Last week’s data calendar was relatively light in terms of market moving events with the revised US GDP growth figure of 1.4% in 1Q2024, down from 3.4%, being the week’s headlining data print. Additionally the Fed’s preferred inflation metric, the US Core PCE index, printing a year-on-year inflation figure of 2.6% leaving the narrative around the US economy thus remains relatively unchanged given the current interest rate environment. The US economy is still able to maintain its current growth rates while inflation is proving to be sticky above the Fed’s 2 target. The US new home sales for the month of May was however not a sight for sore eyes with sales contracting 11.3% month-on-month, down from 3.4% in April.
Locally, investors were welcomed with satisfying budget and trade balance figures for the month of May which saw the government budget deficit decline to R12.78bn, down from R78.05bn in April while the SA trade surplus swelled to R20.09bn, up from 9.68bn in April.
The SARB also released their latest quarterly bulletin for the 1Q2024 which unfortunately did not make for good reading. According to the SARB’s bulletin SA GDP contracted by 0.1% in the first quarter. The only contributor to the growth was the primary sector, mostly driven by growth in agriculture while mining contracted marginally due to supply distributions and rail way inefficiencies.
The manufacturing sector contracted the most which is consistent with weaker business confidence and real gross fixed capital formation which contracted for the third consecutive quarter. Growth in the tertiary sector remained relatively unchanged. It is clear that the production side of the economy had a bumpy ride earlier in the year, mostly due to the severe electricity shortages but loadshedding has taken a back seat in the 2Q2024 which is supporting the production side of the economy. We’re back to burning coal and that is exactly what the SA economy as well as the ordinary South African needs, despite sensationalist headlines this week in the mainstream that SA is at risk of losing climate finance by delaying power plant closures.
The consumption side of the economy also limped through the first quarter with consumer expenditure contracting by 0.3%, quarter-on-quarter. The most concerning stat, given the current high interest rate environment, is that household debt as a percentage of nominal disposable income in up from 62.2% in the 4Q2023 to 63.3%.
The week ahead will mostly have the US non-farm payroll figure for the month of May in focus as well as the latest FOMC minuets from the Federal Reserve.
Now with the wordy introduction behind us, let’s dive into the charts. First up is the rand. As predicted in last week’s report, the rand pulled back this week which saw the USD/ZAR pair test its 50-day MA of 18.46 before falling sharply onto the support level at 18.13. The critical rates to watch of the pair remains at 18.46 on the topside and 18.13 on the downside. Given the calmer political water, positive trade figures and overall risk sentiment we are leaning towards a break below 18.13 which will allow the rand to pull the pair towards the 17.50 mark over a break above the 18.50’s.
Over to the dollar, the dollar index (DXY) has continued to grind higher with the resistance at 105.95 being the only hurdle in its way to 107.35. If there are no dovish swings in the FOMC minutes or a weak non-farm payrolls print, we expect the DXY to pull its way to 107.35.
Over in equity land, everything is looking “just fine.” The S&P 500 managed to touch fresh highs last week but there is a degree of bearish divergence on the RSI indicator which is an early signal for a slight pull back towards the 50-day MA at $5,270.
Moving to the commodity space, brent crude has risen aggressively after finding support at $76.60 per barrel mark to break above the 50- and 200-day MA’s at $83.10. As long as it maintains levels above these MA’s, the next plausible move is higher towards $92 per barrel.
Wrapping up this week’s chart pack is Bitcoin. Bitcoin has contracted roughly 18% in May but there is strong support around the $58,000 mark as it coincides with the 200-day MA and the 23.6% Fibo retracement rate. The rand’s recent strong performance means that one Bitcoin will cost you around R1,150,000 which is almost 20% less than all-time high in rand terms. Bullish sentiment will be supported as long as Bitcoin remains above the 200-day MA. A break below the 200-day MA will however see the asset drop towards the $50,000 handle.
