| The podcast to this newsletter can be listened to here. Market and Economic RoundupSouth Africa: Real GDP growth of 0.8% in Q2 2025, driven by manufacturing, mining, and trade sectors. This is still very low, but at least it is positive. Headline inflation rose to 3.5% in July, the highest since September 2024, mainly impacted by food prices. It will be really unfortunate if this starts to creep up again.Reduced political and fiscal risks are probably boosting the rand and bond markets. High unemployment rate persists, especially among youth, despite economic improvements.The JSE hit another all-time high on Thursday last week.  United States: * Equity markets hit record highs driven by stable labour data and expectations for Fed interest rate cuts. * The nonfarm payroll data showed resilience with no surprises, supporting economic stability. * Inflation is creeping up and remains under watch but with no immediate pressure for policy changes. The 25 bps cut in interest rates next week is baked in, with an outside possibility that it will be as high as 50bps. * Positive market sentiment amid global uncertainties and strong corporate earnings. * Ongoing cautious optimism about the Fed’s monetary policy stance. Global: * UAE-South Africa non-oil trade surged 14% year-on-year to $8.5 billion in 2024. * Mixed but moderate growth in advanced economies, with emerging markets showing trade improvements. * Inflationary pressures vary by region, with central banks maintaining cautious monetary policies. * Growth in digital trade and sustainable investments is emerging as key global economic drivers. * Global economies are balancing inflation control and growth amid geopolitical and supply chain adjustments.  Europe While we wait for the much-anticipated movement in the US interest rates (the probability is very high that it will be a 25 bps cut), the European Central Bank looks like it is done and dusted. It’s finished cutting, and now it’s on hold. Anything else would be in response to a “black swan” event. Many want the ECB to cut further, given the political and fiscal mess in France, but a hold would reflect an important and underestimated truth. It looks like the central bank has engineered a soft landing. This is the classic misery index — a combination of the inflation and unemployment rates:  Interestingly, Europe is also looking at a 3% inflation rate as the new normal. All this sounds Pollyanna-ish when France is in a full-blown political crisis. President Emmanuel Macron has appointed his defense minister, Sebastien Lecornu, as his fourth prime minister in less than two years. With a seemingly intractable fiscal problem, the cost of insuring French debt has risen with each step in the political turmoil.  With widespread street protests by a group called Bloquons Tout (“Let’s Block Everything”), successors to 2018’s Gilets Jaunes (yellow jackets), and France’s legislature split between three roughly equal but incompatible political blocs, Lecornu’s chances of finding a meaningful fiscal resolution look minimal. And yet the negativity might create an opportunity. Since the beginning of 2024, French stocks have lagged the rest of the continent by 12%:  French equities have already underperformed their German peers by 25% since 2024, wiping out almost all of the relative gains they achieved during Germany’s post-2015 economic slump. The French luxury groups that dominate the CAC-40 index derive less than 10% of their revenues from France, and most of them trade at a lower multiple than US fast-food chains. The caretaker government and its likely right-wing successor after the 2027 general election are unlikely to raise corporate taxes, so French stocks should catch up in the coming years.  Oil more resilient Oil appears to be increasingly less sensitive to geopolitical shocks. In the last week, it has barely reacted to two major flashpoints: Israel’s strikes deep inside US ally Qatar, risking dangerous escalation in the Middle East, and Russia’s brazen violation of Polish airspace, the Kremlin’s most direct engagement with NATO in recent times. It prompted Poland to invoke NATO’s Article IV, which calls for mutual defence. After the Polish incident, oil rose as much as 2.3% before giving up some of the advance. Brent crude remains below its 100-day and 200-day moving averages. Prices are no more likely to rise persistently after this latest strike than after other recent flashpoints in the Middle East. Qatar is a significant gas provider, but its production and transportation facilities remain intact: Also, keeping a lid on the price is OPEC+’s policy of oversupply, even though its most recent announcement fell short of market expectations. The cartel is still