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Peregrine Treasury Services Weekly Market Wrap 26 April 2019
Date: 26 April 2019 Category: Stock Market |
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In our continued efforts to give our readers a broad number of views, opinions and information, we provide readers with Peregrine Treasury Services weekly market wrap below.
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Peregrine Treasury Services Weekly Wrap as at 26 April 2019
n a slow growth global environment, many traders have begun to share a generally bearish sentiment toward the United States (US) dollar, while the underlying US economy seems to be comfortably shrugging off any rumours of a potential recession in 2020. The light, however, is not that bright in the European Union (EU), where growth fears, coupled with a revived buoyant sentiment toward the US, is shaking investors to the core. Closer to home, the political landscape heats up as South Africans hastily approach election day.
GLOBAL DATA AND POLITICS
Globally, economic data remained fairly downtrodden, echoing the 2019 catchphrase of "slowing global growth”. The US, however, seemed to simply shrug those fears off, with the dollar gifting equity markets an assuring push, while on the currency-front, a stellar performance against the euro was seen, leading the dollar to its strongest levels since May 2017. The dollar performance is largely driven by strong data from the so-called economic powerhouse, while economic results from rivaling developed countries remained largely dampened.
Emerging markets experienced a fairly light data calendar for the week. While China released no data during this period, Turkey kept interest rates on hold at 24%. Russia is due to release their interest rate decision later today, with the market expecting the interest rate to remain unchanged at the current level of 7.75%.
South Africa released producer price index (PPI) figures on Thursday, indicating a rise of 6.20% year-on-year in March, from a previous 4.70% recorded in February. Main attributors to these numbers were increases seen in the price of diesel and grain-mill products, soaring by 15% and 13.30% respectively, while starches and animal feeds followed closely, with an increase of 11.90%.
The EU came under pressure this week, as the flurry of negative data continues to dampen overall sentiment. Consumer confidence once again declined in April, slipping from the previous -7.2 to -7.9, while the economic bulletin, published by the European Central Bank, remained dovish.
US POLITICS
Some of the key economic data points from the US this week included strong durable goods orders numbers, indicating an uptick of 0.40% month-on-month (MoM) during March, outperforming the expected 0.20%. Continuous jobless claims remained in line with labour market expectations at 1,655k, while new home sales accelerated by 4.50% (MoM) during March. Setting the tone for the dollar’s performance heading into the weekend, gross domestic product (GDP) data is due for release later today, with markets expecting a 2.00% growth rate for 2019’s first quarter.
While the Federal Reserve remains dovish, an undisputed fact still remains, US interest rates are still more competitive than that of their developed market rivals such as the EU, and with inflation remaining well within range, the chances of an interest rate cut during 2019 remains an unlikely scenario.
The US would simply not be the same if there wasn't at least one ongoing conflict with another country.
North Korea made their appearance back into the media’s scope, with new weapons being tested as a way to invoke reaction from the US, after talks of lifting sanctions imposed on the (not so) Democratic Republic of North Korea stalled. The tariff spat between the US and EU remains largely uneventful at this stage, while anticipated tightening of sanctions on Iran, coupled with quality-concerns regarding Russian oil imports, drove the oil prices higher.
US EQUITIES
Wednesday marked the return of new all-time highs on both S&P 500 and NASDAQ indices, with most investors now watching these new levels with awkward anticipation of what’s to come next. Better than expected earnings releases managed to breathe further life into the greater market, however. From here on out, it’s a question of whether positive conviction sticks and holds or, alternatively, the possibility of yet another November 2018-type move, where risk gets artificially pumped back into the market to cool the equity landscape down. The next few weeks will be interesting to watch indeed. Although mostly proven wrong, when looking at historical figures, will the old adage “sell in May and go away” come into effect?
When drilling down into actual company earnings releases, Twitter’s quarter one (Q1) earnings numbers came in stronger than most analyst expectations, assisting the stock in a 15% move on the day. Key figures seen coming out of Twitter’s Q1 release were as follows:
· Revenue came in at $787 million (18% increase) vs an expected $774 million.
· Net income for Q1 increased to $191 million, up from $61 million in 2018’s first quarter.
· Adjusted earnings per share came in at 37 cents per share vs an expected 15 cents.
