The Week Ahead - market updates
US jobs
The US economy created 467 000 jobs in Jan, much higher than the consensus expectations for 150 000, notably due to job gains in the leisure and hospitality sector, which confounded expectations that an Omicron-impact would weigh heavily on the services industry. Total nonfarm payroll employment rose by 467 000 in Jan, and the unemployment rate was little changed at 4.0 percent, the U.S. Bureau of Labor Statistics reported on Fri 4 Feb. Employment growth continued in leisure and hospitality, in professional and business services, in retail trade, and in transportation and warehousing. Both the unemployment rate, at 4.0 percent, and the number of unemployed persons, at 6.5 million, changed little in Jan. Over the year, the unemployment rate is down by 2.4 percentage points, and the number of unemployed persons declined by 3.7 million. In Feb 2020, prior to the coronavirus pandemic, the unemployment rate was 3.5 percent, and unemployed persons numbered 5.7 million. In the week ending Jan 29, the advance figure for seasonally adjusted initial claims was 238 000, a decrease of 23 000 from the previous week's revised level. The previous week's level was revised up by 1 000 from 260 000 to 261 000. The 4-week moving average was 255 000, an increase of 7 750 from the previous week's revised average. The previous week's average was revised up by 250 from 247 000 to 247 250. The advance seasonally adjusted insured unemployment rate was 1.2 percent for the week ending Jan 22, unchanged from the previous week's unrevised rate. The advance number for seasonally adjusted insured unemployment during the week ending Jan 22 was 1 628 000, a decrease of 44 000 from the previous week's revised level. The previous week's level was revised down by 3 000 from 1 675 000 to 1 672 000. The 4-week moving average was 1 619 750, a decrease of 31 250 from the previous week's revised average. This is the lowest level for this average since Aug 4, 1973 when it was 1 608 750. The previous week's average was revised down by 750 from 1 651 750 to 1 651 000.
US other
According to the Wall Street Journal, the US national debt exceeded $30 trillion for the first time, reflecting increased federal borrowing during the coronavirus pandemic. Total public debt outstanding was $30.01 trillion as of Jan 31, according to Treasury Department data released last week. That was a nearly $7 trillion increase from late Jan 2020, just before the pandemic hit the U.S. economy. According to CBS News, former US President Donald Trump's various political committees have amassed a war chest of more than $122 million heading into the midterm election year, after raising about $51 million in individual contributions in the second half of 2021. Overall, these groups under Trump's control have spent $30.4 million -- including $350 000 on the 2022 candidates he's endorsed against mainstream Republican candidates and incumbents. Trump's committee and related groups raised $1.1bn in the presidential election of 2020. The sudden hit Wordle, in which once a day players get six chances to guess a five-letter word, has been acquired by The New York Times Company (NYT). The purchase, announced by The NYT last week, reflects the growing importance of games, like crosswords and Spelling Bee, in the company's quest to increase digital subscriptions to 10 million by 2025. Wordle was acquired from its creator, Josh Wardle, a software engineer in Brooklyn, for a price "in the low seven figures," The NYT said. The company said the game would initially remain free to new and existing players. Wordle -- the name is a cheeky pun on its creator's name -- has had a striking rise. It first appeared on a no-frills, ad-free website in Oct, and had 90 users on Nov 1. Now millions play the game daily, according to the NYT announcement. The S&P 500 closed 1.5% higher for the week at 4 500.53 on Fri 4 Feb. Year to date, the index is down 5.6% from its closing level on 31 Dec 2021 of 4 766.18. From its pandemic low of 2 237.4 on Mar 23 2020, the market is now 101.1% higher. The index racked up a two-week winning streak on Fri as Amazon (NASDAQ: AMZN )'s big gains (+13% on Fri) led the tech sector out of the doldrums. A surprisingly strong nonfarm payrolls report sent US Treasury yields to multi-year highs. US bond yields surged on expectations for more aggressive Fed action, with the U.S. 10-year yield rising above 1.9% for the first time in more than two years. Citrix Systems, Inc. ( NASDAQ : NASDAQ: CTXS ) ("Citrix"), last week announced that it has entered into a definitive agreement under which affiliates of Vista Equity Partners ("Vista"), a leading global investment firm focused exclusively on enterprise software, data and technology-enabled businesses, and Evergreen Coast Capital Corporation ("Evergreen"), an affiliate of Elliott Investment Management L.P. ("Elliott"), will acquire Citrix in an all-cash transaction valued at $16.5 billion, including the assumption of Citrix debt. Under the terms of the agreement, Citrix shareholders will receive $104.00 in cash per share. The per share purchase price represents a premium of 30 percent over the Company's unaffected 5-day VWAP as of Dec 7, 