Weekly Wrap: Taking Stock

Written by Citadel Global Director, Bianca Botes


With the world in disarray, every so often, it’s good to take stock of all the different elements at play. This week we take you through some of the key focal points in the markets currently.

Key themes for this week include:

  • Inflation, interest rates and growth remain top of mind
  • Geopolitical risks remain abundant
  • Gold muddles along
  • Oil recovers from six-month low, copper bounces back
  • Dollar claws back lost ground


INFLATION: Following the release of the recent United States (US) inflation numbers, that came in cooler than expected, many in the market positioned themselves for “peaked” inflation and a subsequently less aggressive US Federal Reserve (Fed). However, even with inflation cooling, we are far way away from a meaningful and sustained turnaround. For the foreseeable future we will continue to keep a very close eye on inflation across all leading economies. The latest readings from the United Kingdom (UK’s) and the euro area hit a whopping 10.1% and a new record high of 8.9%, for July respectively.

INTEREST RATES: Even with inflation showing signs of slowing down, central banks will continue to seek sustained declines in inflation, closer to their target levels. One can therefore assume – and this assumption was confirmed during the FOMC July Minutes – that central banks will continue to hike interest rates in the coming months but that the pace of hikes will likely slow down. We are, however, still a long way from exiting a rate hiking cycle. The latest forecasts show that the Fed, the European Central Bank (ECB) and Bank of England (BoE) are all expected to hike rates by 50 basis points during their September meetings.

GROWTH: Growth across the world remains top of the agenda, as recessionary fears continue to weigh on sentiment. Rising interest rates in most countries across the globe continue to add pressure on economic growth. However, a few countries, like China, are still feeling the pain of the strain caused by stringent COVID-19 lockdown measures. The latest economic growth number releases show that the euro area economy expanded 3.9% year-on-year in the second quarter of 2022, below a 4% advance seen in flash estimates and a 5.4% rise in the previous period, while the American economy shrank an annualized 0.9% quarter-on-quarter in the second quarter of 2022, following a 1.6% drop in the first quarter, which technically pushed the country into a recession. The Chinese economy shrank by a seasonally adjusted 2.6% quarter-on-quarter in the three months to June, compared with market estimates of a 1.5% decline.

GEOPOLITICAL TENSION: The Russian-Ukraine war reminded us how quickly the world can be thrown into uncertainty on the back of geopolitical events. With tensions soaring between numerous countries, the race for world domination is just one of the “to do’s” on many world leaders’ lists. The risks of such fallouts, from full military action to economic warfare, remain a threat to the global economy. We therefore continue to keep an eye on the unfolding events in the Ukraine, as well as the ongoing tension between China and Taiwan. As witnessed within the euro zone, the impact of political tension should never be discounted, because in a globalised world, a wave in one country causes ripples across the globe.


Manufacturing production in the US increased 3.2% year-on-year in July, while industrial production climbd by 3.9%. Both these readings marked the lowest increase since January. Retail sales in the US rose by 10.3% year-on-year, following a rise of 8.3% in June, demonstrating that while economic growth is being dampened by the rise in interest rates, demand remains robust, as the US remains near full employment. The number of Americans filing new claims for unemployment benefits dipped by 2 000 to 250 000 the week that ended 13 August, well below expectations of 265 000.

China’s retail sales rose by 2.7% year-on-year in July, missing market expectations of 5% following a 3.1% rise in June. While this marks a rise in retail sales for the second consecutive month, the latest print highlighted an unsteady recovery of the Chinese economy, as Beijing shows no sign of walking back its zero-COVID policy.

South African retail trade sank by 2.5% year-on-year, after a 0.1% uptick in the previous month, significantly undershooting market forecasts of a 0.4% rise. This marked the sharpest decline in retail activity since January 2021, reflecting some of the impact that higher inflation and interest rates have had on an already strained consumer.


All three major US stock indices traded sideways on Thursday, as investors digested more earnings results from retailers, while weighing the minutes from the last Fed meeting. US department retail chain, Kohl’s, plunged almost 10% after the company issued full-year guidance that surprised investors on the downside. A gloomy outlook from the retailer followed weaker-than-expected earnings results from fellow retailer, Target, exacerbating worries about an inflation-induced slowdown in consumer demand. On the policy side, Fed policymakers reaffirmed their commitment to bring inflation back to the Fed’s 2% target.

Stocks listed in London declined for a second consecutive session, with the blue-chip FTSE 100 bottoming around the 7 500 level, weighed down by heavyweight materials and financial stocks. Market sentiment remained subdued on the back of worries around the impact of more interest rate hikes.