· Users that could be monetized increased to 134 million vs the previous quarter’s 126 million users.
· Forward revenue guidance for Q2 has been pegged between $770 million and $830 million.
Lockheed Martin, Texas instruments and Hasbro joined Twitter in surprising analyst expectations to the upside, while Proctor Gamble quietly reported its healthiest quarterly sales growth, while profits increased to $2.75 billion for Q1 vs 2018’s corresponding quarter of $2.50 billion. These strong earnings, certainly astounding the wary mindset.
Earnings expected after hours on Thursday evening will see Amazon and Starbucks looking to keep the incredible US momentum going. Early indications pointed toward earnings beats for both companies for Q1.
FAANGs performance, for the month of April to-date:
· Facebook: up around 14.56% (up 5.85% on Thursday after strong Q1 earnings report)
· Amazon: up around 4.85%
· Apple: up around 7.34%
· Netflix: up around 0.37%
· Alphabet: up around 5.70%
Year-to-date, the Dow Jones is up around 13.44%, the NASDAQ: 22.36% and the S&P 500: 16.73%.
In South African rand-terms, add 0.08% to each of these return-figures to see what the South African investor could be up in 2019, with the currency-effect added.
COMMODITIES
Off the back of a quiet Easter weekend, Brent Crude oil and West Texas Intermediate (WTI) exploded out of the starting blocks on Monday morning, following Donald Trump’s insistence of other oil importing countries to halt any oil purchases out of Iran. Although the market is comfortably supplied with oil, in general, the ever-taunting shadow of sanctions seems to be keeping investors on their toes. With Brent now looking for a move up to $80.00 per barrel, one gets a sense that the steam will eventually cool down, and oil will retreat back down to trade within the $55.00 to $65.00 a barrel range.
Brent Crude opened Friday’s trading day at $74.17 per barrel (up 4.22% for the week), while WTI opened at $64.90 (up 2.19% for the week).
Following four-month-lows ($1,265.90 per fine ounce) recently seen on Monday, the Gold spot price edged slightly higher on Thursday’s trading day after weaker economic data continued to drip out of Europe and the far-east alike. Although the strong equity story continues to churn on the western front, the underlying worry of a slowing global economy has seen investors seeking safer investment havens in the likes of precious metals and hard currencies. For the moment, global investors continue to try and identify the perfect mix of elements that may set the market off in a convicted direction, be it good or bad. For now, it’s all too foggy to decipher.
Platinum (up 0.91%) and palladium (up 1.85%) remained relatively stable for the week.
On Friday morning, gold, platinum and palladium were trading at levels of around $1,275.50, $887.87 and $1,415.50 per fine ounce respectively.
SOUTH AFRICAN POLITICS
Locally, the week has remained fairly familiar within the political realms, with further inquiries into corrupt and questionable key office holders being undertaken, followed by recommendations of dismissal and potential prosecution, which ultimately lands up being finished off with a ‘dash of inaction’, once again.
While the Economist magazine shone light on Cyril Ramaphosa and his ‘pro-growth market’ stance on the run up upcoming election, one cannot help but be slightly on edge. Speculation is rife, with various conspiracy theories being born such as:
• the possible ousting of President Ramaphosa by the leftist faction of the National Election Commission (NEC), post-election;
• the unstable footing of President Ramaphosa within his own party, and whether he will be able to take firm action against those implicated in corruption and state capture following the election; and
• the possibility of Ramaphosa being part and parcel of the corruption within the African National Congress (ANC).
South Africans will be left with a tough decision, come the 8th of May, as the outcome could be crucial in driving the turnaround or slow decay of the local economy. The ANC is anticipated to remain in power, however the dynamics within the opposition parties, ranging from a potential split in the Democratic Alliance (DA), to the infamous flip-flopping of the Economic Freedom fighters (EFF), hinted with potential coalition agreements, could see the local political landscape change quite dramatically.
The strength of the rand witnessed over the past few weeks has largely been highlighted as unrealistic and unsustainable. The warning rang true this week, as the rand and other emerging market currencies rapidly lost ground against major hard-currencies. On Thursday the local unit slipped to its weakest levels since 29 March against the US dollar, to trade at R14.55. The rapid decline of the rand is largely due to the combination of a rise in oil prices, upbeat US data and an underperforming euro, while local factors such as poor fundamentals and the impending national election is doing its fair bit in adding pressure to the rand.
