With the broader market narrative remaining unchanged, we take a look at what is making noteworthy headlines in this week’s Wrap.
- TikTok in the firing line
- SA loses out on sea traffic diverts
- Traders digest mixed data
- Oil prices climb as stockpiles dip
- US Dollar Index regains some lost ground
IN THE SPOTLIGHT
TikTok faces potential ban in the US amid national security concerns
Since its inception in 2016, TikTok has soared in popularity, amassing over 1 billion active users globally, with a significant portion based in the United States (US). However, its Chinese ownership, under ByteDance, has raised substantial national security concerns in the US, leading lawmakers to push for its ban. Here’s why:
Data privacy and security
The crux of the issue lies in fears that China’s Communist Party could access sensitive data of American users through TikTok. As a Chinese company, ByteDance is bound by Chinese law to hand over data to authorities upon request, which could potentially compromise user privacy and US national security.
Congressional concerns
Lawmakers, particularly Republicans, have spearheaded efforts to ban TikTok, citing worries that user data could be exploited for tracking and misinformation campaigns. Representative, Michael McCaul, emphasised that downloading TikTok could inadvertently grant the Chinese Communist Party access to personal information.
Growing bipartisan support
While Democrats historically haven’t focused as much on security measures, they are now aligning with calls to ban TikTok. The Committee on Foreign Investment in the US (CFIUS) has demanded ByteDance divest its TikTok stake, although TikTok argues this won’t effectively address security concerns.
Legislative action
The US House of Representatives passed a bill aiming to ban TikTok unless it separates from its Chinese parent company. China has criticised this move, accusing the US of unfair competition practices. However, the bill’s fate lies with the Senate, with US President Joe Biden signalling he would sign it if passed.
Global ramifications
China’s opposition to the TikTok ban mirrors its own restrictions on American social media platforms. The standoff reflects broader tensions between the two nations, extending beyond economic and trade issues, into technological and security spheres.
TikTok’s response
TikTok contends that it has taken steps to safeguard user data, including moving American user data to US servers. However, skepticism remains, and the company faces an uphill battle to dispel security concerns and navigate potential legislative action.
As the debate rages on, the fate of TikTok in the US hangs in the balance, emblematic of broader geopolitical tensions and the complexities of global technology regulation.
South African ports miss the boat
South Africa finds itself in a logistical quagmire as it is unable to take advantage of a surge in ship traffic that is diverted away from the conflict-ridden Red Sea, offering potential economic benefits to ports across Africa. While countries like Madagascar, Mauritius, and Namibia witness an uptick in maritime activity, South Africa struggles to capitalise on the opportunity, due to inherent inefficiencies in its port infrastructure.
The recent escalation in attacks by Houthi rebels in the Red Sea has prompted shipping companies to seek alternative routes, resulting in an 85% increase in vessels circumventing Africa’s southern tip since December 2023. Despite the promise of increased traffic, South African ports are hindered by operational challenges that undermine their competitiveness.
Reports reveal that South Africa’s container ports rank amongst the least efficient globally, plagued by infrastructure gaps and operational deficiencies. Port operator, Transnet, reported significant losses in 2023, indicative of the economic impact of port inefficiencies on the country’s trade prospects.
Durban, the primary container port in South Africa, faces acute congestion issues. Due to limited dock space, vessels are experiencing prolonged waiting times of up to twenty days. Similar challenges afflict other ports in the country, including Cape Town, where ageing infrastructure and staffing shortages compound operational difficulties.
As a result, shipping companies are increasingly bypassing South African ports in favour of alternative hubs, like those in Madagascar, Mauritius, and Namibia. This shift underscores the importance of efficient port operations in capturing opportunities presented by evolving maritime trade patterns.
The implications of South Africa’s port inefficiencies extend beyond its borders, contributing to projected increases in freight costs and delivery times for global trade routes. Morocco and Ghana are cited as examples of countries poised to capitalise on increased maritime traffic through investments in port development.
Despite the challenges, there remains optimism about South Africa’s potential to strengthen its position in global trade negotiations and the BRICS club of nations. However, realising this potential requires urgent interventions to address systemic issues plaguing the country’s ports and unlock their full capacity to facilitate global trade.
As African ports grapple with the fallout from the Red Sea security crisis, the focus is on enhancing port infrastructure and operational efficiency to navigate challenges and seize opportunities in an evolving maritime landscape. For South Africa, reclaiming its status as a key maritime hub hinges on addressing underlying issues and revitalising its ports to meet the demands of modern trade.
STOCK MARKET RECAP
On Thursday, US stocks saw a slight uptick, with the S&P 500 and Nasdaq gaining nearly 0.1% each, and the Dow Jones rising by 70 points. This movement comes as traders digest a mix of economic data. Producer prices climbed higher than anticipated last month, while initial jobless claims unexpectedly declined. However, retail sales figures fell short of expectations. The likelihood of a 25 basis points cut in the US Federal Reserve (Fed) funds rate in June now stands at 54%, down from 61% before the data releases. Energy and tech sectors led the gains, while utilities weighed down the market. Corporate giants like Microsoft, Apple, Amazon, and Alphabet saw positive movement, while computer chip manufacturer, Nvidia, slipped 1.1% and Tesla remained relatively unchanged following analyst predictions of stagnant sales growth for the electric vehicle maker this year.
