|
Peregrine Treasury Services Weekly Market Wrap 5 April 2019
Date: 12 April 2019 Category: Stock Market |
Related Topics |
|
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.
|
|
Peregrine Treasury Services Weekly Wrap as at 12 April 2019
‘Recession’. The buzzword that seems to be making its rounds through global asset management meetings and conferences alike. As investors wait hesitantly, will it ever truly arrive? In October 2018, equity markets tried to prematurely price-in the ever-growing weight of a supposed recession, however, it didn’t seem to make an impact. Almost six months down the line, equity markets are trading at levels last seen before the rapid dip that took hold in October 2018, while many indicators still haven’t been materially flagging any form of recessionary warning. Yes, the global economy is slowing, and, yes, the political landscape may be a sight for sore eyes, but could worrying about tomorrow, when today has all but arrived, be the straw that breaks the camel’s back?
GLOBAL DATA AND POLITICS
Global economic activity, as a whole, is in relatively precarious state, and South Africa is no exception. This week saw local business confidence index slip once again to 91.8 points, from 93.4, in March. Gold production (-20.60%, year-on-year), mining production (-7.50%, YoY) and manufacturing production (-1.80%, month-on-month) all played in tune to a wavering economy.
Our English counterparts are mastering the art of kicking the can further down the road, as the 12 April 2019 deadline, once again, gets pushed out to 31 October 2019. The frustration in the United Kingdom is palpable, with the uncertainty casting a growing shadow over any form of economic endeavour. The trade balance deficit (non-European Union) accelerated in February by more than expected, expanding to GBP5.84 billion, while gross domestic product (GDP) accelerated to 2.00% year-on-year. Consumer price index (CPI) in China remained flat at 2.30% YoY, while producer price index (PPI) numbers accelerated by 0.40% during the same period.
US POLITICS
A sense of caution remains firmly rooted within the US economy, as growth prospects continue to raise wider-spread concern. JOLTS job openings for February undershot its target coming in at 7.08 million from a previous 7.62 million, while real earnings remained flat. CPI numbers ticked up year-on-year, coming in at 1.90% from a previous 1.80%, while initial jobless claims surprised the market with a stronger-than-expected figure of 196,000 versus analyst expectations of 211,000.
The Federal Reserve maintained its dovish stance on the US economy, stating that as the progression of the economy’s outlook continues to morph under global pressures, the likelihood of rates staying within its target range for the remainder of the year looks probable. Having said this, it would be remiss to leave out the fact that there are still some small factions within the central bank that favour the prospects of a more aggressive inflationary stance. This will definitely be interesting to watch, as the year plays out.
US EQUITIES
Reaching levels last seen in October 2018, before the mini month-long crash (down 20.03%), the S&P 500, Dow Jones and Nasdaq all look to persuade investors into believing that the market is indeed ready for the next leg up, over the next few trading weeks. With global markets, in general, starting to tread lightly at these levels, the next month or so is sure to be packed with excitement, as investors gaze hesitantly at the abstract picture that’s being painted.
All-in-all, a weaker trading week was seen on US shores, with the technology sector still providing support to the greater US equity market. While the moves weren’t massive, a decent amount of ‘give and take’ was seen within the tech sector, leading to a relatively stationary week.
FAANGs performance, for the month of April to-date:
COMMODITIES
With the Oil and Petroleum Exporting Countries (OPEC) living up to their promise of managing the production and output of oil in a downward manner, analysts are starting to revise their target prices for both Brent Crude and West Texas Intermediate (WTI) in an upward fashion. On the flip side of this, the US are now effectively the second biggest producer of oil, ramping up their outputs to almost record levels, while adding many a job to the job market.
With almost a perfect storm starting to play out in the oil markets, due to geopolitical risks, a generally weaker global outlook, lower oil output and rising demand, both Brent and WTI have potentially been gifted some extra room to run in 2019. Royal Bank of Canada’s Capital Markets team was recently seen revising their target prices of oil up to $75.00 a barrel and $67.00 and barrel for Brent Crude and WTI, respectively, for 2019. Whispers in the market have even alluded to a round number of $80.00 per barrel of Brent Crude oil in the coming months. On Friday, Brent Crude opened the trading day at $70.00 per barrel, while WTI opened at $63.77. After US PPI numbers beat expectations for March, gold was seen tumbling under the psychological $1,300 an ounce level on Thursday’s trading day. Although this reaction seemed quite drastic, it’s important for the investor to note how stable the price of gold has been in 2019.