There is currently a strong bias for the rand to trade above the R14.50 mark against the dollar in the coming week, while periodic retracements to R14.30 can be expected.
SOUTH AFRICAN EQUITY
South African equity markets have been surprisingly strong, considering the weaker rand, against the US dollar, this week. There were however a few big losers among the crowd.
Following the class action recently taken against Tiger Brands in relation to the Listeriosis outbreak in 2018, the company’s share price was seen dropping another 5.00% on Wednesday’s trading day, following further information pertaining to the approaching completion of Oceana’s spin off from the group. On Friday morning, Tiger Brands was trading at R240.10 per share.
The medical sector continues to remain under pressure, as Life Healthcare was seen slipping over 8.00% (down around R25.00 per share on the day) on Wednesday on the back of a poor earnings numbers for the six months ending 31 March 2019. Added strain continues to flow toward the sector, as medical aid companies start to heavily address the high costs that patients incur within the walls of these medical institutions. Life Healthcare opened up Friday’s trading day at R26.47 per share, now almost flat for the year.
Some of April’s bigger movers on the JSE, as at Friday morning:
· EOH: up around 83.60%
· Telkom: up around 13.82%
· Bidvest: up around 11.97%
· Mr. Price: up around 10.65%
· Tiger Brands: down around 9.35%
· Life Healthcare: down around 2.32%
Year-to-date, the JSE All Share index is up 11.51% and the Top 40 up 12.29%, both trending up around 1.00% during the last two weeks. Sector-wise, the resource sector lost its top spot against the industrial sector over the last two weeks, as industrials have now returned 15.36% and resources 14.27% for the 2019 year so far. In last spot, SA financials have now returned 3.70% for the year.
THE WEEK AHEAD
Expect a bumpy ride for the rand, with a likelihood of R14.80 against the US dollar being targeted, should a sustainable break-out above R14.50 take place. Political noise will continue to flood most media platforms on the run up to the local elections, while the greater market will remain largely driven by global dynamics, with material focus being placed on both the US dollar and US economy specifically. Will the dollar shake off its bearish bluff? It tees us up for yet another interesting week.
On Friday morning the rand would’ve set investors back R14.37 per Greenback, R15.99 a euro and R18.53 a British pound.
GLOBAL DATA AND POLITICS
Globally, economic data remained fairly downtrodden, echoing the 2019 catchphrase of "slowing global growth”. The US, however, seemed to simply shrug those fears off, with the dollar gifting equity markets an assuring push, while on the currency-front, a stellar performance against the euro was seen, leading the dollar to its strongest levels since May 2017. The dollar performance is largely driven by strong data from the so-called economic powerhouse, while economic results from rivaling developed countries remained largely dampened.
Emerging markets experienced a fairly light data calendar for the week. While China released no data during this period, Turkey kept interest rates on hold at 24%. Russia is due to release their interest rate decision later today, with the market expecting the interest rate to remain unchanged at the current level of 7.75%.
South Africa released producer price index (PPI) figures on Thursday, indicating a rise of 6.20% year-on-year in March, from a previous 4.70% recorded in February. Main attributors to these numbers were increases seen in the price of diesel and grain-mill products, soaring by 15% and 13.30% respectively, while starches and animal feeds followed closely, with an increase of 11.90%.
The EU came under pressure this week, as the flurry of negative data continues to dampen overall sentiment. Consumer confidence once again declined in April, slipping from the previous -7.2 to -7.9, while the economic bulletin, published by the European Central Bank, remained dovish.
US POLITICS
Some of the key economic data points from the US this week included strong durable goods orders numbers, indicating an uptick of 0.40% month-on-month (MoM) during March, outperforming the expected 0.20%. Continuous jobless claims remained in line with labour market expectations at 1,655k, while new home sales accelerated by 4.50% (MoM) during March. Setting the tone for the dollar’s performance heading into the weekend, gross domestic product (GDP) data is due for release later today, with markets expecting a 2.00% growth rate for 2019’s first quarter.