ramping up output even as global demand stays flat, effectively capping prices at moments of tension. The interventions suggest a covert attempt aimed at placating Trump, who has made clear his preference for cheaper oil. The growth in oil demand is on a structural downward trajectory, thanks to shifts in China’s economy and the growing adoption of electric vehicles around the world. Oil is very unlikely to see production fall short of demand, so the status quo should hold. This bearish price outlook does, at the margin, make it easier for Trump to move to resolve the Ukraine conflict. But bringing Vladimir Putin to the negotiating table and securing meaningful concessions will require cooperation from key Russian allies, led by China and India. The Kremlin’s escalating aggression toward Kyiv and its confrontation with Poland could test the US president’s resolve. The Polish incident could annoy Washington more than Moscow thinks, but it is unlikely to matter as Trump wouldn’t want to risk the 2026 midterm elections by allowing gasoline prices to rise. There is the possibility that Putin might at last prompt a Trump reaction, but nobody is holding their breath, an indirect approach similar to the one the Obama administration used to pressure Iran could work. That would be painful in the short term for countries that rely on Russian energy supplies (India, China). Secondary sanctions would disrupt the global economy and deepen the trade war. Such an aggressive coordinated attempt to cut off Russia’s oil exports would raise oil prices. Without such an action, particularly without robust US support, expect them to remain anchored.  Still Rallying The S&P 500 set yet another record on Wednesday, after the briefest of tremors in response to the appalling news of the assassination of the prominent conservative activist Charlie Kirk. The rally since the April 8 dump is now 31.1%.  Graph S&P There are some explanations which go beyond an almost certain rate cut by the Federal Reserve next week. * First, almost three years after ChatGPT ignited an artificial intelligence gold rush, AI still has the capacity to administer a positive surprise. This is true even when applied to a huge and established name like Oracle Corp., which has been a public company for 40 years. Its results, published after Tuesday’s close, prompted a 36% rise when trading resumed. That kind of positive jolt for a business so well-known and so big is vanishingly rare. * AI is being hyped and, at some point, will be over-hyped. But while there’s still the possibility for something like Oracle’s miraculous day, animal spirits will continue. And Oracle still didn’t gain quite as much market cap on Wednesday as Nvidia Corp. * The other key driver for the rally is a massive upgrade in S&P 500 earnings expectations since August. Consensus projections for 2025 remain a little lower than before the April 2 tariff announcement — but in essence reflect a belief that the levies won’t have the impact initially expected:  Some background on Oracle: During the dot-com era, Oracle Corporation emerged as a key technology powerhouse, riding the wave of rapid growth in internet and enterprise computing. Founded in 1977, Oracle had already established itself in the 1980s as a leading relational database management system (RDBMS) vendor with its flagship Oracle Database product. In the 1990s, as client/server computing and internet technologies gained momentum, Oracle innovated with internet-ready database products like Oracle 8i, which integrated internet capabilities. This foresight positioned Oracle strongly during the dot-com boom, allowing it to meet the burgeoning demand for scalable, reliable, and web-capable database solutions essential for the new era of online businesses. Oracle’s strategy to build internet-ready products before the market fully demanded them gave it a unique advantage, as it became a foundational technology provider to many dot-com startups and established enterprises moving to web-based infrastructures. By the late 1990s and early 2000s, Oracle was not only known for its databases but also expanded through the development and acquisition of enterprise applications and middleware, further solidifying its role in the business software ecosystem. Despite the burst of the dot-com bubble around 2000, Oracle’s size, product maturity, and vast developer base enabled it to weather the downturn and continue growing into the dominant enterprise software company it is today. Oracle’s massive stock rise yesterday, with a surge of over 36%, was driven primarily by its fiscal first-quarter results and a huge backlog in its cloud business fueled by soaring demand for AI infrastructure. The company