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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 11 October 2019
The entire year thus far has been littered with the repetition of a few key narratives, with comments such as “risk-on”, “risk-off” and “sentiment” being thrown around like confetti on a daily basis. At the same time, triggers such as the trade war, US Fed interest rate cuts, quantitative easing and global economic slowdown throw the market into a frenzy.
The status quo however is not only the case on a global scale. Locally we face the same: Eskom, bailouts, sluggish economic growth and policy uncertainty all remain key concerns.
Global economies slowing
Unfortunately politicians have continued to dominate the field, with politics playing a bigger role now than ever before. Boris Johnson, Donald Trump and even our own Cyril Ramaphosa, all have great influence over the world around us. Starting with the infamous Donald Trump, controversy seems to follow him everywhere he goes. Over the past 15 months, the trade war has had a dire effect on the global economy as a whole, with uncertainty sending waves throughout the financial markets, and it seems as though the trend is now finally catching up with the US too.
The Purchasing Price Index (PPI) slowed to 2% year-on-year in September, undershooting the forecasted 2.3%, while JOLTs job openings also undershot, amounted to 7.051m. Jobless claims released on Thursday amounted to 210k, while CPI reached 1.7% year-on-year in September. The FOMC minutes, delivered by Jerome Powell, kept the door open for another interest rate cut towards the end of this month, while the balance sheet will be expanded to ensure sufficient financial market liquidity.
The UK is still deadlocked in the Brexit debacle, with PM Boris Johnson telling Germany’s Angela Merkel that a deal between the EU and the UK is impossible, should the EU demand for Northern Ireland to remain in the bloc. With the talks once again reaching the point of collapse, a postponement and potentially even a new referendum is now on the cards. UK GDP outperformed expectations coming in at 1.1% year-on-year while both manufacturing and industrial production slumped by 1.7% and 1.8% year-on-year respectively in August.
Stringent bailout conditions for Eskom
Eskom has been one of the key talking points, with the restructure, bailout and sustainability being just a few topics that have been heavily debated in recent months. On Wednesday, the public finally caught a glimpse of the Eskom rescue plan that entails a R59bn government bailout which is subject to 28 conditions. Some of the main conditions include:
As the mid-term budget speech rapidly approaches, more questions regarding the ability of the fiscus to continue meeting obligations, inflated wage bills and the sustainability of SOEs arise on a daily basis. This week saw the World Bank cut its South African growth forecast again, this time by 0.5%. Growth is now pegged at 0.8% for 2019, unchanged from 2018, with poor sentiment and policy uncertainty being highlighted as two of the key drivers for the downward adjustment.
Mining and gold production for August remained in negative territory, slipping by 3.2% and 5.4% respectively. Manufacturing on the other hand outperformed expectations, gaining 1.3% month-on-month. The rand had sustained a move above R15.00/$, despite revived expectations of a Fed interest rate cut, speaking to the uncertainty looming in the market. However, Thursday saw the unit strengthen as optimism flared up ahead of the fresh round of Sino-US trade talks due to kick off on Friday.
US to lead the markets
Markets will keep a close eye on the renewed trade talks and their outcome. We will also be keeping an ear on the ground for any additional information on the Trump impeachment process – as well as his attempts to deflect attention – that is sure to affect markets in the coming weeks and months.
The headline data for the coming week is Chinese GDP followed by Chinese and European CPI, while retail sales are due both locally and in the US.
Pressure on the rand remains, while a range of R15.03-R15.25 remains in place for the week ahead. The bias, however, is largely still leaning towards rand weakness considering the risk at play in the market, while a favourable outcome from the Fed could see the rand make some short-term gains.
The rand started the day trading at R15.03/$, R16.56/€, R18.70/£, and R4.18/
The status quo however is not only the case on a global scale. Locally we face the same: Eskom, bailouts, sluggish economic growth and policy uncertainty all remain key concerns.
Global economies slowing
Unfortunately politicians have continued to dominate the field, with politics playing a bigger role now than ever before. Boris Johnson, Donald Trump and even our own Cyril Ramaphosa, all have great influence over the world around us. Starting with the infamous Donald Trump, controversy seems to follow him everywhere he goes. Over the past 15 months, the trade war has had a dire effect on the global economy as a whole, with uncertainty sending waves throughout the financial markets, and it seems as though the trend is now finally catching up with the US too.