2021, the last trading day before market speculation regarding a potential transaction, and a premium of 24 percent over the closing price on Dec 20, 2021, the last trading day prior to media reports regarding a potential bid from Vista and Evergreen. The first large deal of its kind this year, it is one of the biggest-ever private buyouts of a publicly traded tech company. Similar deals could become more common if listed tech stocks remain out of favour. Shares of Meta Platforms fell in extended trading last week after Facebook (NASDAQ: FB )'s parent reported weaker than expected Q4 results. The Q1 outlook was also well below expectations. Meta reported net income of $10.29 billion, or $3.67 a share. Total revenue rose 20% year-on-year to $33.67 billion. Analysts polled by FactSet had forecast earnings of $3.85 a share and revenue of $33.4 billion. The company said it now expects Q1 revenue to be in a range of $27 billion to $29 billion, representing growth of 3% to 11%. Wall Street has been expecting first quarter revenue of $30.2 billion.Meta cited headwinds including privacy changes to Apple (NASDAQ: AAPL ) 's iOS mobile software, which has made tracking users more difficult. During the company's earnings call, CEO Mark Zuckerberg noted that Apple's iOS changes, along with new regulations in Europe, have made it difficult for firms like Facebook that are looking to offer personalized ads. "We are rebuilding a lot of our ads infrastructure so we can continue to grow and deliver high-quality personalized ads," he said. Zuckerberg also noted new entrants such as TikTok are competing with Facebook in terms of how users spend their time. "Apps like TikTok are growing very quickly," he said. "And this is why our focus on Reels is so important over the long term, as is our work to make sure that our apps are the best services out there for young adults, which I spoke about on our last call." Meta's warning combined with poor earnings from PayPal (NASDAQ: PYPL ) and more concerns about the health of Sony's video-game business, continued to plague battered tech stocks even with solid profits from America's other tech giants. Apple's quarterly net profit was up by 20%, year on year, as it made $124bn in revenue, a company record. Alphabet (NASDAQ: GOOGL ), Google's parent company, saw sales and profit both rise by 33%, driven by digital ad spending. But as the week wore on, tech came screaming back with a vengeance.
China
Shenzhen's used home sales hit a decade-low as Beijing's liquidity intervention continues to hit the property sector. Home sales in Shenzhen, China's tech hub, fell to 1,577 units - its lowest level in a decade. Land sales continued to weaken despite Beijing's efforts to increase liquidity accessible to developers with looser lending policies. Major developers continue to struggle with the current market environment, with Shimao, rated investment grade by Fitch last year, forced to offer its prize Hong Kong assets at fire sale prices. Chinese state-backed firms continue to accumulate distressed developers' assets. China's BeiDou and Russian GLONASS sign a new deal to rival America's GPS satellite navigation, according to the South China Morning Post. This latest satellite navigation systems deal is among 16 signed as Vladimir Putin met Xi Jinping in Beijing on the eve of the Winter Olympics in that city.
Commodities
According to Reuters, OPEC+ decided very quickly last week to stick to its script of gradually increasing oil prices and ths seems to have worked in its favour. After a month in which oil prices surged 15% and geopolitical tensions seethed around the world, OPEC and its allies took a record-quick 16 minutes to decide that they would stick to their previously planned output increase. Apparently, there were no lengthy discussions at last Wed's meeting about member nations of the producer group failing to hit their production targets or about one of the busiest months on the geopolitical front in years, featuring: a potential war between Russia and Ukraine; rare unrest in Kazakhstan; hints of progress in nuclear talks progress between the US and Iran; and repeated Houthi drone attacks on the United Arab Emirates. The grouping, which includes OPEC plus Russia, decided, ignored pleas from the US and other countries to increase output at a faster rate in order to calm soaring energy prices, which are fuelling inflation in most countries globally. Oil prices surged to seven-year highs on Fri 4 Feb, extending their rally into a seventh week on ongoing worries about supply disruptions fuelled by freezing US weather and ongoing political turmoil among major world producers. Brent crude rose $2.16, or 2.4%, to settle at $93.27 a barrel having earlier touched its highest since Oct 2014 at $93.70. Commodities are increasingly being "weaponised" by both Russia and China deliberately limiting commodity exports. So for example, Russia's ammonium nitrate export ban may be designed as much to calm its own market as to punish the west for sanctions and threats of sanctions and the move highlights the west's dependence on Russian exports. Gazprom (MCX: GAZP ) exports outside the former Soviet Union fell by 41% from 1-15 Jan 2022 despite ramping up