revealed four multibillion-dollar contracts, one reportedly with OpenAI, including a landmark $300 billion cloud computing deal over about five years. This backlog grew to $455 billion, a jump of 359% year over year, signalling strong, sustained future revenue growth linked to AI. Oracle also raised its capital expenditure forecast to $35 billion from $25 billion as it ramps up investments in data centres and servers to support AI demand. Analysts quickly upgraded price targets, with UBS calling it one of the most significant large-cap tech growth stories and setting a target price of $360. The surge in Oracle shares also propelled Chairman Larry Ellison to become the world’s richest person briefly, surpassing Elon Musk. This remarkable gain reflects renewed optimism around the AI-driven tech rally, following doubts earlier about sustainability. The AI trade remains dominant in driving valuations among tech giants, with Oracle positioning itself as a major AI infrastructure player alongside Nvidia, Microsoft, and others. The strong contracts with AI companies reignited investor enthusiasm, resulting in Oracle’s biggest single-day percentage gain since 1992.  |
| Data Deficiency Counting all the people at work in a country the size of the US isn’t easy. The new head of the Department of Labour statistics, who was parachuted into the job after Trump didn’t like the stats being produced by the previous head, is finding out the hard way. That said, the latest revision to the official non-farm payroll data, which found that jobs were over-counted by 910,000 in the 12 months to March, does nothing to salve confidence (but helps Trump deflect some of the blame onto the Biden administration). This was the largest change on record and toward the lower end of expectations. However, it came as no great surprise, and the history of revisions to the number shows that initial inaccuracy isn’t a new phenomenon.  It still doesn’t suggest great things about the US economy. How then to explain that stocks celebrated this news by setting yet another all-time high? Since hitting a low five months ago, a week after the “Liberation Day” tariff announcement, the S&P 500 is up 31%. That is very, very unusual; since 2005, only the rebounds after the Global Financial Crisis and Covid saw bigger five-month rallies — and they both followed much deeper initial selloffs.  More baffling, this rally happened even though the April 2 tariffs have been upheld. If it made sense to sell then, ongoing deterioration in the economy should add to the reasons to do so now. This weird bounce already deserves a place in the history books. But there are some explanations.  Falling bond yields, reducing the cost of money and expanding the multiples that can be justified for stocks, plainly are a big factor — but it’s noticeable that even after they tumbled in response to the latest employment data, 10-year yields are still higher than they were when the equity rally began after “Liberation Day.” Lower yields are only unambiguously good news for stocks if the economy is in decent shape. Despite the shocking payroll revision, there’s some evidence of that. One data point that supports equity bulls is the latest small business survey from the National Federation of Independent Business. It found significant declines both in complaining of higher prices and in finding job openings hard to fill. That looks like falling inflationary pressure: Meanwhile, consumer inflation expectations remain fairly well rooted. The latest consumer survey by the New York Fed shows longer-term forecasts unchanged at 3%, at the top of the Federal Reserve’s target range. One-year expectations ticked up slightly, but the overall picture looks healthy:  While the July inflation data showed a pickup in the goods prices most directly affected by tariffs, there’s a decent argument that they are stable enough to allow the Fed to cut more aggressively. July’s rise in the trimmed mean for the Personal Consumption Expenditure, which excludes outliers, was the lowest since 2020.  China resurgence When a quiet resurgence in Chinese equities developed into a world-beating rally, it took many seasoned market watchers by surprise.  