The Week Ahead

  • The S&P 500 may make a new high this quarter

    While an inverted US yield curve is normally associated with the beginnings of recession, this may not necessarily be the case this time around. The global financial system remains fragile and central banks are only too aware of this. They will step up the plate to accommodate any situation that may arise in future, as they have done in the past. Inflation remains extremely benign and the threat of interest rate hikes has receded significantly.

    However, on the other side of the argument lies the indisputable fact that investors keep withdrawing funds from US and European equities and putting the proceeds into US bonds. Bank of America Merrill Lynch (BAML) has forecast that the S&P 500 will peak at around 3 000 during the current quarter. BAML’s analysis shows that investors continued to sell US and European equities, pulling $7.7 billion from stocks in the week to Apr 3 and putting a further $11.4 billion into bond funds. That marked the 13th straight week of bond inflows as concerns about the slowing global economy pushed investors into safe haven assets.

    The S&P 500 closed 2.1% higher at 2 893. The index has conclusively broken through and stayed above the psychologically-important 2 800 level. It is now 23% higher than it was at its Dec 24 2018 trough and only 1.3% below its Sep 20 2018 peak of 2931.

    On the Brexit front, British Prime Minister Theresa May entered into talks with the official opposition Labour Party in an attempt to find a way out of the impasse. This has raised the ire of the right wing of her own Conservative party, even though, at the time of writing, no formal deal had been agreed upon. As things currently stand, Britain is scheduled to leave the European Union (EU) on Apr 12. A motion is currently being fast-tracked through the British parliament that seeks a longer extension to Britain’s departure from the EU and that should be signed into law early next week. That in itself should remove the threat of crashing out of the EU without a deal and should be positive for the British pound. The currency is likely to strengthen further on any positive newsflow as the week progresses.     

    The Minister of State-Owned Enterprises, Pravin Gordhan, gave feedback to the media last week on the current Eskom situation. Somewhat surprisingly, given the severity of the recent Stage 4 rotational power cuts, Gordhan stated that, while there would likely still be further power cuts until the end of 2019, these would be limited in severity to no more than Stage 1. This was a very brave statement to make, considering the fragility of the power grid and hopefully these words will not come back to haunt him.

    The JSE Alsi closed 2.5% higher at 57 776.

    Economic related events this week;


    10 Apr                                                            EU Emergency Summit on Brexit

    11 Apr                                                            SA Mining, Manufacturing Output Feb