With the debate of platinum vs palladium being thrown around many asset management tables for the last 12 months, it seems as if palladium may have the upper hand in the longer run, as many manufacturers tend to be less than willing to spend money on converting back to platinum, as a core material, at this stage in the economic cycle. This may play out to be a dismal story for platinum in the longer run, as the world rapidly approaches a new era of electric vehicles and alternative technologies. On Friday morning, gold, platinum and palladium were trading at levels of around $1,292.13, $892.54 and $1,372.75 per fine ounce respectively.
SOUTH AFRICAN POLITICS
An unexpected rally of the South African rand, against the US dollar, took the market by storm this week, lending many locally listed rand-revenue-generating companies a helping hand. Although the local currency has been largely stable, while showing signs strength, the currency’s six-week-high against the US dollar, took even the biggest of rand-bulls by surprise. In the undertow, the local environment remains all but sound. As each trading day passes, the local political landscape seems to be raising the curtain on even more undesirable information associated with the ever spreading atrophy among well-respected members of the African National Congress (ANC), such as Ace Magashule. One cannot help but wonder when reality will finally catch up with the local currency.
A mere four weeks away from the national election, the rand remains largely driven by global factors, with very little attention being paid to South Africa’s stormy political situation, as well as the continual release of slow-to-idle economic data. Key events contributing to the pro-emerging market environment can be attributed to the United States and China reaching the final stages of their trade negotiations, while the ripples of grace emanating from Moody’s credit rating agency’s announcement enticed global yield seekers to briefly venture toward the local currency as a proxy for emerging market exposure. The enduring strength found in the commodity sector in 2019 also played its part in bolstering the emerging market environment this week.
After being fairly fastened between the R14.12 to R14.20 range against the US dollar, without any major conviction either side of this, the rand managed to finally push lower, breaking through the key R14.00 mark on Wednesday, spurred on by expectations of a dovish Federal Reserve announcement. The rally however struggled to keep the momentum going, trading as low as R13.89 before returning to the R14.00 mark on Thursday.
SOUTH AFRICAN EQUITY
Equity markets remained surprisingly stable this week, with the resource sector taking its foot off the accelerator. The industrial sector moved around 2.00% higher during the course of the week, mainly due to the rand strength that slowly dripped into the market on Tuesday. When looking at the fairly priced financial sector, the action that was expected to flow from a strengthening rand (weakening US dollar) didn’t tend to follow through in the most convincing way, however the underlying essence of the stronger currency propped the sector up by around 1.00% for the trading week. After stripping around 2.00% for the year-to-date, two weeks back, from investors’ pockets, it’s great to have seen the five-plus percent recovery in the financial sector since then.
Steinhoff continues to grab the attention of shareholders, as news of the Financial Sector Conduct Authority’s (FSCA) inspection into R418 million worth of Steinhoff shares traded before the collapse came to a close. Amazingly, no flags were raised during the three reports released so far, however investigations will continue to be carried out on a remaining figure of R46 million worth of shares traded before Steinhoff’s catastrophic collapse on 4 December 2017. The damage has already been done to investors. Any new light shed on the Steinhoff saga will simply bring about a sense of clarity and closure to those effected by the tragic fall. Steinhoff opened Friday’s trading day at R1.76 per share.
Although the resource sector has enjoyed a mix of stronger underlying metal prices, as well as a slowing global economy (capturing the sights of opportunistic investors), this week saw SA’s largest gold producer, Sibanye Gold, attempting to take a shot at clearing some of its roughly R21.3 billion debt pile by raising cash through a share placement and working on restructuring plans. Hampered by recent mining strikes, which cost the company in the region of around R17 million per day (aggregate-to-date: around R1.5 billion), Sibanye are scrapping it out as best they can in a challenging economy. Sibanye opened Friday’s trading day at R14.18 per share – this, around 20.00% lower than the week’s opening price of around R17.00 per share.
Some of April’s bigger movers on the JSE, as at Friday morning:
THE WEEK AHEAD
Volatility has certainly increased this week, while data has remained lacklustre. While the rand is basking in its recent rally, one should caution against getting too excited too quickly, as the local environment remains largely unsupportive of a strong rand, especially taking into consideration that the risk of laodshedding has once again crept in to local news headlines as of Thursday. Although China and the US seem to be approaching some form of conclusion on the trade talks, the global trade dynamic remains on shaky ground. The implementation and enforcement of whatever may come of these trade talks will be no easy task. With his sights set on a new trade enemy, Donald Trump’s threat of a potential USD11 billion in tariffs, placed on the European Union, will heavily weigh on the trade relations between the two continents in the coming months. The week ahead is expected to remain just as volatile as the one we’ve just seen the back of.
After strengthening around 2.55% against the US dollar for 2019 so far, on Friday morning the rand would’ve set investors back R13.98 per Greenback, R15.79 a euro and R18.29 a British pound.
