with the region forecast to grow by only 0.7% in 2024.
  
  
• Norway’s central bank (Norges Bank), held its key interest rate at 4.5%, as expected. Governor Ida Wolden Bache reiterated that, based on the latest economic outlook, the policy rate is likely to be kept at the current level for some time. However, the central bank highlighted that if there was a more pronounced slowdown in the economy than expected, the rate could be lowered earlier than previously envisaged.
  
  
• Japan’s economy rebounded strongly in Q2 2024 with GDP growth of 0.8% quarter-on-quarter. This beat market expectations for growth of 0.5% and reversed the first quarter’s contraction of 0.6%. On an annualised basis, the economy expanded by 3.1% (versus consensus expectations of 2.1%). The rebound was driven by strong growth in private consumption expenditure and a bounce-back in business investment.
  
  
• It was reported that Japan’s Prime Minister, Fumio Kishida, will not seek re-election as leader of the Liberal Democratic Party (LDP) in September 2024, ending his premiership once the party chooses a new leader. The decision follows his low approval ratings, partly due to his handling of various LDP scandals, including the “slush money” scandal in which party factions concealed income received through fundraising. It is unlikely that this political uncertainty will substantially impact markets.
  
  
• In July 2024, China’s retail sales increased by 2.7% y/y from June’s growth of 2% y/y. The improvement was boosted by increased travel spending and was marginally above market expectations for growth of 2.6% y/y (Bloomberg). On a trend basis, China’s consumer spending remains weak, despite the seasonal pick-up in July, raising doubts about the sustainability of economic recovery. A more substantial turnaround in domestic demand will require more aggressive improvements in employment (particularly youth employment) and consumer confidence.
  
  
• In July 2024, China’s industrial production decelerated further, showing that the recovery in the supply side of the economy is slowly losing the momentum it generated at the beginning of the year, despite ongoing government support. Growth in industrial production slowed to 5.1% y/y from 5.3% y/y in June. This was also below market expectations for growth of 5.3% y/y (Bloomberg).
  
  
• New home prices in China’s 70 key cities fell by 0.7% m/m in July, unchanged from the pace of decline in the prior two months. This is the 13th consecutive monthly decline in house prices. Although anecdotal evidence suggests that the government’s property rescue package introduced in May 2024 has boosted demand in some of the large cities, demand in the smaller cities remains relatively subdued.