domestic supply and increasing sales into China, Bulgaria and Turkey. Ammonium nitrate is used in both fertilizer and explosives production and the resulting rise in European gas prices has cut European ammonium nitrate production potentially causing a shortage of fertilizers, mining explosives and gases for the food industry. Even discounting the direct impact of such shortages, the effect on Eurozone inflation has been severe, with energy prices representing the largest component of the inflation index and high oil prices adding to the problem. China is attempting to suppress local inflation by depressing copper and iron ore prices, though this is proving to be difficult, even for the totalitarian Chinese state. The Chinese authorities are again moving to restrict speculation in iron ore prices and have been seen trying to suppress copper and other metals through State Resource Bureau sales. Import and Export permits are required from the Chinese state for most if not all commodities and are used to ensure scarce metals stay at home when required. Rare earth exports from China rose 38% to 48918 tonnes in 2021 though exports fell 16% year on year in Dec. China punished Australia for its refusal to accept Huawei 5G equipment by banning Australian coal. A ban that was only eased during the recent severe coal shortage. High prices for battery metals lithium, nickel and cobalt suggest shortages are developing and it should be expected that a number of battery gigafactory expansions may be delayed due to a lack of suitable feedstock material. Given that China controls so much of the world's lithium, graphite, nickel and rare earth processing, western automotive manufacturers must feel hugely vulnerable to any form of dispute with China and Russia through their increasingly close association. China is also adept at acquiring developing mining projects at an early stage, further denying raw material supply to the west and consolidating China's control on critical raw materials markets.
Global Trade
According to Nikkei Asia, freight rates for large bulk carriers fell more 90% from last year's peak amid sharply lower demand for iron ore in China, the world's largest steel producer. The capesize spot rate for the largest dry cargo ships dropped to $5 826 per day at the end of January, marking the lowest in 20 months. The plunge in rates, which only four months ago had hit a 12-year high of over $80 000 per day, stands in sharp contrast to the continued high demand for container shipping. The drop in Chinese steelmaking reflects both a slowdown in the overall economy and environmental concerns over blast furnaces. While the capesize spot rate has recovered to about $10 000 per day recently, it remains below the break-even rate for shippers, which is considered around $20 000 per day. The Baltic Exchange's dry bulk sea freight index also fell to 1,296 at one point in January, marking a 13-month low, dragged down by the capesize market.
UK/Europe
The Bank of England (BoE) raised the UK's prime lending rate by 25 basis points to 0.5% last week in an attempt to calm inflation but there was dissent among 4 of the 9 members of the BoE's Monetary Policy Committee, who wanted a larger increase that would have taken prime to 0.75%. Had the dissenters prevailed and prime had gone to 0.75%, it would have been the largest increase in prime rate since the BoE became operationally independent of the UK government 25 years ago. BoE governor Andrew Bailey attempted to get across the message that rates were not being raised because the UK economy was in especially good health but rather because there was a desire to keep inflation and inflationary expectations well anchored. Eurozone inflation hit a new record for the third month running last month. The 19 countries using the euro saw consumer prices increase by an annual 5.1 percent in Jan, mainly due to surging oil and gas prices. This is the highest level of inflation in the bloc since records began in 1997. High inflation increased the focus on last Thu's policy meeting of the European Central Bank (ECB). Bank President Christine Lagarde has said much of the inflation is tied to temporary factors that should eventually fade. Lagarde should make a point of listening to US Fed chairman Jerome Powell's most recent statements on US inflation, where he has deliberately stopped referring to inflation as "temporary" or "transient". Perhaps Lagarde and Powell should meet for a cup of coffee to discuss, as Lagarde appears to be out on a limb on this one. Self-charging hybrid vehicles outsold diesel cars in Europe during 2021 by a very small margin, according to data from the European Automobile Manufacturers' Association. Figures show that 1 901 239 million self-charging hybrid cars were registered in the EU, up from 1.1m in 2020. Diesel registrations fell by a third from 2.77m in 2020 to 1,901,191. Just under 880 000 Battery Electric Vehicles (BEVs)were sold, or roughly one in 11 cars. Petrol-engined vehicles still accounted for 40% of sales, down from 48% in 2020. New government subsidies for low- or zero-emission vehicles that took effect as part of pandemic recovery programmes accelerated the adoption of hybrid and BEV sales.