In Europe, Frankfurt’s DAX 40 index edged higher, nearing a record-high of 17,980 points. Investors focused on a slew of economic data from the US and corporate updates from German firms. Meanwhile, on the FTSE 100, trading remained slightly higher with attention on corporate announcements. Online food delivery company, Deliveroo, surpassed expectations in core earnings, while house-building company, Vistry, announced plans for increased home construction. However, banking company, NatWest Group, and resources giant, Anglo American, saw their shares experience declines due to ex-dividend trading.
In Asia, the Nikkei 225 Index and the broader TOPIX Index rebounded, closing higher after three consecutive days of losses. Speculation grew regarding potential adjustments to the Bank of Japan’s monetary policy amidst rising wages, inflation, and a robust economy.
Closer to home, the JSE All Share index saw cautious trading as it hovered around 74,000 points, as investors awaited key economic data from the US that could impact the Fed’s interest rate decisions. Domestically, attention was on mining and manufacturing production data for January, with resource-linked stocks experiencing a slight dip while financials and industrials made marginal gains. Exxaro Resources stood out, with shares rising over 5% following a special dividend declaration and a strong EBITDA (Earnings Before Interest and Tax, Depreciation and Amortization) performance for the fiscal year ended 31 December 2023.
OIL PRICES SURGE AS US CRUDE STOCKPILES DECLINE, GOLD TAKES A BREATHER
Brent Crude futures soared above $84/barrel on Thursday, propelled by a surprising drop in US crude inventories, indicating robust demand in the world’s largest oil consumer. According to Energy Information Agency data, US crude stockpiles plummeted by 1.536 million barrels last week, defying expectations of a 1.338-million-barrel increase. This marked the first decline in seven weeks, aligning with industry data reported earlier by the American Petroleum Institute. The report also underscored a decrease at the Cushing hub in Oklahoma, alongside dwindling gasoline stocks. Further boosting oil prices were Ukrainian drone strikes on Russian refineries, causing significant damage to a plant, coupled with ongoing geopolitical tensions in the Middle East and extended supply cuts from the expanded Organization of Petroleum Exporting Countries, OPEC+.
In contrast, gold prices dipped to approximately $2,160/ounce on Thursday, as hotter-than-expected US producer inflation and a decrease in initial jobless claims prompted investors to reassess their predictions regarding the Fed interest rate policies. The Producer Price Index (PPI) for final demand in the United States surged by 0.6% month-on-month in February 2024, marking its largest increase since last August and doubling initial forecasts. Meanwhile, the number of individuals claiming unemployment benefits dropped to 209,000 over the week, surpassing projections of 218,000. However, disappointing retail sales growth, which stood at 0.6% in February, tempered market sentiment.
Volatility ensues in currency markets
The US Dollar Index surged to over 103 on Thursday, rebounding from its earlier losses, fuelled by persistent inflationary pressures that dampened hopes for Fed interest-rate cuts this year. Factory gate prices, as indicated by the latest PPI report, surpassed expectations both on a monthly and yearly basis.
Meanwhile, the euro hovered around $1.09/€, closely monitored by traders amidst signals of impending interest rate cuts from both the Fed and the European Central Bank (ECB). June is earmarked for potential reductions, with the ECB eyeing a one-percentage-point decrease in borrowing costs for 2024. In its March meeting, the ECB maintained record-high borrowing costs, citing progress in inflation control, yet revised its inflation forecasts down to 2.3% for the year.
The British pound remained steady at $1.28/£, below its recent peak, as investors digested economic data ahead of the Bank of England’s (BoE’s) interest rate decision. Amidst GDP growth of 0.2% in January and a 6.1% increase in regular pay year-on-year, the BoE is expected to maintain rates at 5.25%, possibly delaying cuts until August.
In South Africa, the rand traded around R18.70/$ while continuously testing the key technical level of R18.54/$ during the course of the week, as traders continue to digest mixed data from the US, coupled with speak from Fed officials. Hotter-than-expected US PPI, saw the rand come under pressure and US Treasury yields and the dollar index climbed. Local gold and mining production disappointed yet again, while manufacturing production saw a welcome uptick, outperforming market expectations.
As currency markets navigate central bank signals and economic data, investors brace for potential shifts in monetary policies amid evolving global economic conditions.
Key Indicators:
USD/ZAR 18.76
EUR/ZAR 20.41
GBP/ZAR 23.90
Brent Crude: $85.25
Gold: $2168.90
* Please note that due to the Human Rights Day public holiday on 21 March 2024 and Good Friday on 29 March 2024 we will resume the Weekly Market Wrap on 5 April 2024.
Written by: Citadel Global Director, Bianca Botes.