GLOBAL DATA AND POLITICS
Global economic activity, as a whole, is in relatively precarious state, and South Africa is no exception. This week saw local business confidence index slip once again to 91.8 points, from 93.4, in March. Gold production (-20.60%, year-on-year), mining production (-7.50%, YoY) and manufacturing production (-1.80%, month-on-month) all played in tune to a wavering economy.
Our English counterparts are mastering the art of kicking the can further down the road, as the 12 April 2019 deadline, once again, gets pushed out to 31 October 2019. The frustration in the United Kingdom is palpable, with the uncertainty casting a growing shadow over any form of economic endeavour. The trade balance deficit (non-European Union) accelerated in February by more than expected, expanding to GBP5.84 billion, while gross domestic product (GDP) accelerated to 2.00% year-on-year. Consumer price index (CPI) in China remained flat at 2.30% YoY, while producer price index (PPI) numbers accelerated by 0.40% during the same period.
US POLITICS
A sense of caution remains firmly rooted within the US economy, as growth prospects continue to raise wider-spread concern. JOLTS job openings for February undershot its target coming in at 7.08 million from a previous 7.62 million, while real earnings remained flat. CPI numbers ticked up year-on-year, coming in at 1.90% from a previous 1.80%, while initial jobless claims surprised the market with a stronger-than-expected figure of 196,000 versus analyst expectations of 211,000.
The Federal Reserve maintained its dovish stance on the US economy, stating that as the progression of the economy’s outlook continues to morph under global pressures, the likelihood of rates staying within its target range for the remainder of the year looks probable. Having said this, it would be remiss to leave out the fact that there are still some small factions within the central bank that favour the prospects of a more aggressive inflationary stance. This will definitely be interesting to watch, as the year plays out.
US EQUITIES
Reaching levels last seen in October 2018, before the mini month-long crash (down 20.03%), the S&P 500, Dow Jones and Nasdaq all look to persuade investors into believing that the market is indeed ready for the next leg up, over the next few trading weeks. With global markets, in general, starting to tread lightly at these levels, the next month or so is sure to be packed with excitement, as investors gaze hesitantly at the abstract picture that’s being painted.
All-in-all, a weaker trading week was seen on US shores, with the technology sector still providing support to the greater US equity market. While the moves weren’t massive, a decent amount of ‘give and take’ was seen within the tech sector, leading to a relatively stationary week.
FAANGs performance, for the month of April to-date:
- Facebook: up around 5.22%
- Amazon: up around 1.65%
- Apple: up around 4.03%
- Netflix: up around 0.19%
- Alphabet: up around 0.85%
COMMODITIES
With the Oil and Petroleum Exporting Countries (OPEC) living up to their promise of managing the production and output of oil in a downward manner, analysts are starting to revise their target prices for both Brent Crude and West Texas Intermediate (WTI) in an upward fashion. On the flip side of this, the US are now effectively the second biggest producer of oil, ramping up their outputs to almost record levels, while adding many a job to the job market.
With almost a perfect storm starting to play out in the oil markets, due to geopolitical risks, a generally weaker global outlook, lower oil output and rising demand, both Brent and WTI have potentially been gifted some extra room to run in 2019. Royal Bank of Canada’s Capital Markets team was recently seen revising their target prices of oil up to $75.00 a barrel and $67.00 and barrel for Brent Crude and WTI, respectively, for 2019. Whispers in the market have even alluded to a round number of $80.00 per barrel of Brent Crude oil in the coming months. On Friday, Brent Crude opened the trading day at $70.00 per barrel, while WTI opened at $63.77. After US PPI numbers beat expectations for March, gold was seen tumbling under the psychological $1,300 an ounce level on Thursday’s trading day. Although this reaction seemed quite drastic, it’s important for the investor to note how stable the price of gold has been in 2019.
With the debate of platinum vs palladium being thrown around many asset management tables for the last 12 months, it seems as if palladium may have the upper hand in the longer run, as many manufacturers tend to be less than willing to spend money on converting back to platinum, as a core material, at this stage in the economic cycle. This may play out to be a dismal story for platinum in the longer run, as the world rapidly approaches a new era of electric vehicles and alternative technologies. On Friday morning, gold, platinum and palladium were trading at levels of around $1,292.13, $892.54 and $1,372.75 per fine ounce respectively.
SOUTH AFRICAN POLITICS
An unexpected rally of the South African rand, against the US dollar, took the market by storm this week, lending many locally listed rand-revenue-generating companies a helping hand. Although the local currency has been largely stable, while showing signs strength, the currency’s six-week-high against the US dollar, took even the biggest of rand-bulls by surprise. In the undertow, the local environment remains all but sound. As each trading day passes, the local political landscape seems to be raising the curtain on even more undesirable information associated with the ever spreading atrophy among well-respected members of the African National Congress (ANC), such as Ace Magashule. One cannot help but wonder when reality will finally catch up with the local currency.
