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Published 2023/07/06, 11:23
Updated 2023/07/09, 12:32

Market scorecard

US markets edged lower in a quiet session yesterday after the release of the Fed's June meeting minutes. Almost all Fed officials expect additional rate increases this year, as they try to balance the fight against inflation without tipping the economy into a recession. This news reinforced market expectations of a hike at the next meeting. Both the S&P 500 and the Nasdaq Composite slipped.

In company news, Meta Platforms (NASDAQ:META) was up 2.9%, among the S&P 500's best performers after the release of its Twitter competitor called Threads. Elsewhere, Moderna (NASDAQ:MRNA) advanced 1.5% after reports emerged that it had signed a deal to work towards researching, developing, and manufacturing medicine in China. Finally, Las Vegas Sands and Wynn Resorts (NASDAQ:WYNN) were down 5.6% and 4.6%, respectively, making them the worst performers on the day.

At the end of the day, the JSE All-share closed down 0.41%, the S&P 500 fell 0.20%, and the Nasdaq was 0.18% lower.

One thing, from Paul

Unbelievably, it's about to be earnings season again. Is time accelerating? Major US companies will soon report their profit numbers for the second quarter of 2023, starting with the banks next week.

Sam Ro from Tker (pictured below) reminds us that company revenue numbers and profits are key, but the forward guidance for the balance of the year is what usually moves share prices on the day.

Overall, we are positive and expect good things. The US economy has been strong, and global consumers have been spending.

What's expected for earnings in the future will be a bigger deal than what's happened in the past.

Byron's beats

Thanks to some good weather in Europe, energy prices went below zero on Tuesday. A friend in the EU noted how he was being paid to charge his electric car! This has happened quite often this summer, especially on weekends when demand is low. After a massive surge in solar installations, the grid is often overwhelmed when the sun shines bright.

Germany's solar output hit 30 gigawatts yesterday. For perspective, South Africa's total generation is around 60 gigawatts. Europe is set to install another 60 gigawatts of new panels in 2023.

Europe was already shifting to renewables quite quickly but then Putin invaded Ukraine and the transition sped up remarkably. It is amazing how quickly humans can react to certain incentives. Even though it makes financial sense to do the same here in South Africa, it has taken rolling blackouts to really spark a change.

Michael's musings

As an economist, I'm a fan of dynamic pricing. When things are in short supply, prices should go up, and when there is excess, prices should go down. Regarding the price of electricity, retail customers should be paying extra during high-use periods. Eskom proposed a change to retail pricing last year, but I'm not sure how close were are to implementation.

The easiest way to change behaviour is with financial incentives. If it costs more to run a dishwasher between 17:00 and 21:00, then many households will alter when they turn on the appliance. The same goes for pool pumps and geysers; they don't need to be run during those high-use periods.

Following on from Byron's piece above, solar helped save Texas consumers billions of dollars during a recent heat wave. As temperatures increased, so too did power demand from air conditioners. Luckily, higher temperatures are coupled with more sun and solar power. Like the EU, Texas has real-time power pricing. Prices mostly stayed below $50 per megawatt hour, much better than past heat waves that saw prices reach over $1 000 per megawatt hour.

Bright's banter

Hermes (EPA:HRMS), the renowned fashion company, has experienced an extraordinary rise in its stock price since its initial listing back in 1993. From its humble beginnings at under EUR6 per share, the stock price has skyrocketed to an impressive EUR1 940 per share.

In early 2023, Hermes achieved a remarkable milestone when its market capitalisation exceeded $200 billion for the first time. This significant achievement also propelled Hermes ahead of Nike (NYSE:NKE), positioning it as the world's second most valuable fashion company after LVMH (EPA:LVMH).

Investors have long been enamoured with Hermes due to its winning combination of high profitability and consistent growth. In times of economic uncertainty and rising borrowing costs, many investors seek out quality investments - a "flight to quality."

Furthermore, the luxury sector, particularly among Chinese and American customers, has shown a promising outlook, boosting the demand for Hermes shares. The strategic success of Hermes' leather-goods division played a pivotal role in establishing the company as a global megabrand.

Hermes' success story serves as a prime example of how a meticulous focus on quality, combined with a shrewd business strategy, can result in the establishment of a highly valued and globally recognised fashion brand.

Signing off

Asian markets are down this morning. Hong Kong led the losses as the Hang Seng Index tumbled as much as 3.2% while benchmarks in Japan, mainland China, and South Korea are also in the red on this risk-off day. To add salt to the wound, Chinese banks stopped buying bonds issued in the Shanghai free trade zone amid increased regulatory scrutiny.

US equity futures contracts are mixed this morning. The Rand is trading at R18.79 to the US Dollar.

A series of US employment reports from job openings and initial jobless claims are out today while the US unemployment rate and non-farm payroll numbers are due tomorrow.

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