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U.S. corporate earnings announcements were in the spotlight this week, as attention focused on the season’s busiest week of quarterly earnings reports. Tech heavyweights, Microsoft, Alphabet, Amazon, and Meta reported better-than-expected results, beating analyst estimates for revenue and profit, whilst cyclical sectors generally struggled.

With roughly half of S&P 500 companies having reported quarterly results, earnings for the period are down 1.7%, while revenues are up 4% versus the same quarter a year ago. In summary, this highlights that there is an encouraging level of ongoing demand, but profits remain under pressure from higher expenses.

However, concerns are growing about an economic slowdown in the coming months, as regional manufacturing activity measures fell well below expectations, signalling production cutbacks in April. The latest U.S. GDP report showed that the economy is losing momentum, with Q1 GDP slowing to 1.1% compared to 2.6% in the prior quarter, and below consensus expectations. The future of the U.S. economy depends on the strength of the job market, with historically low unemployment rates and consistent wage gains supporting consumer spending despite stubborn inflation.

The U.S. banking industry is also facing renewed turmoil, with California’s First Republic Bank reporting over USD 100 billion in deposit outflows in Q1, causing the stock to plummet. The Federal Deposit Insurance Corporation’s plan to take the bank into receivership further worsened the situation.

In the Eurozone, preliminary data showed that the economy grew by 0.1% on a quarterly basis in Q1 of 2023, missing the expected 0.2% growth estimate. The bloc’s annual GDP rate grew by 1.3% in Q1, falling short of the 1.4% expectation.

The Bank of Japan (BoJ) kept its benchmark interest rate unchanged at -0.1%, despite the Tokyo consumer price index increasing by 3.5% on a year-on-year basis in April, compared to expectations for a 2.6% increase. Unemployment increased to 2.8% in March, compared to 2.6% in the previous month.

In a landmark move, China has set up a nationwide real estate registration system, which paves the way for the implementation of a long-awaited property tax. This move is a critical component of President Xi Jinping’s Common Prosperity goals. According to state media reports, the integrated registration system, which took a decade to develop, has more than 1.5 billion real estate records across the country. This system provides the authorities with insight into who owns what and has long been regarded as a prerequisite for implementing a home ownership levy.

According to the World Bank, there is a likelihood of a decline in global commodity prices in 2023, the largest drop since the pandemic began. The bank has revised its projection for its commodity-price index and now expects a 21% reduction this year, which is more than what was anticipated in October.

India surpassed China as the world’s most populous country in April, this according to the UN. At the same time, India’s population is set to grow for several decades while the number of people in China shrinks.

Global equity markets were mixed this week. In the U.S., the Dow Jones (+0.86%), S&P 500 (+0.87%) and Nasdaq (+1.28%) all ended the week higher. In contrast, the Euro Stoxx 50 (-1.12%) and FTSE 100 (-0.55%) were negative, whilst Asian indices were mixed, including the Nikkei 225 (+1.02%), Hang Seng (-0.47%) and Shanghai Composite Index (+0.67%).

Market Moves of the Week:

In March, South Africa’s producer inflation dropped more than expected, reaching a 13-month low. This suggests that pricing pressures throughout the value chain may be easing. According to Stats SA, prices of final manufactured goods increased by 10.6% from the previous year, compared to 12.2% in February.

The U.S. Treasury Department has identified 52 entities and individuals, including some in South Africa, as part of a “vast international money-laundering and sanctions network” operating in several countries. The inclusion of South Africa in this network could potentially harm its efforts to be removed from the greylist of the Financial Action Task Force (FATF). The other countries involved in this network include Lebanon, United Arab Emirates, Angola, Ivory Coast, the Democratic Republic of the Congo, Belgium, UK, and Hong Kong.

Regarding the electricity crisis, top officials of South Africa’s ANC have endorsed a proposal to postpone the closure of Eskom’s coal-fired power plants. This is a political victory for electricity minister Ramokgopa but could hinder South Africa’s efforts to meet its climate change commitments. Eskom’s outgoing COO supports the idea of extending the life of the coal-fired power plants but believes that the power utility’s current target to improve their performance by the end of March next year is unrealistic.

The JSE All-Share Index (+0.39%) posted modest gains this week, driven by the financial (+1.51%) and industrial (+0.37%) sectors, whilst the resource sector (-0.52%) was negative. By Friday close, the rand was trading at R18.28 to the U.S. Dollar, depreciating by -1.16% for the week.

Chart of the Week:
In the U.S., there is a noteworthy phenomenon where money market funds are receiving significant inflows. This can be attributed to the U.S. yield curve being inverted. While the yield curve remains inverted (in other words, long bonds unusually carry a lower rate than short-dated bonds), then the disincentive to lend will continue, as will the appeal of moving to short-term money market accounts rather than deposits. Currently, two-year bonds offer significantly higher yields than the 10-year Treasury. Source: Bloomberg.

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