Election Week

Market Scorecard

US markets rose smartly on Friday after a monthly jobs report showed that unemployment increased slightly. As you know, we are living in an upside down time where a sign that the economy is slowing is market positive, because it suggests that the Fed will soon quit hiking interest rates.

Employers added a seasonally adjusted 261 000 jobs in October, the slowest monthly gain since December 2020, while the unemployment rate rose from 3.5% to 3.7%. Despite Friday's gain the S&P 500 still fell 3.3% for the week, while the tech-heavy Nasdaq declined 5.6% last week. Painful!

In company news, Starbucks (NASDAQ:SBUX) jumped 8.5% after the company reported record sales. Elsewhere, Apple (NASDAQ:AAPL) has pencilled in lower shipments of its latest iPhones due to a lockdown in one of its major manufacturing centres in central China. Lastly, shares of copper miner Freeport-McMoRan rose 11.5% on a report that China will soon make "substantial changes" to its ridiculous zero-Covid policy.

On Friday, the JSE All-share rallied 4.93%, the S&P 500 closed up 1.36%, and the Nasdaq was 1.28% higher.

Bright's Banter

Illumina (NASDAQ:ILMN) reported its third-quarter numbers last week, showing anaemic sales growth. The gene-sequencing operator made things worse by lowering its guidance for the 2022 fiscal year, estimating sales to be flat or rise by a rather pedestrian 1% as compared to 2021. The stock price sank on the news.

Quarterly revenue was $1.12 billion, up 1% from a year ago. Earnings fell almost 77% due to a $3.91 billion goodwill impairment related to GRAIL but still managed to come in ahead of expectations. European regulators are still taking their sweet time scrutinising the GRAIL acquisition.

The company had multiple breakthroughs including the launch of the NovaSeq X Series which can sequence more than 20 000 genomes per year. About 50 of these machines have been sold already. They partnered with GenoScreen to expand global access to genomic testing for TB.

Illumina also opened its first manufacturing site in China to enable local production of instruments and consumables. Finally, they doubled down on their collaboration with AstraZeneca (LON:AZN) to accelerate drug target discovery based on humanomics insights, using both traditional routes and artificial intelligence.

This has been very rough year for growth stocks and Illumina has been no exception. The good news is that the underlying business hasn't gone backwards and there's still demand for their specialised sequencing machines. This one is going to need some patience.

One Thing, From Paul

On Tuesday this week the US midterm elections take place, and it's very likely that the Democratic Party's three-way control of the House, Senate and White House will be lost.

I have previously noted that the stock market will probably like this outcome, because gridlock in Washington means that no new taxes and grand fiscal spending plans can be rammed through by the party in power.

The current Republican Party is an unusual beast. As many commentators have noted, the American right has changed a lot in the last 15 years. Once dominant groups of "country club" conservatives, Reaganite ideologues, bellicose neocons, and "moral majority" Christians have fallen by the wayside.

They were replaced by Trumpism, which embraced severe restrictions on immigration, a rejection of free trade, a restoration of manufacturing jobs, a fixation with law and order and the idea of MAGA (make America great again).

The New Right doesn't seem to have a highly coherent economic agenda. It mostly emphasises individual freedoms, and gets excited about using government and the courts to constrain the Left and its "woke" cultural agenda.

If this topic is of interest to you, you can read more in this blog post by Tyler Cowen: Classical liberalism vs. The New Right.

Byron's Beats

Sadly, US daylight-saving ended yesterday and their clocks went back an hour. This means that US markets now open at 16h30 South African time. We have to wait a whole extra hour to get our daily fix of market action. It also means that important releases like CPI, jobs numbers and GDP will also hit our screens an hour later.

Earlier this year the Senate unanimously passed a ruling to permanently keep daylight saving times but the agenda has been stalled in the House of Representatives. Hopefully this will be resolved soon, but for now, we will have to deal with the time change until March next year.

Michael's Musings

Bloomberg published an amazing article last week written by Matthew Hill, tracking the journey that copper takes from mines in the DRC to ports in Tanzania, South Africa, Mozambique and Namibia. The trip by truck takes around a month. Durban is one of the main ports used for exporting but truckers are opting for other destinations due to port handling inefficiencies.

Wealth is created when we use our resources more efficiently. Reading that article, you can see where small changes could create significant wealth. Imagine how much more copper would be mined if there was a train line from the mining region to a port in West Africa? With the demand for copper set to double in the next decade, this extremely poor region has massive growth potential.

African countries have tried hard to create manufacturing industries around the resources extracted from their lands. In many places, these efforts have failed. Imagine if the DRC or one the neighbouring countries could create a manufacturing industry around copper, and then supply the rest of Africa.

The article also has brilliant pictures. Take a look - The Metals for Your EV Are Stuck in a 30-Mile Traffic Jam.

Signing Off

Asian markets are up this morning. They must be tired of going down. Benchmark gauges in Hong Kong, Japan, mainland China and South Korea all climbed.

US equity futures are slightly lower, but it's a long time before the Wall Street opening bell is rung, so let's wait and see. Earnings season continues in the US, with companies like Activision Blizzard (NASDAQ:ATVI), Welltower (NYSE:WELL), BioNTech (NASDAQ:BNTX) and Palantir Technologies (NYSE:PLTR) out with numbers today. The Rand is trading at R18 to the greenback.

Have a good day and a good week.

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