The Purchasing Price Index (PPI) slowed to 2% year-on-year in September, undershooting the forecasted 2.3%, while JOLTs job openings also undershot, amounted to 7.051m. Jobless claims released on Thursday amounted to 210k, while CPI reached 1.7% year-on-year in September. The FOMC minutes, delivered by Jerome Powell, kept the door open for another interest rate cut towards the end of this month, while the balance sheet will be expanded to ensure sufficient financial market liquidity.
The UK is still deadlocked in the Brexit debacle, with PM Boris Johnson telling Germany’s Angela Merkel that a deal between the EU and the UK is impossible, should the EU demand for Northern Ireland to remain in the bloc. With the talks once again reaching the point of collapse, a postponement and potentially even a new referendum is now on the cards. UK GDP outperformed expectations coming in at 1.1% year-on-year while both manufacturing and industrial production slumped by 1.7% and 1.8% year-on-year respectively in August.
Stringent bailout conditions for Eskom
Eskom has been one of the key talking points, with the restructure, bailout and sustainability being just a few topics that have been heavily debated in recent months. On Wednesday, the public finally caught a glimpse of the Eskom rescue plan that entails a R59bn government bailout which is subject to 28 conditions. Some of the main conditions include:
- The recovery of all debt owed by municipalities, corporations and departments, including the massive outstanding electricity bill of Soweto;
- No incentive bonuses will be paid as long as the bailout conditions are in place;
- An action plan needs to be put in place to reduce the cost of coal and diesel;
- Daily cash reserve reporting;
- Monthly management reports.
As the mid-term budget speech rapidly approaches, more questions regarding the ability of the fiscus to continue meeting obligations, inflated wage bills and the sustainability of SOEs arise on a daily basis. This week saw the World Bank cut its South African growth forecast again, this time by 0.5%. Growth is now pegged at 0.8% for 2019, unchanged from 2018, with poor sentiment and policy uncertainty being highlighted as two of the key drivers for the downward adjustment.
Mining and gold production for August remained in negative territory, slipping by 3.2% and 5.4% respectively. Manufacturing on the other hand outperformed expectations, gaining 1.3% month-on-month. The rand had sustained a move above R15.00/$, despite revived expectations of a Fed interest rate cut, speaking to the uncertainty looming in the market. However, Thursday saw the unit strengthen as optimism flared up ahead of the fresh round of Sino-US trade talks due to kick off on Friday.
US to lead the markets
Markets will keep a close eye on the renewed trade talks and their outcome. We will also be keeping an ear on the ground for any additional information on the Trump impeachment process – as well as his attempts to deflect attention – that is sure to affect markets in the coming weeks and months.
The headline data for the coming week is Chinese GDP followed by Chinese and European CPI, while retail sales are due both locally and in the US.
Pressure on the rand remains, while a range of R15.03-R15.25 remains in place for the week ahead. The bias, however, is largely still leaning towards rand weakness considering the risk at play in the market, while a favourable outcome from the Fed could see the rand make some short-term gains.
The rand started the day trading at R15.03/$, R16.56/€, R18.70/£, and R4.18/
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Our highlight for the week:
Our highlight of the week is the latest financial results of financial services group, PSG Konsult for the 6 months ended 31 August 2019
SALIENT FEATURES
• Recurring headline earnings per share increased by 8% to 23.2 cents per share
• Interim dividend per share increased by 7% to 7.5 cents per share
• Total assets under management decreased by 1% to R228bn
• Gross written premium increased by 35% to R2.7bn PSG Konsult achieved a solid 8% growth in recurring headline earnings per share and generated a return on equity of 20.2%, despite difficult business conditions.
No performance fees were generated during the current period, compared to the prior period where performance fees constituted 4.6% of headline earnings. PSG Konsult and its subsidiaries (“the group”) continued its investment in technology and people.
With R228 billion in assets under management PSG Konsult is about a third the size of Coronation Fund Managers in terms of assets under management.
• Recurring headline earnings per share increased by 8% to 23.2 cents per share
• Interim dividend per share increased by 7% to 7.5 cents per share
• Total assets under management decreased by 1% to R228bn
• Gross written premium increased by 35% to R2.7bn PSG Konsult achieved a solid 8% growth in recurring headline earnings per share and generated a return on equity of 20.2%, despite difficult business conditions.
No performance fees were generated during the current period, compared to the prior period where performance fees constituted 4.6% of headline earnings. PSG Konsult and its subsidiaries (“the group”) continued its investment in technology and people.
With R228 billion in assets under management PSG Konsult is about a third the size of Coronation Fund Managers in terms of assets under management.