There’s little sign of a revival in spending by consumers and businesses that would dramatically inflate the earnings of Chinese companies. Instead, the boom appears to be driven by hedge funds and retail investors seeking higher returns in an environment of low interest rates. There’s also optimism that breakthroughs in artificial intelligence and a government drive to address industrial overcapacity are about to kick-start China’s economy. For now, official data isn’t pointing to an economic rebound, and there are already signs that share prices may be overheating, reviving memories of a stock market crash in 2015 that burned small investors. Financial authorities are under growing pressure to step in and calm the speculative fever. What’s happening in China’s stock market? The CSI 300 Index jumped 10% in August, its best performance since a rally last September. Red flags have emerged. Market turnover has hit a record. The outstanding amount of margin trades — where investors borrow money to buy local stocks in the onshore market — has also surged to an all-time high, signalling a growing appetite for risk-taking. In an effort to curb speculative fever, mutual funds have capped daily purchases of some of the year’s best-performing equity portfolios, and commercial banks have tightened oversight of clients using credit cards to fund stock investments. What’s behind the sudden rally? The money is pouring in mostly from households, whose savings are collectively at a record high. With interest rates on savings drifting lower, some have been turning to equities for better returns. Wealthy investors have led the charge, often via hedge fund investments. But the volume of money heading into stocks is still relatively small compared with the trillions of yuan saved by Chinese consumers overall, and this is fueling speculation that the market rally has further to run. Easing trade tensions with the US has helped to calm investor nerves. There are hopes that a government “anti-involution” campaign to combat price wars and fix overcapacity across various industries will break a deflationary cycle that’s undermined the confidence of consumers and businesses. And China’s breakthroughs in artificial intelligence have led to hopes that national industries are poised for a wave of technological progress that will accelerate economic growth and boost corporate earnings. Why are Chinese financial regulators concerned? The country’s financial authorities face a difficult balancing act in trying to engineer sustainable growth in the stock market without causing investors to panic. The Beijing government has made clear it would prefer a “slow bull market” that would allow for sustainable wealth creation and a durable boost in household consumption. The last thing the authorities want is a sharp reversal following a rapid rally, which would inflict heavy losses on retail investors. But as the rally continues, analysts are warning of a stock market bubble that could pop unless corporate earnings prospects improve or the government boosts its support for the economy. What might they do about it? China’s financial regulators are considering a number of measures to cool the market. These include a removal of some curbs on short selling and various measures to rein in speculative trading, according to people familiar with the matter. For now, regulators may have some breathing room before they need to intervene, as the involvement of retail investors in the stock market is still relatively limited by historic standards, suggesting the rally may not be as fragile as some market watchers suggest. What’s at stake if the market doesn’t stabilise? Much of China’s economy is still in the doldrums and suffering from a protracted real estate crisis. With the government trying to kick-start household spending to offset the negative impacts of a trade battle with the US — the biggest destination for Chinese exports — the last thing it needs is a stock market slump that would further dent consumer confidence. If the losses became too hard to bear, it could damage the social stability that’s the number-one priority for China’s leadership. Source: Bloomberg  US CPI still very sticky – is 3% the new norm? Data for August showed that the core consumer price index, which excludes the often-volatile food and energy categories, increased 0.3% from July. But when those components are included, the overall CPI rose 0.4%, the most since the start of the year.  Prices for cars, clothing and appliances all rose as goods prices, excluding food and energy, accelerated 0.3%, matching the biggest climb since May 2023. Not all of that is the result of tariffs, to be sure, but economists continue to warn that the cost of the duties may yet flow through to consumers. Although the inflation signals are mixed, they’re probably enough for the Federal Reserve to lower interest rates when policymakers gather next week, marking what would be the first cut of the year. Traders are betting that the Fed will lower its policy rate by at least 25 basis points, with some outlying calls for a larger 50 basis points move. The main reason economists say the Fed will cut is the softening labour market. Fresh data on Thursday showed why