European equity markets traded cautiously higher on Thursday, with Germany’s DAX up more than 0.5% while the benchmark STOXX 600 was also in the green after snapping a five-day green streak in the previous session. Energy shares led gains, as oil prices rose for a second day, followed by basic materials and industrial companies.

The Nikkei 225 Index sank 0.96%, while the broader TOPIX Index lost 0.82% on Thursday, retreating from seven-month highs and tracking overnight weakness on Wall Street after the US Fed hinted at more rate hikes down the line. Losses were felt across the board, led by index heavyweights such as clothing manufacturer and retailer, Fast Retailing, vehicle manufacturer, Toyota Motor, and consumer electronics manufacturer, Sony Group.

The JSE FTSE All Share Index closed flat on Thursday, following a decline on Wednesday, after two consecutive sessions of gains, mainly pressured by resource-linked stocks and financials. Locally, power utility, Eskom, once again implemented rolling power cuts nationwide, due to a lack of generating capacity at its ageing coal-fired power stations.


Brent Crude futures clawed back some ground on Thursday, following the dip to six-months lows earlier this week. Brent Crude rose to $95 per barrel following the 1.4% gain seen on Wednesday. International Energy Agency data showed that US crude stockpiles declined by 7.06 million barrels last week, while exports hit a record high and gasoline demand climbed to the highest level this year. On the supply side, investors balanced Russia’s gradual increase of output against bans by the European Union on Russian seaborne crude in December and on product imports early next year. The oil market has been under pressure recently amid efforts to revive the 2015 nuclear deal that could boost Iranian oil exports by about 2.5 million barrels per day.

Gold prices were steady at just above $1 760 an ounce on Thursday after sliding for three consecutive sessions, as traders digested the latest US Fed policy meeting minutes. US policymakers noted that future rate decisions would be based on incoming economic data, as well as assessments of how the economy was adapting to rising interest rates. Meanwhile, investment banker, Credit Suisse, joined its peer, Goldman Sachs, in cutting price targets for gold, citing pressure from rising real rates and the Fed’s resolve in bringing down inflation.

Copper futures erased previous losses and climbed above the $3.60 mark on Thursday, rebounding from the decline in the previous session, as investors assessed supply concerns against the clouded demand outlook from top consumer, China. Data from industry researcher – Shanghai Metals Market – pointed to a 24% yearly decline in copper scrap production during July, as producers refrained from selling at unfavourable prices during the month. In addition, Chinese copper output for January to July missed expectations, sighting a decrease of 0.4%. Meanwhile, record-setting heat waves in regions of China caused power outages and led local governments to ration energy to factories in multiple industries. Profit warnings by Chinese property giants also continue to spur concerns on the sector’s stability.


The US Dollar Index firmed up above 106.5 on Thursday, hovering near a three-week high, after Fed officials indicated their commitment to raise interest rates into restrictive territory to bring inflation substantially lower. Markets are currently priced for a half-percentage point rate hike in September.

The euro hovered close to $1.02, remaining just above the key one dollar parity level, as investors balance the ECB policy tightening path against the region’s economic outlook. Power prices in Europe reached record levels in August amid concerns that economies, in particular Germany, will not be able to secure reserves for the winter. Germany’s top network regulator said that the country must cut its gas use by 20% to avoid a crippling shortage this winter. Germany is getting close to reaching the third stage of an emergency plan that includes rationing of gas to industries.

The British pound held firm above the $1.20 level, after touching a two-year low of $1.18 on 14 July, assisted by expectations for more BoE interest rate hikes. The UK economy is expected to enter a recession by the fourth quarter of 2022, with signs of an already cooling labour market.

The Chinese yuan depreciated to around 6.80/$, declining towards its lowest levels in three months, as an uncertain economic recovery pressures China’s central bank to take more accommodative steps at a time in which the US Fed and other key central banks indicated their firm commitment to fighting inflation. Global financial services groups, Nomura and Goldman Sachs, both downgraded their forecasts for Chinese growth this year, citing weaker demand, COVID-related uncertainties, and power shortages. Analysts also flagged a possible escalation in Sino-US tensions over Taiwan, after Washington and the island agreed to start trade talks under a new initiative.

The South African rand came under pressure on Wednesday, shedding 1.7% during local trade weakening back above the R16.60/$ mark, after reaching a high of R16.11/$ on 11 August, as local retail sales disappointed. In addition, disappointing economic data from major economies reinforced global recession fears, while the local under-performance in the mining and manufacturing industries through to the end of June cemented expectations that South Africa’s economic activity will shrink in the second quarter and drag down overall 2022 growth, amid intensifying load shedding, adverse weather conditions, and higher production costs.

The rand is trading at R16.90/$, R17.06/€ and R20.16/£.