While the Federal Reserve remains dovish, an undisputed fact still remains, US interest rates are still more competitive than that of their developed market rivals such as the EU, and with inflation remaining well within range, the chances of an interest rate cut during 2019 remains an unlikely scenario.
The US would simply not be the same if there wasn't at least one ongoing conflict with another country.
North Korea made their appearance back into the media’s scope, with new weapons being tested as a way to invoke reaction from the US, after talks of lifting sanctions imposed on the (not so) Democratic Republic of North Korea stalled. The tariff spat between the US and EU remains largely uneventful at this stage, while anticipated tightening of sanctions on Iran, coupled with quality-concerns regarding Russian oil imports, drove the oil prices higher.
US EQUITIES
Wednesday marked the return of new all-time highs on both S&P 500 and NASDAQ indices, with most investors now watching these new levels with awkward anticipation of what’s to come next. Better than expected earnings releases managed to breathe further life into the greater market, however. From here on out, it’s a question of whether positive conviction sticks and holds or, alternatively, the possibility of yet another November 2018-type move, where risk gets artificially pumped back into the market to cool the equity landscape down. The next few weeks will be interesting to watch indeed. Although mostly proven wrong, when looking at historical figures, will the old adage “sell in May and go away” come into effect?
When drilling down into actual company earnings releases, Twitter’s quarter one (Q1) earnings numbers came in stronger than most analyst expectations, assisting the stock in a 15% move on the day. Key figures seen coming out of Twitter’s Q1 release were as follows:
· Revenue came in at $787 million (18% increase) vs an expected $774 million.
· Net income for Q1 increased to $191 million, up from $61 million in 2018’s first quarter.
· Adjusted earnings per share came in at 37 cents per share vs an expected 15 cents.
· Users that could be monetized increased to 134 million vs the previous quarter’s 126 million users.
· Forward revenue guidance for Q2 has been pegged between $770 million and $830 million.
Lockheed Martin, Texas instruments and Hasbro joined Twitter in surprising analyst expectations to the upside, while Proctor Gamble quietly reported its healthiest quarterly sales growth, while profits increased to $2.75 billion for Q1 vs 2018’s corresponding quarter of $2.50 billion. These strong earnings, certainly astounding the wary mindset.
Earnings expected after hours on Thursday evening will see Amazon and Starbucks looking to keep the incredible US momentum going. Early indications pointed toward earnings beats for both companies for Q1.
FAANGs performance, for the month of April to-date:
· Facebook: up around 14.56% (up 5.85% on Thursday after strong Q1 earnings report)
· Amazon: up around 4.85%
· Apple: up around 7.34%
· Netflix: up around 0.37%
· Alphabet: up around 5.70%
Year-to-date, the Dow Jones is up around 13.44%, the NASDAQ: 22.36% and the S&P 500: 16.73%.
In South African rand-terms, add 0.08% to each of these return-figures to see what the South African investor could be up in 2019, with the currency-effect added.
COMMODITIES
Off the back of a quiet Easter weekend, Brent Crude oil and West Texas Intermediate (WTI) exploded out of the starting blocks on Monday morning, following Donald Trump’s insistence of other oil importing countries to halt any oil purchases out of Iran. Although the market is comfortably supplied with oil, in general, the ever-taunting shadow of sanctions seems to be keeping investors on their toes. With Brent now looking for a move up to $80.00 per barrel, one gets a sense that the steam will eventually cool down, and oil will retreat back down to trade within the $55.00 to $65.00 a barrel range.
Brent Crude opened Friday’s trading day at $74.17 per barrel (up 4.22% for the week), while WTI opened at $64.90 (up 2.19% for the week).
Following four-month-lows ($1,265.90 per fine ounce) recently seen on Monday, the Gold spot price edged slightly higher on Thursday’s trading day after weaker economic data continued to drip out of Europe and the far-east alike. Although the strong equity story continues to churn on the western front, the underlying worry of a slowing global economy has seen investors seeking safer investment havens in the likes of precious metals and hard currencies. For the moment, global investors continue to try and identify the perfect mix of elements that may set the market off in a convicted direction, be it good or bad. For now, it’s all too foggy to decipher.
Platinum (up 0.91%) and palladium (up 1.85%) remained relatively stable for the week.
