The focus areas during the week included

• The S&P 500 index gained a further 1.4%, after rising by 3.9% in the prior week. Year-to-date the S&P 500 is up 18.1% and it is very close to another record high. The US equity market benefited from the minutes of the 30/31 July Federal Open Market Committee (FOMC) meeting as well as US Federal Reserve chair Jerome Powell’s speech at the Kansas City Fed’s annual economic symposium in Jackson Hole, Wyoming. In the speech, Powell acknowledged that “the time has come for policy to adjust” – implying that policymakers would cut rates at their upcoming meeting in September. While Powell did not indicate the size or pace of interest rate cuts, he highlighted both a moderation in inflation (noting that his “confidence has grown that inflation is on a path to 2%”) and a softening in the labour market.

• The South African All-Share Index gained 1.8%, after rising by 2.6% in the prior week. The market has gained 6.2% in the past three weeks, helped by improved investor sentiment following the announcement of the Government of National Unity (GNU) in early June, and attractive valuations on a wide range of “SA-focused” companies.

• The US dollar weakened by 0.6% against the euro on Friday, after weakening by between 0.1% and 0.6% in each of the preceding four trading days. During the week, the dollar lost 1.7% of its value against the euro and is down 1.2% year-to-date. Unsurprisingly, emerging market currencies, including the rand, have benefited from dollar weakness. The rand is the third-best performing market currency year-to-date, with a gain of 3%.

• The FOMC minutes for the Fed’s 30/31 July interest rate meeting indicated a readiness to start cutting rates, as concerns over employment outweigh inflation uncertainty. The vast majority of FOMC members highlighted that, if the data continued to come in as expected, it would probably be appropriate to ease policy at the next FOMC meeting. Many members commented that monetary policy continued to be restrictive, although they expressed a range of views about the degree of restrictiveness. A majority of members suggested that the risks to unemployment had increased, and that the risks to achieving the inflation target had decreased. Some members said that a further gradual easing in labour market conditions could transition to a more serious deterioration. It seems clear that the FOMC has a higher level of “confidence” that the inflation target is now attainable and a September rate cut is essentially assured.

• The US Bureau of Labor Statistics revised US employment down by a preliminary estimate of 818 000 jobs for the year ending March 2024. The revision will be finalised and included in the employment reports early next year. However, the preliminary revision confirms that the industry’s ongoing suspicion that the BLS has been overestimating job gains each month is valid. The revision equates to a monthly average decline of around 68 000 jobs, which is very significant and the largest annual revision since 2009. The revision will make it easier for the Fed to start cutting rates in September.

• US initial jobless claims for the week were 232 000, a slight increase from the prior reading of 228 000, but still the second-lowest level in the last six weeks. They were below the two-month average of 236 000. Continuing jobless claims also moved up, though they remain below July’s peak.

• S&P Global released its first estimate of August economic activity in the US. It confirmed that the manufacturing sector remained in a slump but that the services sector continued to expand at a healthy pace.

• In July 2024, SA’s headline CPI inflation rate rose by 0.4% m/m, which was well below market expectations for an increase of 0.7% m/m. This allowed the annual rate of inflation to slow appreciably to 4.6% from 5.1% in June. Core inflation rose by 0.3% m/m, which was also lower than expected, pulling the annual rate of core inflation down to 4.3% from 4.5% in June. Core inflation has been inside the target for the past 39 months and is at its lowest level since May 2022, despite an 11% m/m increase in electricity inflation during the month. The latest inflation data should ensure that the Reserve Bank starts its interest rate cutting cycle at the next Monetary Policy Committee (MPC) meeting in September.

• SA’s composite leading business cycle indicator continued to decline in June, falling by 0.4% m/m. It has contracted in four of the past six months. There were decreases in five of the seven available component time series of the leading indicator. The largest negative contributors were a decrease in the number of residential building plans approved and a narrowing of the interest rate spread. In contrast, there were improvements in money supply growth and the number of new passenger vehicles sold. The leading indicator has been largely stagnant since July 2023, showing that, despite the recovery from the pandemic, the economy continues to face headwinds.

• The initial estimate of the HCOB Eurozone Composite PMI Output Index for August was 51.2, up from 50.2 in July. The improvement was boosted by the Olympic Games in France, which pushed the services sector output to a four-month high. In contrast, the manufacturing index contracted for the 17th month running.

• Bank of Finland Governor Olli Rehn and Bank of Italy Governor Fabio Panetta argued that the case for the European Central Bank (ECB) cutting interest rates in September had strengthened. Martins Kazaks, Latvia’s central bank governor, said that the ECB has room to cut rates possibly twice more this year. The minutes of the ECB’s July meeting – where monetary policy was left unchanged – reflected concerns about restricting economic growth too much, given the improved level of confidence that inflation was declining to the 2% target as predicted.

• Sweden’s central bank lowered its key policy interest rate by 25 bps to 3.5%. This was in line with expectations. The bank signalled that two or three more rate cuts were likely this year, which is a faster pace of policy easing than projected in June 2024.

• Bank of Japan (BoJ) Governor Kazuo Ueda was asked to testify in a parliamentary hearing on Friday about how the central bank intends to proceed with monetary policy normalization. Ueda reaffirmed that there is no change to the BoJ’s stance that it will adjust monetary policy if economic and price developments stay in line with its forecasts (effectively, the central bank will continue to normalise its monetary policy as it gains confidence in the economy achieving 2% inflation in a stable manner). He also noted that, while Japan’s stock market had risen from significantly devalued levels, markets remained unstable, and the BoJ would continue to monitor the situation, paying close attention to sharp movements in the yen that could affect its median inflation forecasts.

• Japan’s nationwide core inflation rate accelerated for the third consecutive month in July, to 2.7% y/y from 2.6% y/y in June. This was in line with market expectations. There was no change in the headline rate of inflation, which held steady at 2.8% y/y. Japan’s economic data appears broadly healthy in terms of growth in GDP as well as consumption spending.

• On Monday, the People’s Bank of China (PBoC) kept the one-year loan prime rate unchanged at 3.35% and the five-year loan prime rate (LPR), a policy rate for mortgages and other long-term loans, at 3.85%. This was in line with market expectations, however there is some scope for China to cut interest rates further during the remainder of 2024.