Global equities ended the week higher, with the S&P 500 rallying 4.4%, the best weekly gain in six months. At the same time bond yields declined to the lowest levels in two years. Increased expectations of a Fed rate cut in July, the U.S. and Mexico reaching a deal to avoid tariffs, all helped stocks move higher.
Late on Friday President Trump revealed that a deal had been reached with Mexico to suspend the tariffs "indefinitely". Mexico agreed to take "unprecedented steps" to help stem the flow of migrants to the US in order to avoid trade tariffs that were set to come into effect on Monday. Both countries pledged to "strengthen bilateral co-operation" over border security, including "co-ordinated actions" and information sharing.
Three of the world's most influential central banks signalled this week that they are ready to take action if the global economy continues to weaken. At a conference in Chicago, US Federal Reserve Chairman Jerome Powell reiterated that the Fed is monitoring the implications for the US economy of trade developments and will act as appropriate to sustain the expansion. Next was the turn of European Central Bank President Mario Draghi acknowledging that some members of the Governing Council raised the possibility of a rate cut at the council's Thursday meeting. Finally, on Friday the People's Bank of China indicated that it has ample room to ease monetary policy further if the trade war deepens.
Job growth in the U.S. slowed more-than-expected in May, while the unemployment rate held steady at a near 50-year low, according to the U.S. Department of Labour’s Friday report. The U.S. economy added 75,000 non-farm payrolls in May, weaker than the 175,000 expected. The report also showed that earnings growth was also disappointing, at just 0.2% month-on-month and 3.1% year-on-year.
Chinese central bank governor Yi Gang is expected to meet with US Treasury Secretary Steven Mnuchin this weekend on the sidelines of the Group of 20 meeting of finance ministers in Japan. Amid recent escalating U.S.-China trade tensions, any signs of a resumption in trade negotiations will be seen as a breakthrough in the row between the world’s two largest economies.
Market Moves of the Week
The rand firmed late on Friday afternoon on the back of a weaker U.S. dollar, but was on track to end the week on a weaker footing after ANC policy confusion over the central bank’s mandate rattled investors.
The differing views among senior ruling African National Congress officials over the Reserve Bank’s mandate added to the bad news of a contraction in the economy. Data on Tuesday showed first-quarter growth contracted 3.2%, the most in a decade, almost immediately followed by the ANC’s announcement that it wanted the bank to consider quantitative easing to lower government debts, sharply weakening the local currency.
South African Airways (SAA), the state-owned national carrier, appointed its head of operations as acting chief executive on Friday and said it needs 4 billion rand ($265 million) from the government to survive the current financial year. The mammoth task of reforming state-owned enterprises is regularly cited by ratings agencies as one of the main threats to the country’s economic growth.
The JSE All Share Index was buoyed by the weaker rand, with strong performance from the rand hedge counters, ending the week up +4.4%, with resource (+7.08%) and industrial (+5.69%) sectors sharply higher, while the financial and property sectors ended the week flat.
Chart of the Week
The Fed rate monitor calculator is based on CME Group 30-Day Fed Fund futures prices, which signals the markets’ expectations regarding the possibility of changes to US interest rates based on Fed monetary policy. Economists say it’s now likely the Fed will move to cut rates this year, possibly as early as July. As per the chart above there is now a 66% probability of a rate cut at the Fed’s meeting on the 30-31July, this is sharply up from previous readings.
The information contained herein as well as the individual companies and/or securities mentioned should not be construed as investment advice, a recommendation to buy or sell, or an indication of trading intent on behalf of Carrick or any financial product. This communication is intended to be used for information purposes only by its designated recipients and is not an offer, recommendation or solicitation to transact. While it is based on information freely available to the public and from sources believed to be credible and reliable, Carrick Wealth makes no representation that it is accurate or complete or that any returns indicated will be achieved. Carrick Wealth is a registered South African financial services provider specialising in South African and international financial planning and integrated wealth management solutions. The Carrick corporate group is also licensed in Zimbabwe and Malawi, and holds three global licences in Mauritius.