Tourism
The UK's Department for Transport (DfT) has unveiled plans to "bolster airline passenger protections and rights", in a move which it says has in part been made possible by the UK's departure from the EU. Proposals include the creation of what it says will be a fairer compensation model for delayed domestic UK flights, based on that currently available to rail and ferry customers. The DfT said that this would see a shift away from the current "set rate" model, in favour of passengers being able to claim compensation based on the length of the flight delay, and linked to the cost of travel. Customers would receive a 25 percent refund for delays of more than one hour, rising to 50 per cent for delays of over two hours, and a full refund for delays of over three hours. Current EU261 rules - which the UK still adheres to post-Brexit - allow for set compensation rates of between "250 and "600 (depending on flight length) for delays of three hours or more. Recent research has shown that pre-departure testing requirements are likely to be "ineffective at stopping or even limiting the spread of the Omicron variant". The report, prepared for the International Air Transport Association (IATA) and Airports Council lnternational (ACI Europe) by Oxera and Edge Health, found that testing restrictions imposed by Italy and Finland in Dec 2021 on all incoming air travellers "made no distinguishable difference to transmission of Omicron cases in those countries". The research added that the impact of such restrictions, particularly the limitations to the free movement of people, instead "resulted in significant and unnecessary economic hardship" for both the travel and tourism sectors and "the whole European economy". The report also showed that retaining pre-departure testing requirements for vaccinated/recovered travellers "will have no impact whatsoever on the future spread of the Omicron variant" in the two countries. According to the report, the spread of the variant would not have been stopped or significantly limited had the restrictions been imposed earlier, as "variants circulate well ahead of the time by which they are identified". The International Air Transport Association (IATA) and Airports Council lnternational (ACI Europe) are therefore urging European governments to lift all travel restrictions for fully vaccinated/recovered individuals with a valid Covid certificate. The World Travel and Tourism Council (WTTC) has revealed that the travel and tourism sector's contribution to the global economy could reach US$8.6 trillion this year, just 6.4 per cent behind pre-pandemic levels. In 2019 the sector generated nearly $9.2 trillion for the global economy, but there was a drop of 49.1 per cent representing a loss of nearly $4.5 trillion the following year due to the pandemic. New research from the global tourism body shows that the sector could almost recover to pre-pandemic levels this year if the vaccine and booster rollout "continue at pace", and travel restrictions are eased around the world. The sector could also create 58 million more jobs this year, boosting the workforce to over 330 million, which is just 1 per cent below pre-pandemic levels and an increase of 21.5 per cent on 2020.
Rest of World
Turkey's inflation spiked to 48.7% year on year in Jan, the highest rate in twenty years. Following a series of interest rate cuts insisted upon by President Recep Tayyip Erdogan. Erdogan has argued for loose monetary policy, totally contrary to all economic orthodoxy, and pressurised the Turkish central bank to cut rates four times last year despite warnings it could see inflationary expectations spiral out of control. He fired three central bank governors over the course of two and a half years since Jul 2019. More recently, he fired the head of the state statistics agency after data showed the inflation rate in 2021 hit a 19-year high of 36.1%. The Turkish lira lost 44% of its value against the US$ last year as a direct consequence of Erdogan's refusal to let interest rates rise to quell inflation. Zimbabwe's yearly and monthly inflation levels have registered tiny declines, according to the latest data from the Zimbabwe National Statistics Agency (ZIMSTAT). The ZIMSTAT data released last week indicates that year-on-year inflation for Jan 2022 stood at 60.61% from 60.74% in Dec 2021. This rarefied inflation rate is eroding confidence in Zimbabwe's local currency, a mere tree years after it was reintroduced in 2019. Many observers believe that the country is on the slippery slope to hyperinflation once more. When this last occurred, the Zimbabwe government was eventually forced to dump its own worthless currency and adopt the US dollar, the UK pound and even the SA rand in its place.
South Africa
The JSE All Share Index (Alsi) closed 2.4% higher at 75 206 on Fri 4 Feb. From its recent low point of 37 693 on Mar 19 2020, it has risen by 99.5%. Year to date, it is up by 2% from its close of 73 709.39 on Dec 31 2021.
The Fragile Five + Russia Country GDP Growth (%) Inflation (%) Unemployment (%) Interest Rates (%)
JSE listed company results out this week;
Economic data releases this week;
- 7 February 2022 - SA Forex Reserves January
- 10 February 2022 - SA Mining , Manufacturing Production January, SONA Address by Pres Cyril Ramaphosa
- 16 February - SA Retail Sales December
- 9 February 2022 - SACCI Business Confidence Indicator January
Follow @Comrade_Skhokho
Drop an image here or Supported formats: *.jpg, *.png, *.gif up to 5mb
Drop an image here or