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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 13 September 2019
South Africa seems to be star-struck by the recent moves seen in global markets, as most unexpected elements have slowly started falling in favour of the rand. The last two trading weeks has seen the greater developed market turn from skittish, and risk averse, to an emerging market dream. Factors ranging from a brief truce between the United States (US) and China, all the way to monetary easing by central banks are all weighing in on the exceptional performance seen in emerging markets, although South Africa is still far from calm waters.
GLOBAL DATA AND POLITICS
Trade war tensions eased this week, as the US agreed to once again sit with China in October in order to further negotiate trade agreements. The truce came as a welcomed relief, after months of tension between the two countries sent market sentiment in to a tail spin. JOLTS job openings numbers in the US, this week, underperformed, coming in at 7,21 million (versus and expected 7.31 million), while producer price index (PPI) numbers accelerated marginally by 1.8% year-on-year (YoY) in August. US consumer price index (CPI) numbers remained fairly flat at 1.7% during the same period, with initial jobless claims decreasing to 204,000 for the week. Retail sales, as well as import and export price index numbers, are due for release on Friday.
Subdued economic growth in the European Union (EU) caused wide spread anticipation of quantitative easing by the region’s central bank. On Thursday, the move by the ECB to decrease interest rates by 10 basis points, saw the euro fall under additional pressure, while the ECB’s president, Mario Draghi, announced that quantitative easing (ECB buying back government issued bonds, that will in effect push money back into the European economy) will restart in November in an attempt to stimulate the strained economy. Industrial production for the region decelerated by 2% YoY in July, while trade balance and wage data is scheduled for release on Friday.
It seems as if Donald Trump and Boris Johnson are in continual competition to make media headlines. The prime minister is once again on the controversial side of the coin, as rumors of lying to, and potentially misleading, the Queen over the parliamentary suspension made its way to the press. A small victory for Johnson was seen this week however, as the court ruled that a no-deal Brexit would not violate the peace accord in Northern Ireland. July saw an improvement in the U.K.’s trade balance to -GBP9.14 billion (expected GBP9.6 billion). Construction output YoY improved in July to 0.3%, while manufacturing production also performed better-than-expected, decreasing by 0.6% YoY in July, compared to the expectation of a contraction of 1.1%. Gross domestic product (GDP) indicated flat line growth quarter-on-quarter, with unemployment remaining flat at 3.8%.
Meanwhile, the Chinese economy has been feeling the pinch of an ongoing tariff tiff with the US, while recent protests in Hong Kong has been a massive social factor added to the uncertainty. This week saw PPI YoY for August at -0.8% (expected: -0.9%), while inflation remained flat at 2.8% during the same period. Vehicle sales disappointed, dropping by 6.9% YoY in August, followed by decline in foreign domestic investment numbers from a previous 7.3% to 6.9% for August.
Sticking to emerging markets, we move over to Turkey where a relatively large interest rate cut saw rates decrease from 19.75% to 16.5%. The current account moved into a deficit, reporting a shortfall of $550 million in July, while the struggling economy saw a decline in industrial production of 3.9% (expected: decline of 2.7%) YoY in July.
US EQUITIES
US equity markets advanced higher this week, after China announced that they’d graciously exempt 16 categories of US products from further tariff increases. These exemptions on products like various lubricants, oils, cancer medication and livestock feed will remain in place until 17 September 2020.
As a gesture of goodwill, Trump was seen tweeting that the US would push-out their own further tariffs on $250 billion worth of Chinese products to the 15th of October vs the initially intended implementation date of 1 October 2019. Although the trade war seems to be simmering down, the general investor should remain wary of accepting this small gesture as a predictor of what’s to come. By now, the investor should know how reactionary and volatile Trump can be, changing his tactics and mood towards the trade war in the flick of a tweet.
Another factor which added flare to both Asian and US indices on Thursday was the ECB’s decision to start another round of stimulus. Could it be that the ‘powers that be’ want the world to rally into 2020? With all three US indices enticingly close to their all-time highs again, the thought might not be too far-fetched.
US earnings this week focused primarily on the various airlines within the country, namely Delta Airlines (DAL), United Airlines (UAL) and American Airlines (AAL). Both DAL and UAL surprised during quarter two (Q2), with DAL reporting stronger-than-expected top-line revenue, while UAL announced that they have more available seat miles.