that’s a concern. Initial applications for unemployment benefits jumped last week to the highest level in almost four years. Weekly filings can be volatile around holidays, and this period included Labour Day. But the figures contribute to a broader picture. Author: Dawn Ridler  Understanding Non-Farm Payrolls: The Economic Report That Moves Markets Every first Friday of the month at 8:30 AM Eastern Time, financial markets around the world hold their breath. Traders pause mid-conversation, investors refresh their screens, and central bankers lean forward in their chairs. They’re all waiting for the same thing: the US Non-Farm Payrolls report. The August 2025 release perfectly illustrates why this data has the power to send currencies soaring, stock markets tumbling, and bond yields swinging within seconds. What Are Non-Farm Payrolls? Think of Non-Farm Payrolls (NFP) as America’s monthly employment health check-up. Simply put, it measures how many jobs were added or lost in the US economy during the previous month, excluding certain categories like farm workers, government employees in specific agencies, self-employed individuals, and domestic workers. The “non-farm” designation exists for practical reasons. Agricultural employment is highly seasonal and relies heavily on undocumented workers, family labour, and self-employment arrangements that make accurate monthly tracking nearly impossible. This data represents approximately 80% of all US workers who contribute to the country’s Gross Domestic Product, making it a comprehensive snapshot of economic activity. How the Data Gets Collected The NFP report emerges from two massive monthly surveys conducted by the Bureau of Labour Statistics. The Establishment Survey is the primary source for the headline NFP number, collecting data from approximately 121,000 businesses and government agencies covering roughly 631,000 individual worksites. This represents about one-third of all non-farm payroll jobs in America. Each month, professionally trained field economists gather employment information through various methods including mail, email, phone calls, and house visits. The businesses report their payroll data for the pay period that includes the 12th day of the month. Anyone on the company payroll during that reference week counts toward the total, including part-time workers and those on paid leave. The Household Survey, conducted separately, interviews about 60,000 households to gather information on employment status and job search activities. This survey provides the unemployment rate and other labour force statistics that complement the headline jobs numbers. Who Uses This Data and Why It Matters Central Bankers and Policymakers: The Federal Reserve watches NFP data closely as part of its “dual mandate” to maintain price stability and full employment. Strong job growth might signal the need for higher interest rates to prevent overheating, while weak employment could justify rate cuts to stimulate the economy. Investors and Traders: NFP releases trigger immediate market reactions. Currency traders watch for deviations from expectations, as stronger-than-expected job growth typically strengthens the US dollar while weak data can cause it to weaken. Stock market reactions depend on context – strong job growth might be positive for economic expansion but negative if it raises fears about inflation and higher interest rates. Bond Market Participants: Treasury bond traders use NFP data to anticipate Federal Reserve policy changes. Strong employment data often leads to higher bond yields as investors expect tighter monetary policy, while weak data can push yields lower. Reading the August 2025 Shock The August 2025 NFP report perfectly demonstrates why this data commands such attention. The economy added just 22,000 jobs, far below the expected 75,000, while the unemployment rate rose to 4.3%. This represented one of the weakest job creation months since the pandemic recovery began. What made the reading even more concerning were the significant downward revisions to previous months. July’s initial estimate of 114,000 jobs was revised down to just 79,000, while June was cut from 179,000 to 118,000. These revisions painted a picture of a labour market cooling much faster than initially thought. Context is everything when interpreting NFP data. While 22,000 jobs might sound reasonable in isolation, against expectations of 75,000 and following substantial negative revisions, markets interpreted this as a clear signal that the US economy was losing momentum. Immediate Market Impact The weak August reading had immediate consequences. Currency markets saw the US dollar weaken against major trading partners as investors