Global equity markets were mixed this week, as a stronger-than-expected U.S. jobs report revived concerns that the Federal Reserve will need to maintain its aggressive pace of interest rate hikes to stem inflation. Employers added more than double the number of jobs forecast, with nonfarm jobs increasing by 528,000 in July, compared to estimates of 250,000 jobs. The unemployment rate also fell to 3.5%.
The strong jobs report contrasts with growing concerns of an economic slowdown, after the U.S. economy shrank in the first two quarters of 2022. It is however worthwhile noting that the U.S. unemployment rate was at 3.5% in December 1969, just before an 11-month recession began.
U.S. House Speaker Nancy Pelosi’s visit to Taiwan sparked geopolitical tensions this week, ignoring Chinese threats of reprisals if her trip took place, given China’s long-held stance that Taiwan is its territory. China has retaliated, announcing an array of military tests and halted some imports from Taiwan. China implemented provocative military drills and cut off defence talks with the U.S., firing missiles suspected to have flown over Taiwan and sent warships across the Taiwan Strait’s median line. The Chinese army also sent waves of warplanes across the U.S.-defined boundary.
Chinese economic data continues to highlight the cost of Beijing’s zero-tolerance approach to Covid-19, with the official manufacturing purchasing managers’ index (PMI) falling to 49.0 in July from 50.2 in June (below 50 marks a contraction), the lowest in three months. The non-manufacturing business activity index fell to 53.8 from 54.7 in June. New home prices and sales volumes also fell in July from a month earlier, as a growing nationwide movement among homebuyers to stop paying mortgages on unfinished projects weighed on sentiment. China’s economic growth target of 5.5% continues to look less likely for 2022.
The Bank of England (BoE) hiked interest rates by 50 basis points to 1.75% this week, the biggest increase in 27 years. The central bank expects UK inflation to peak at 13.3% in October and will remain “elevated” through 2023. It also forecasts a recession for the UK lasting five quarters.
European unemployment remained unchanged at 6.6%, in line with market expectations of an unchanged reading of 6.6%, but the number of job seekers increased by 25,000 to just under 11 million.
Global equity markets posted mixed returns this week. In the U.S., the Nasdaq (+2.15%) and S&P 500 (+0.36%) Indices were stronger, against a weaker performance from the Dow Jones (-0.13%). Shares in Europe (Euro Stoxx 50) rose by +0.47% including the UK’s FTSE 100 Index (+0.22%). The Nikkei 225 (+1.35%) was stronger, whilst the Shanghai Composite ended -0.81% lower for the week.
Brent crude oil tumbled by -8.95% after Russia undercut the price of oil from its OPEC+ ally Saudi Arabia. Russian barrels were cheaper than Saudi crude during April through June, with the discount widening to almost $19 a barrel in May, according to Bloomberg calculations based on Indian government data. Russia surpassed Saudi Arabia as the second-biggest supplier to India in June. India and China have become willing consumers of Russian crude whilst most other buyers shunned its barrels following the invasion of Ukraine.
Market Moves of the Week
U.S. investors with more than $1 trillion of assets under management are currently in South Africa to look for investment opportunities. The visit has been facilitated by USAID and Prosper Africa, the U.S. government’s initiative to increase trade and investment between African nations and America. South Africa is the world’s 13th-biggest source of greenhouse gases and will require $250 billion over the next three decades to fund the closing down of coal-fired plants and development of replacement green energy such as wind and solar, according to a report released in May.
South Africa’s parliament will appoint an independent panel that will recommend whether to initiate a process to impeach President Cyril Ramaphosa. The decision comes as Ramaphosa is under increasing pressure from opposition parties to step aside over a burglary two years ago at a game farm he owns. The president faces allegations that he concealed the crime. He has refused to answer opposition lawmakers’ questions about the incident.
In economic news, South Africa’s manufacturing PMI recorded a decrease to 47.60 in July, compared to the prior month’s reading of 52.20. At the same time, annual new vehicle sales increased by 13.92%. Meanwhile, the National Union of Metalworkers of South Africa (Numsa) has threatened strike action in the motor industry over wages, demanding a 12% increase across the board.
The JSE All-Share Index ended the week up +0.85%, with industrial (+1.09%) and financial (+2.73%) shares stronger. Resource shares (-0.34%) were mildly softer after strong gains in the prior week. By Friday close, the rand was trading at R16.62 to the U.S. Dollar.
Chart of the Week
China’s top leaders told government officials that this year’s economic growth target of “around 5.5%” should serve as guidance rather than a hard target. Leaders held meetings with ministerial and provincial-level officials last week, during which they were told the target won’t be used to evaluate their performance and there won’t be penalties for failing to achieve it. The leaders also acknowledged that the chances of meeting the target were low. Source: Bloomberg