Prowess Investments Market Update 5 – 11 December 2023

Last week US non-farm payroll numbers overshot expectations, increasing by 199 000 in November, leaving investors expecting the Fed to keep interest rates higher for longer.

On the local front, our GDP contracted in the third quarter amid an energy crisis and high interest rates, whilst Eskom ended a period of prolonged uncertainty as they announced their new CEO.

International Market Developments

US non-farm payrolls (NFP) overshot expectations in November, increasing by 199 000, from an increase of 150 000 in October. The return of striking auto workers helped boost the payroll count by 30,000 in November. Employment and wages increased in November and more people entered the labor force, defying expectations of continued softening as the central bank seeks to stick a soft landing. Average hourly earnings came in at 4.0% y/y in November, from a downwardly revised 4.0% y/y in October. The unemployment rate slipped to 3.7% in November, from 3.9% in September. The data underscores the Fed’s intent to keep interest rates higher for longer. The Fed meets next Wednesday and is expected to keep the Fed funds rate unchanged as inflation continues to show signs of moderating.

Local Market Developments

South Africa’s real GDP contracted 0.2% q/q in Q3. Viewed from the production side, five out of the ten sectors fell in Q3, led by agriculture. The expenditure side was also broadly weak, with household consumption expenditure falling for the second consecutive quarter and gross fixed capital formation declining for the first time in two years.

Notably, investment spending in machinery and equipment was down slightly from Q2, but the level was still about 12% stronger than a year ago, which reflects businesses’ ongoing investment spending on alternative energy sources. Looking ahead, growth is likely to remain subdued. Consumer spending growth is likely to remain under pressure amid muted wage growth and as interest rates remain high for longer.

Back in April, Eskom board chairperson Mpho Makwana said the utility was progressing in its search for a new CEO and had compiled a shortlist of five potential candidates. Last week, Eskom confirmed the appointment of Dan Marokane, an engineer and executive as the new CEO of Eskom.

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