scaled back expectations for US economic strength. Equity markets initially fell on recession concerns but later recovered as investors anticipated Federal Reserve support. Bond yields dropped as markets priced in multiple interest rate cuts. Most importantly, the report virtually guaranteed Federal Reserve action. Markets now price in 100% probability of at least a 25 basis point rate cut at the September 16-17 meeting, with many expecting a larger 50 basis point reduction. Some analysts predict multiple rate cuts throughout the remainder of 2025 based partly on this employment weakness. Key Takeaways Understanding NFP data requires looking beyond the headline figure. Revisions to previous months can sometimes be as important as the current month’s number. The unemployment rate from the separate household survey provides additional context. Average hourly earnings help assess inflationary pressures and consumer spending power. The August 2025 report illustrates how a single economic release can reshape market expectations and policy outlooks. For anyone following financial markets, understanding NFP data provides crucial insight into how economies function and how markets price changing conditions. When you see dramatic market moves on the first Friday of each month, you’ll know exactly what everyone was reacting. Author: Jonathan Brummer EXCHANGE RATES:  The Rand/Dollar closed at R17.37 (R17.58, R17.65, R17.44, R17.61, R17.74, R18.15,R17.76, R17.72, R17.90, R17.58, R17.89, R17.99, R17.92, R17.77, R17.95, R17.88, R18.04, R18.16, R18.39, R18.64, R18.89, R19.12, R19.10, R18.36, R18.21, R18.18, R18.20, R18.71, R18.35, R18.38, R18.41, R18,67, R18.38, R18.73, R18.03, R18.05, R18.11, R18.21,)  The Rand/Pound closed at R23.55 (R23.73, R23.84, R23.53, R23.84, R23.84, R24.09, R23.88, R23.76, R24.22, R24.08, R24.49, R24.22, R24.35, R24.05, R24.18, R24.14, R23.95, R24.16, R24.40, R24.82, R25.10, R25.01, R24.73, R23.78, R23.55, R23.52, R23.50, R23.53, R23.19, R23.12, R22.85, R23,16, R22.93, R22.80, R22.99, R22.98, R22.72, R22.99, R22.73, )  The Rand/Euro closed the week at R20.38 (R20.61, R20.62, R20.44, R20.56, R20.64, R21.04, R20.86, R20.61, R20.93, R 20.70, R20.91, R20.74, R20.68, R20.24, R20,37, R20.27, R20.13, R20.43, R20.78, R21.21, R21.52, R21.72, R20.93, R19.95, R19.72, R19.83, R19.72, R19.41, R19.20, R19.29, R19.02, R19,35, R19.31, R19.23, R19.09, R18.87, R19.19, R18.85, ,)  Brent Crude: Closed the week $66.80 ($65.52, $67.38, $67.73, $66.08, $66.07, $69.46, $68.29, $69.21, $70.58, $68.27, $67.39, $77.27, $74.38, $66.56, $62.61, $65.41, $63.88, $61.29, $65.86, $67.72 $64.76, $65.95, $72.40, $72.13, $70.51, $70.33, $73.03, $74.23, $74.51, $74.65, $76,40, $77.60, $79.98, $71.00, $72.38, $75.05, $70.87, $73.86, $73.99).  Bitcoin closed at $115,770 ( $110,752, $108,923, $114,916, $117,371, $118,043, $113,608, $118,139, $118,214, $117,871, $108,056, $107,461, $103,455, $105,017, $105,643, $104,049, $103,551, $104,615, $96,405, $94,185, $84,571, $84,695, $82,661, $83,074, $84,889, $82,639, $83,710, $85,696, $96,151, $96,821, $96,286, $99,049, $104,559, $104,971, $99,341, $97,113, $97,950). Articles and Blogs: Spoiled for choice NEW Who needs a plan anyway NEW 8 questions you need to ask around retirement What to do when interest rates drop How to survive volatility in your investments What to do when interest rates drop Difficult Financial Conversations Financial Implications of Longevity Kick Start Your Own Retirement Plan You matter more than your kids in retirement To catch a falling knife Income at retirement 2025 Budget Apportioning blame for your financial state Tempering fear and greed New Year’s resolutions over? Try a Wealth Bingo Card instead. Wills and Estate Planning (comprehensive 3 in one post) Pre-retirement – The make-or-break moments Some unconventional thoughts on wealth and risk management Wealth creation is a balancing act over time Wealth traps waiting for unsuspecting entrepreneurs Two Pot pension system demystified Keeping your legacy shining bright Financial well-being when dealing with Dementia and Alzheimers Weathering the storm Pruning your wealth farm Should you change your investments with changing politics? Taking a holistic view of your wealth Why do I need a financial advisor? Costs, Fees and Commissions The NHI and what to do about it New-Normal for Retirement? Locking-In Interest rates – The inflation story Situs – The Myths and Reality Tax Residency – New Rules New Headaches Are retirement annuities dead A new look at retirement Offshore investing – an unpopular opinion Cobie Legrange and Dawn Ridler, Rexsolom Invest, Licensed FSP 45521. Email: cobie@rexsolom.co.za, dawn@rexsolom.co.za Website: rexsolom.co.za, wealthecology.co.za |