AAL, on the other hand, reported extremely positive numbers for Q2. Some of these numbers can be seen below:
Since last Friday morning, equity markets have attempted to scrape back some losses with performance for the week currently around:
FAANGs performance for the week, so far:
COMMODITIES
With slowing global growth being written clearly in the numbers, the demand for oil seems to be dropping. With this lack of growth, what use would all the oil inventories serve if there’s nothing to build, grow and expand? The world is also cutting back on plastics, which has oil as one of its underlying components.
This week one could see the worrying drag of growth in China’s car sales numbers for the first half of the year affecting many economic numbers, falling 13% compared to last year’s corresponding period. India also saw a 41% drop in their vehicle sales in August, compared to last year. The main reason for the volatile oil price this week was mainly attributed to the firing of national security adviser, John Bolton, which sent both Brent Crude and WTI stumbling by more than 2%. Bolton was one of the more material reasons that the US and Iran battled to get along. A long road ahead awaits the price of oil, especially with demand being stripped off the market weekly.
Brent Crude opened Friday’s trading day at $60.38 per barrel, while US West Texas Intermediate (WTI) opened at $55.09. Precious metals had a relatively stable week, with no major news making headlines. The uncertainty surrounding the US China trade war has investors double-thinking their level of use of safe haven investments. Should the friction between the countries die down dramatically, one would naturally like to rather ride the wave of risk-on equities versus being trapped in a safe harbor. On Friday morning, gold, platinum and palladium were trading at levels of around $1,497.27, $948.82 and $1,608.63 per fine ounce respectively.
SOUTH AFRICAN FUNDAMENTALS
Locally, the landscape remains unchanged, with many unwanted tensions being left to brew. Johannesburg’s financial hub, Sandton, is due for a complete shutdown on Friday as a result of a protest against gender-based violence. The Zondo Commission managed to turn quite comical, and entertaining to be frank, as Hlaudi Motsoeneng took the stand to face various questions asked, regarding his tenure at the South African Broadcast Services (SABC). While the depth of state capture remains gut-wrenching to listen to, the general public cannot help but struggle to take anything Motsoeneng says seriously.
As South African’s, the citizens have become quite accustomed to the abundant violence taking place on the country’s beautiful soil. The abhorrence has become part-and-parcel of everyday life. On Thursday, crime statistics once again reminded the general citizen of the dire situation the country faces in the fight against crime. Police Minister, Beke Cele, expressed his concern specifically on the 3.4% increase in murders, coming in at a total of 21,022, of which 1,014 were children. Cele committed to improving policing, as well as facilities at police stations, however no clear plan is in place to address the compounding crime-rate witnessed in South Africa.
Moving over to economic data, manufacturing numbers remain under pressure, adding 0.4% month-on-month in July, undershooting expectations of 1.2%, while business confidence continues to decline, reaching 89.1 points in August. On Thursday mining production numbers for July indicated a 2.4% increase, while gold production lost 13.1% YoY in August.
With the local environment in a large amount of turmoil, it’s becoming quite clear that the rally of the rand is in no way a result of local elements. The rally witnessed in the rand over the past two weeks can be attributed to two key global elements that seem to be driving risk appetite.
SOUTH AFRICAN EQUITY
Closer to home, SA equities experienced a relatively robust week, supported mainly by a stronger local currency and the small instance of hope emanating from the small good-will gestures made between US China within their trade war. Although global factors played a massive role in the moves seen within SA equity markets this week, there were definitely one or two interesting company movements that seemed to grab the spotlight.
On Wednesday morning, Naspers (NPN) was seen dropping around 32% upon open – this, however, only due to the unbundling and listing of its consumer internet company, Prosus (PRX), on Amsterdam’s Euronext stock exchange. PRX is now officially the largest listed consumer internet company in Europe, with operations and investments totaling more than $100 billion. The unbundling saw NPN closing Wednesday’s trading day at R2,465.00 per share (down from R3,513.00 on open). PRX closed its first trading day at R1,202.65. NPN, as a group, up around 4% on the day. NPN now only represents around 15% weight on the JSE All Share index, down from around 21.12% before the unbundling. NPN and PRX opened Friday’s trading day at R2,519.98 and R1,168.00 respectively.
