4 Oct

Daily Market Report 4 Oct

 

Key Market Drivers:

  1. US ISM Services PMI: The index rose sharply in September, reflecting resilience in the US economy. However, this trend may be short-lived as consumer spending, particularly on discretionary services, is expected to fade due to reliance on savings.
  2. US Jobless Claims: There was a slight rise in new unemployment claims, though the data did not change the broader outlook of a weakening US labor market. Upcoming disruptions, including from strikes and hurricanes, may push claims higher.
  3. US Port Strike Resolution: A provisional agreement ended a significant three-day strike that halted shipping operations along the US East and Gulf Coasts, averting potential goods shortages.

Key Economic Indicators:

  • US Labor Market Data (nonfarm payrolls): Today’s report is critical, as it will test the Fed’s soft-landing thesis. While the Fed has indicated it is nearing victory over inflation, labor market outcomes remain central to its policy decisions.
  • FOMC Meeting Minutes (upcoming): Next week’s release of minutes from the September meeting will provide insights into the Fed’s rationale behind the latest 50bp rate cut and could influence market expectations.
  • US CPI (upcoming): September CPI data next week is expected to reflect disinflation, an important factor for the Fed’s future decisions.

South African Economic Highlights:

  • Greylist Exit Timeline: Deputy Finance Minister David Masondo indicated that while exiting the FATF greylist by early 2025 is possible, the more realistic timeframe is October 2025. Remaining on the greylist could lead to further capital outflows and hinder foreign investment.
  • Standard Bank PMI: SA’s PMI for September showed continued expansion, rising to 51.0, indicating some green shoots of recovery driven by lower interest rates, the absence of load shedding, and stability in the GNU.

Market Movements:

  • ZAR Performance: The ZAR had a tough week, largely driven by a USD resurgence fueled by better-than-expected US labor data and rising geopolitical risks. The ZAR’s correction was overdue after a period of significant appreciation, and the nonfarm payroll data today will play a key role in determining its next move.

Market Insight:

  • Fixed Income: SA bonds corrected this week, driven by rising US Treasury yields, higher oil prices, and a weaker ZAR. However, the underlying optimism remains intact as inflation moderates and interest rates are expected to decline further.
 
 

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