Monday’s Bullseye: 15 November 2021

 
This week we will find out whether and how surging energy prices and global supply chain issues have impacted consumer spending, and what this might mean for the markets. We already know US consumer sentiment hit a 10-year low, according to a University of Michigan’s closely-watched survey that was released at the back end of last week. With sentiment downbeat among consumers, this might be reflected in lower levels of spending in the months. We will get to see the latest retail sales data for the month of October from the US, as well as some of the other largest economies in the world. Meanwhile we will have earnings from top US retailers such as Walmart, Target and Home Depot to provide as an alternative snapshot of the health of the US consumer.
 

 
After the biggest increase in inflation in three decades and a 10-year drop in US consumer, this week’s publication of indicators about the health of consumer at the world’s largest economy will be scrutinized closely. US retail sales numbers are due on Tuesday, when we will also get earnings results from retailers Home Depot and Walmart, with Target and Lowe’s, as well as Chipmaker Nvidia, all set to post their results a day later on Wednesday. Headline sales are actually expected to have climbed 1.2% month-over-month after a 0.7% increase the month before, while core sales are seen rising 1.0% on the month.  Given the surge in inflationary pressures and the drop in consumer sentiment, there is greater risk of a negative surprise than a positive one. If so, we could see the dollar and potentially stock markets dip in reaction, with the latter also likely to respond to the results od those retailers.
 

 
China was this week’s first major economy to publish its retail sales figures overnight. Contrary to economists’ expectations that sales would decline in October to 3.8% y/y from 4.4% the month before, they actually came in much better at +4.9% while the nation’s industrial production data (+3.5% vs. 3.0%) also beat expectations. The stronger data helped to keep the stock market bulls happy this morning as shares in Hong Kong rallied, with US futures and European markets mostly being higher too in the first half of today’s session.
 

By Kearabilwe Nonyana

Positivity floated around for local markets, while elsewhere it was a mixed picture with Europe showing relative strength and Wall Street struggled. The surprise was US inflation coming ahead of expectations, which you would think would have dampened the mood for global markets. Conversely it did the opposite, even as the dollar rallied. The market continues to charge ahead, overlooking risks which may affect asset prices in the near future. Our local market was driven higher by miners on the week, primarily led by a sharp weakening of the rand due to a rush back into the dollar because of higher inflation expectations. The JSE top 40 finished off the week around 3% in the black. On a company level, notable movers included Anglo American and BHP Group.


The Week Ahead

17/11/2021
CPI DATA

Last week it was US inflation, coming in hotter than expected led by energy prices. This week, Stats SA will release CPI for South Africa. Over the past months, there has been an increase in the headline CPI number. The biggest contributors have been transport and energy prices, with fuel and electricity costs rising sharply. I anticipate seeing the number hotter than expected, purely because of the increase in the price of petrol in the past month. Retail stocks will be very good to watch in the next week. If the inflation numbers are indeed hotter, we may well see some pressure being exerted on the sector.
 
18/11/2021
MPC decision

The economic back drop since the previous MPC meeting has not changed. The risk to inflation are on the upside, economic growth is very slow in South Africa, unemployment has worsened in the short term and structural changes have yet to be made by the Government. The electricity generation by eskom has not improved and it poses a threat to the recovery in the economy. Traders in the forward markets have priced it a rate hike at this meeting and the quarterly projection model has already predicted a hike in rates in Q2 and the MPC has yet to move on rates, citing the need to protect price stability. There is very little demand in the economy even though credit extensions have been seen to be improving. I do not anticipate that the MPC will move on rates as demand is subdued and the economic future of the South African economy seems bleak. The economy still needs support but knowing the Governor and his hawkish stance he will gude the market on the trajectory of the rate path being to the upside.