After having had a relatively tough year so far, dropping 49% between January and August 2019, Aspen Pharmacare seems to be turning the corner, with major focus being placed on settling the large debt-pile the company has. The release of their results for the financial year ending 30 June 2019, saw investors definitely seeing the company in a more positive light. Some key figures were as follows:
Similarly to Aspen, Famous Brands has also found themselves in a tricky situation after their overvalued 2016 acquisition of the Gourmet Burger Kitchen (GBK), in the U.K., continues to create a financial drag on the company, as a whole. The group announced that system-wide sales numbers for the GBK business decreased by 12.5% for the six months ending 31 August 2019. Main reason for this sales drop was actually the closure of stores and not the actual burger sales, which actually increased for the period by 8.6%, where the same corresponding period in 2018 saw a 9.7% decrease in actual burger sales.
For September, so far:
THE WEEK AHEAD
The week ahead will see the focus shift toward the interest decision by the Federal Reserve, as well as South Africa’s Reserve Bank’s Monetary Policy Commission (MPC), taking place on the 18th and 19th of September respectively. From a data perspective the greater investor should keep an eye on Chinese and US production numbers, while CPI numbers from South Africa’s point-of-view will assist in setting the tone for the MPC interest rate decision.
With the rand managing to break below key technical levels this week, a leg lower in terms of range becomes applicable, with a new range of R14.50 - R14.70 against the US dollar being anticipated. The rand started the day trading at R14.59/$, R16.15/€ and R18.01/£
GLOBAL DATA AND POLITICS
Trade war tensions eased this week, as the US agreed to once again sit with China in October in order to further negotiate trade agreements. The truce came as a welcomed relief, after months of tension between the two countries sent market sentiment in to a tail spin. JOLTS job openings numbers in the US, this week, underperformed, coming in at 7,21 million (versus and expected 7.31 million), while producer price index (PPI) numbers accelerated marginally by 1.8% year-on-year (YoY) in August. US consumer price index (CPI) numbers remained fairly flat at 1.7% during the same period, with initial jobless claims decreasing to 204,000 for the week. Retail sales, as well as import and export price index numbers, are due for release on Friday.
Subdued economic growth in the European Union (EU) caused wide spread anticipation of quantitative easing by the region’s central bank. On Thursday, the move by the ECB to decrease interest rates by 10 basis points, saw the euro fall under additional pressure, while the ECB’s president, Mario Draghi, announced that quantitative easing (ECB buying back government issued bonds, that will in effect push money back into the European economy) will restart in November in an attempt to stimulate the strained economy. Industrial production for the region decelerated by 2% YoY in July, while trade balance and wage data is scheduled for release on Friday.
It seems as if Donald Trump and Boris Johnson are in continual competition to make media headlines. The prime minister is once again on the controversial side of the coin, as rumors of lying to, and potentially misleading, the Queen over the parliamentary suspension made its way to the press. A small victory for Johnson was seen this week however, as the court ruled that a no-deal Brexit would not violate the peace accord in Northern Ireland. July saw an improvement in the U.K.’s trade balance to -GBP9.14 billion (expected GBP9.6 billion). Construction output YoY improved in July to 0.3%, while manufacturing production also performed better-than-expected, decreasing by 0.6% YoY in July, compared to the expectation of a contraction of 1.1%. Gross domestic product (GDP) indicated flat line growth quarter-on-quarter, with unemployment remaining flat at 3.8%.
Meanwhile, the Chinese economy has been feeling the pinch of an ongoing tariff tiff with the US, while recent protests in Hong Kong has been a massive social factor added to the uncertainty. This week saw PPI YoY for August at -0.8% (expected: -0.9%), while inflation remained flat at 2.8% during the same period. Vehicle sales disappointed, dropping by 6.9% YoY in August, followed by decline in foreign domestic investment numbers from a previous 7.3% to 6.9% for August.
Sticking to emerging markets, we move over to Turkey where a relatively large interest rate cut saw rates decrease from 19.75% to 16.5%. The current account moved into a deficit, reporting a shortfall of $550 million in July, while the struggling economy saw a decline in industrial production of 3.9% (expected: decline of 2.7%) YoY in July.
US EQUITIES
US equity markets advanced higher this week, after China announced that they’d graciously exempt 16 categories of US products from further tariff increases. These exemptions on products like various lubricants, oils, cancer medication and livestock feed will remain in place until 17 September 2020.
As a gesture of goodwill, Trump was seen tweeting that the US would push-out their own further tariffs on $250 billion worth of Chinese products to the 15th of October vs the initially intended implementation date of 1 October 2019. Although the trade war seems to be simmering down, the general investor should remain wary of accepting this small gesture as a predictor of what’s to come. By now, the investor should know how reactionary and volatile Trump can be, changing his tactics and mood towards the trade war in the flick of a tweet.
