It was a jam-packed data week, locally and internationally, which cooled the recent risk-on rally. The headlining event for the week was the US non-farm payroll report which reported higher than expected US job growth of 199 thousand for November. The current dynamic seems to be that strong economic data supports the Fed’s higher-for-longer stance on interest rates while weaker data prints will drive expectations of rate cuts as soon as 2H2024 as it will signal that the Fed will have to cut rates to avoid a recession.
The other major data print was the latest CPI results from China, which reported a year-on-year contraction of 0.5% for the world’s second-largest economy. The economic slowdown in China is becoming evident and the current disinflation trend highlights the tight monetary environment and we will most likely see increased fiscal stimulus from the Chinese government in 2024.
In geopolitical news, Russian President Putin was welcomed extravagantly by the UAE this week. The Kremlin said talks in Saudi Arabia would involve discussions on energy cooperation, including as part of OPEC+, whose members pump more than 40% of the world’s oil. Other items on the agenda include Israel’s war against Hamas in Gaza, the situation in Syria and Yemen, and broader issues of stability in the Gulf, as well as the war in Ukraine, the Kremlin said. Have a look at the reception Putin received and compare it to the cold fist bumps President Biden received earlier this year. The US has lost favour with the UAE during Biden’s presidency. Oil however continued to fall this week with the price per barrel falling below $78.
The local data for the week did not make for a positive reading. The SA GDP for the 3Q2023 contracted 0.7%, year-on-year, which was much worse than expected. The sectors that recorded the largest contraction were agriculture, forestry and fishing industry which decreased by 9.6% while construction and manufacturing decreased by 2.8% and 1.3%, respectively. Additionally, eight of the ten manufacturing divisions reported negative growth rates in the third quarter.
On the expenditure side of things, the weakness of the South African consumer was highlighted as household final consumption expenditure decreased by 0.3% in the third quarter. The expenditure on the business side of things is even worse with total gross fixed capital formation decreasing by 3.4%. The other major local data print was the updated current account which dropped to a deficit of R19.3 billion, down from R185.2 billion. The current account records a nation’s transactions with the rest of the world so the smaller deficit might lend some support to our battered rand as we head into 2024.
The headlining data print for the week ahead is the US GDP print for the 3Q2023 and the updated personal consumption expenditure (PCE) figure which is the Fed’s favoured measure of inflation.
It is apt to kick off this week’s chart pack with two key commodities, oil and gold. Firstly, Brent crude failed to hold levels above the critical 200-day MA at $82 per barrel. The daily RSI indicator is indicative that the price contraction will abate over the short term.
The yellow metal, gold, managed to touch an all-time high of $2,145 per ounce before closing the week 3% lower just above $2000 per ounce. Gold has been in a wide range between $1,700 and $2,000 since its bull run in early 2020, will it be able to break out to the topside remains to be seen.
Moving over to the dollar, the DXY managed to hold levels above the 200-day MA at 103.56 this week which is a positive sign that the green can gain momentum in the final stages of the year. The RSI also bounced out of the oversold range which supports a potential move towards the 50-day MA of 105.22.
USDZAR broke above the 50-day MA which allowed the pair to touch a 5-week high of 19.02 before closing the week at 18.94. The pair is however squeezing into a wedge pattern and a failed break above the 61.8% Fibonacci retracement rate of 19.05 will allow the rand some room to recover. It has been a dismal year for the SA economy and the rand which has seen the local unit contract roughly 11%, significantly underperforming compared to other emerging market peers.
