S&P 500, Nasdaq Hit Record Highs to End Strongest Quarter in Over a Year as Markets Eye Fed

Local Market Commentary

The South African Top 40 index rose 0.62% to close at 88,757.8 points, while the All Share index gained 0.59% to 96,429.7 points. May money supply growth accelerated to 6.86%, signalling firmer consumer demand, with credit growth also increasing. Despite a trade surplus of R21.67 billion, the figure was below expectations. The budget deficit narrowed year-on-year to R10.12 billion. Notably, Elon Musk’s Starlink may invest around R2 billion to expand internet infrastructure across the Southern African Development Community, utilising local firms for construction and operational support.

European Market Commentary

European equities ended June on a weaker note, with the STOXX 600 down 0.4% as investors awaited clarity on impending U.S. trade tariffs. German inflation eased to 2.0% year-on-year, below expectations, with core inflation also moderating, ahead of eurozone inflation data. Lending growth stagnated amid trade uncertainties and muted economic momentum despite ECB rate cuts. Meanwhile, the UK housing market showed resilience, with mortgage approvals rising unexpectedly in May, suggesting a swift rebound following the end of a homebuyer tax break.

U.S. Market Commentary

The S&P 500 and Nasdaq closed at record highs, capping their best quarter in over a year with double-digit gains, though H1 performances remained the weakest since 2022 due to trade tensions. The Dow and Russell 2000 also posted solid quarterly gains. U.S. Senate Republicans are pushing a large tax and spending bill despite internal dissent over its fiscal impact. Investors are awaiting key economic data including June payrolls and ISM manufacturing and services reports, alongside Federal Reserve commentary amid expectations for possible rate cuts this year driven by soft economic indicators and speculation over leadership changes at the Fed.

Asia Market Commentary

Asia-Pacific markets showed mixed trading as investors digested U.S. tariff developments and robust Wall Street gains. South Korea’s manufacturing sector contracted for a fifth straight month, though at a slower pace, reflecting subdued demand and lower inventories. Conversely, Japan’s manufacturing activity expanded for the first time in 13 months, supported by rising output despite weak order flows. Business confidence among major Japanese manufacturers improved modestly, according to the Bank of Japan’s Tankan survey, while sentiment among large non-manufacturers remained stable.

Currency Market Commentary

The South African rand remained stable after a mixed set of domestic economic releases, while investors await key U.S. employment data. The U.S. dollar weakened to its lowest level against the euro since September 2021, pressured by concerns over U.S. fiscal policy and ongoing trade uncertainties. Market expectations have shifted towards earlier and more aggressive Federal Reserve monetary easing this year, ahead of critical U.S. economic reports including Thursday’s nonfarm payrolls.

Commodity Market Commentary

Gold prices climbed, buoyed by a softer U.S. dollar and escalating uncertainty ahead of U.S. tariff deadlines, enhancing safe-haven demand. Crude oil edged lower on expectations that OPEC+ will raise output by 411,000 barrels per day in August, following consecutive monthly hikes, which could bring total 2025 supply increases to 1.78 million bpd. Concerns over a global economic slowdown amid trade tensions continued to temper oil price gains ahead of the July 6 OPEC+ meeting.

Exxaro Resources (EXX) -0.26%

Exxaro anticipates weaker 1H25 results, primarily due to reduced coal volumes, lower commodity prices, and ongoing rail constraints. API4 thermal coal prices declined to an average of US$91/t (2H24: US$110/t), with iron ore steady at US$100/dmt. Total coal production and sales are forecast to fall 6% and 7%, respectively, with Eskom offtake down 15%. Capex fell 19% year-on-year, in line with scheduled asset maintenance. Wind generation dipped, and delays affected the 68MW Lephalale Solar Project. The Group maintained a net cash position of R19.5 billion and announced a strategic manganese acquisition valued at up to R14.6 billion. Efforts to optimise the portfolio continued with the planned disposal of the FerroAlloys business. While domestic demand may offer moderate upside, global trade risks and commodity volatility remain key challenges.

AECI (AFE) +0.84%

AECI reported a mixed five-month trading update to end-May 2025, with stronger international performance offsetting domestic challenges. While revenue was slightly down, EBITDA and operating profit improved, supported by margin gains in Asia-Pacific mining operations and cost savings across Property and Corporate Services. Strategic highlights included the R1.1 billion sale of Much Asphalt, office consolidation, and a restructuring drive at AECI Schirm Germany. EBITDA run-rate improved to R1 billion, up from R800 million in FY24. However, South African divisions, notably Mining and Chemicals, remain pressured by adverse trading conditions and supply-side disruptions. AECI continues to prioritise operational efficiency and cultural transformation to drive long-term growth.

Invicta Holdings (IVT) +4.60

Invicta posted solid FY25 results, with revenue up 6% and operating profit before forex gains up 21% y/y. HEPS and sustainable HEPS rose 14% and 13%, respectively, while NAV per share climbed 13%. Strategic actions included redeeming R703 million in preference shares, repurchasing R157 million in ordinary shares, acquiring UK-based Nationwide Bearing, and exiting KMP Holdings via a joint venture transaction. The Kian Ann property disposal added a once-off gain of R222 million, supporting a 57% rise in basic EPS. The Group ended the year with R800 million in cash, highlighting continued financial strength and disciplined execution.

Spear REIT (SEA) +1.58%

Spear REIT delivered a strong Q1 FY26 performance, with distributable income and distribution per share both rising 5.74% y/y. Revenue increased by 18.79% to R191.2 million, while total distributable income surged 30.14% to R74.2 million. Basic and headline EPS grew 20.02% and 14.92%, respectively. The interest cover ratio improved to 3.40x, with the loan-to-value ratio reduced to 26.18%. Tangible NAV per share rose to R12.43, and the fixed debt ratio improved to nearly 80%. These metrics underline Spear’s disciplined capital structure, stable funding base, and continued focus on driving shareholder value.

xAI

Elon Musk’s AI startup xAI successfully secured $5 billion in debt financing through secured notes and term loans, led by Morgan Stanley, alongside a separate $5 billion strategic equity investment. The debt raise was oversubscribed and attracted major global investors despite earlier reports of muted demand. Additional equity funding discussions could raise up to $20 billion, potentially valuing xAI between $120 billion and $200 billion. These funds are earmarked for expanding AI infrastructure, data centre development, and advancing the Grok platform amid intensifying competition in the AI sector.

Home Depot (HD) -0.57%

Home Depot’s subsidiary SRS Distribution agreed to acquire specialty building products distributor GMS for approximately $4.3 billion, including a premium offer of $110 per share, outbidding a hostile takeover attempt by QXO. The total deal value, including debt, stands at $5.5 billion and will be funded via cash and debt. This acquisition extends SRS’s footprint to over 1,200 locations across the U.S. and Canada, enhancing its reach among professional contractors. The deal follows Home Depot’s $18.25 billion acquisition of SRS last year, with similar industry consolidation seen in rival Lowe’s and QXO’s recent major deals.

Mercedes-Benz (MBG) -1.58%

Mercedes-Benz anticipates that tariff-related pressures will reduce profit margins in its core passenger car division by less than 3% in Q2, reflecting easing US-China trade tensions and partial tariff offsets. The company previously withdrew its 2025 earnings guidance due to tariff uncertainties but indicated tariffs implemented in April could impact margins by 300 basis points on cars and 100 basis points on vans if sustained. European sales remain robust, and U.S. retail momentum is strong, supporting cautious optimism ahead of Q2 results scheduled for July 30.

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