On Friday morning, gold, platinum and palladium were trading at levels of around $1,275.50, $887.87 and $1,415.50 per fine ounce respectively.
SOUTH AFRICAN POLITICS
Locally, the week has remained fairly familiar within the political realms, with further inquiries into corrupt and questionable key office holders being undertaken, followed by recommendations of dismissal and potential prosecution, which ultimately lands up being finished off with a ‘dash of inaction’, once again.
While the Economist magazine shone light on Cyril Ramaphosa and his ‘pro-growth market’ stance on the run up upcoming election, one cannot help but be slightly on edge. Speculation is rife, with various conspiracy theories being born such as:
• the possible ousting of President Ramaphosa by the leftist faction of the National Election Commission (NEC), post-election;
• the unstable footing of President Ramaphosa within his own party, and whether he will be able to take firm action against those implicated in corruption and state capture following the election; and
• the possibility of Ramaphosa being part and parcel of the corruption within the African National Congress (ANC).
South Africans will be left with a tough decision, come the 8th of May, as the outcome could be crucial in driving the turnaround or slow decay of the local economy. The ANC is anticipated to remain in power, however the dynamics within the opposition parties, ranging from a potential split in the Democratic Alliance (DA), to the infamous flip-flopping of the Economic Freedom fighters (EFF), hinted with potential coalition agreements, could see the local political landscape change quite dramatically.
The strength of the rand witnessed over the past few weeks has largely been highlighted as unrealistic and unsustainable. The warning rang true this week, as the rand and other emerging market currencies rapidly lost ground against major hard-currencies. On Thursday the local unit slipped to its weakest levels since 29 March against the US dollar, to trade at R14.55. The rapid decline of the rand is largely due to the combination of a rise in oil prices, upbeat US data and an underperforming euro, while local factors such as poor fundamentals and the impending national election is doing its fair bit in adding pressure to the rand.
There is currently a strong bias for the rand to trade above the R14.50 mark against the dollar in the coming week, while periodic retracements to R14.30 can be expected.
SOUTH AFRICAN EQUITY
South African equity markets have been surprisingly strong, considering the weaker rand, against the US dollar, this week. There were however a few big losers among the crowd.
Following the class action recently taken against Tiger Brands in relation to the Listeriosis outbreak in 2018, the company’s share price was seen dropping another 5.00% on Wednesday’s trading day, following further information pertaining to the approaching completion of Oceana’s spin off from the group. On Friday morning, Tiger Brands was trading at R240.10 per share.
The medical sector continues to remain under pressure, as Life Healthcare was seen slipping over 8.00% (down around R25.00 per share on the day) on Wednesday on the back of a poor earnings numbers for the six months ending 31 March 2019. Added strain continues to flow toward the sector, as medical aid companies start to heavily address the high costs that patients incur within the walls of these medical institutions. Life Healthcare opened up Friday’s trading day at R26.47 per share, now almost flat for the year.
Some of April’s bigger movers on the JSE, as at Friday morning:
· EOH: up around 83.60%
· Telkom: up around 13.82%
· Bidvest: up around 11.97%
· Mr. Price: up around 10.65%
· Tiger Brands: down around 9.35%
· Life Healthcare: down around 2.32%
Year-to-date, the JSE All Share index is up 11.51% and the Top 40 up 12.29%, both trending up around 1.00% during the last two weeks. Sector-wise, the resource sector lost its top spot against the industrial sector over the last two weeks, as industrials have now returned 15.36% and resources 14.27% for the 2019 year so far. In last spot, SA financials have now returned 3.70% for the year.
THE WEEK AHEAD
Expect a bumpy ride for the rand, with a likelihood of R14.80 against the US dollar being targeted, should a sustainable break-out above R14.50 take place. Political noise will continue to flood most media platforms on the run up to the local elections, while the greater market will remain largely driven by global dynamics, with material focus being placed on both the US dollar and US economy specifically. Will the dollar shake off its bearish bluff? It tees us up for yet another interesting week.
On Friday morning the rand would’ve set investors back R14.37 per Greenback, R15.99 a euro and R18.53 a British pound.
So we will provide this weekly summary from Peregrine Treasury services, together with our Daily Investment Updates from PSG and we will continue to update our JSE Calendar Tracker Page daily with specific market and economic events readers should take note of.