A mere four weeks away from the national election, the rand remains largely driven by global factors, with very little attention being paid to South Africa’s stormy political situation, as well as the continual release of slow-to-idle economic data. Key events contributing to the pro-emerging market environment can be attributed to the United States and China reaching the final stages of their trade negotiations, while the ripples of grace emanating from Moody’s credit rating agency’s announcement enticed global yield seekers to briefly venture toward the local currency as a proxy for emerging market exposure. The enduring strength found in the commodity sector in 2019 also played its part in bolstering the emerging market environment this week.
After being fairly fastened between the R14.12 to R14.20 range against the US dollar, without any major conviction either side of this, the rand managed to finally push lower, breaking through the key R14.00 mark on Wednesday, spurred on by expectations of a dovish Federal Reserve announcement. The rally however struggled to keep the momentum going, trading as low as R13.89 before returning to the R14.00 mark on Thursday.
SOUTH AFRICAN EQUITY
Equity markets remained surprisingly stable this week, with the resource sector taking its foot off the accelerator. The industrial sector moved around 2.00% higher during the course of the week, mainly due to the rand strength that slowly dripped into the market on Tuesday. When looking at the fairly priced financial sector, the action that was expected to flow from a strengthening rand (weakening US dollar) didn’t tend to follow through in the most convincing way, however the underlying essence of the stronger currency propped the sector up by around 1.00% for the trading week. After stripping around 2.00% for the year-to-date, two weeks back, from investors’ pockets, it’s great to have seen the five-plus percent recovery in the financial sector since then.
Steinhoff continues to grab the attention of shareholders, as news of the Financial Sector Conduct Authority’s (FSCA) inspection into R418 million worth of Steinhoff shares traded before the collapse came to a close. Amazingly, no flags were raised during the three reports released so far, however investigations will continue to be carried out on a remaining figure of R46 million worth of shares traded before Steinhoff’s catastrophic collapse on 4 December 2017. The damage has already been done to investors. Any new light shed on the Steinhoff saga will simply bring about a sense of clarity and closure to those effected by the tragic fall. Steinhoff opened Friday’s trading day at R1.76 per share.
Although the resource sector has enjoyed a mix of stronger underlying metal prices, as well as a slowing global economy (capturing the sights of opportunistic investors), this week saw SA’s largest gold producer, Sibanye Gold, attempting to take a shot at clearing some of its roughly R21.3 billion debt pile by raising cash through a share placement and working on restructuring plans. Hampered by recent mining strikes, which cost the company in the region of around R17 million per day (aggregate-to-date: around R1.5 billion), Sibanye are scrapping it out as best they can in a challenging economy. Sibanye opened Friday’s trading day at R14.18 per share – this, around 20.00% lower than the week’s opening price of around R17.00 per share.
Some of April’s bigger movers on the JSE, as at Friday morning:
- Mr Price: up around 9.83%
- Bidvest: up around 8.60%
- Kumba Iron Ore: up around 8.10%
- Barloworld: up around 7.24%
- Sibanye Gold: down around 12.33% (and around 20.00% for the week) after a 5.00% share placement was executed through an accelerated book build.
THE WEEK AHEAD
Volatility has certainly increased this week, while data has remained lacklustre. While the rand is basking in its recent rally, one should caution against getting too excited too quickly, as the local environment remains largely unsupportive of a strong rand, especially taking into consideration that the risk of laodshedding has once again crept in to local news headlines as of Thursday. Although China and the US seem to be approaching some form of conclusion on the trade talks, the global trade dynamic remains on shaky ground. The implementation and enforcement of whatever may come of these trade talks will be no easy task. With his sights set on a new trade enemy, Donald Trump’s threat of a potential USD11 billion in tariffs, placed on the European Union, will heavily weigh on the trade relations between the two continents in the coming months. The week ahead is expected to remain just as volatile as the one we’ve just seen the back of.
After strengthening around 2.55% against the US dollar for 2019 so far, on Friday morning the rand would’ve set investors back R13.98 per Greenback, R15.79 a euro and R18.29 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.
Pick 'n Pay provided a trading update that gave the markets hope that the worst is over for the struggling retail sector, in which retailers have seen sales and margins declining as consumers cut back and bargain hunts a bit more during tough economic times. The day their trading update was released Pick 'n Pay shares shot up by 4%. See more on Pick 'n Pay's share price here.
Pick 'n Pay provided a trading update that gave the markets hope that the worst is over for the struggling retail sector, in which retailers have seen sales and margins declining as consumers cut back and bargain hunts a bit more during tough economic times. The day their trading update was released Pick 'n Pay shares shot up by 4%. See more on Pick 'n Pay's share price here.