Another factor which added flare to both Asian and US indices on Thursday was the ECB’s decision to start another round of stimulus. Could it be that the ‘powers that be’ want the world to rally into 2020? With all three US indices enticingly close to their all-time highs again, the thought might not be too far-fetched.
US earnings this week focused primarily on the various airlines within the country, namely Delta Airlines (DAL), United Airlines (UAL) and American Airlines (AAL). Both DAL and UAL surprised during quarter two (Q2), with DAL reporting stronger-than-expected top-line revenue, while UAL announced that they have more available seat miles.
AAL, on the other hand, reported extremely positive numbers for Q2. Some of these numbers can be seen below:
- Earnings per share was up 10% to $1.82 per share,
- revenue up just under 3% to $11.96 billion,
- passenger unit revenue up 4%; and
- total unit revenue increasing by 3.5%
Since last Friday morning, equity markets have attempted to scrape back some losses with performance for the week currently around:
- S&P 500: up around 1.11%
- NASDAQ: up around 0.97%
- Dow Jones: up around 2.63%
FAANGs performance for the week, so far:
- Facebook: down around 1.69%
- Amazon: up around 0.22%
- Apple: up around 4.73% (on the back of the new iPhone reveal)
- Netflix: down around 1.41%
- Alphabet: up around 1.89%
COMMODITIES
With slowing global growth being written clearly in the numbers, the demand for oil seems to be dropping. With this lack of growth, what use would all the oil inventories serve if there’s nothing to build, grow and expand? The world is also cutting back on plastics, which has oil as one of its underlying components.
This week one could see the worrying drag of growth in China’s car sales numbers for the first half of the year affecting many economic numbers, falling 13% compared to last year’s corresponding period. India also saw a 41% drop in their vehicle sales in August, compared to last year. The main reason for the volatile oil price this week was mainly attributed to the firing of national security adviser, John Bolton, which sent both Brent Crude and WTI stumbling by more than 2%. Bolton was one of the more material reasons that the US and Iran battled to get along. A long road ahead awaits the price of oil, especially with demand being stripped off the market weekly.
Brent Crude opened Friday’s trading day at $60.38 per barrel, while US West Texas Intermediate (WTI) opened at $55.09. Precious metals had a relatively stable week, with no major news making headlines. The uncertainty surrounding the US China trade war has investors double-thinking their level of use of safe haven investments. Should the friction between the countries die down dramatically, one would naturally like to rather ride the wave of risk-on equities versus being trapped in a safe harbor. On Friday morning, gold, platinum and palladium were trading at levels of around $1,497.27, $948.82 and $1,608.63 per fine ounce respectively.
SOUTH AFRICAN FUNDAMENTALS
Locally, the landscape remains unchanged, with many unwanted tensions being left to brew. Johannesburg’s financial hub, Sandton, is due for a complete shutdown on Friday as a result of a protest against gender-based violence. The Zondo Commission managed to turn quite comical, and entertaining to be frank, as Hlaudi Motsoeneng took the stand to face various questions asked, regarding his tenure at the South African Broadcast Services (SABC). While the depth of state capture remains gut-wrenching to listen to, the general public cannot help but struggle to take anything Motsoeneng says seriously.
As South African’s, the citizens have become quite accustomed to the abundant violence taking place on the country’s beautiful soil. The abhorrence has become part-and-parcel of everyday life. On Thursday, crime statistics once again reminded the general citizen of the dire situation the country faces in the fight against crime. Police Minister, Beke Cele, expressed his concern specifically on the 3.4% increase in murders, coming in at a total of 21,022, of which 1,014 were children. Cele committed to improving policing, as well as facilities at police stations, however no clear plan is in place to address the compounding crime-rate witnessed in South Africa.
Moving over to economic data, manufacturing numbers remain under pressure, adding 0.4% month-on-month in July, undershooting expectations of 1.2%, while business confidence continues to decline, reaching 89.1 points in August. On Thursday mining production numbers for July indicated a 2.4% increase, while gold production lost 13.1% YoY in August.
With the local environment in a large amount of turmoil, it’s becoming quite clear that the rally of the rand is in no way a result of local elements. The rally witnessed in the rand over the past two weeks can be attributed to two key global elements that seem to be driving risk appetite.
- Continuous easing by Central banks including the Chinese Central bank, European Central Bank and the Federal reserve; and
- A ease in trade tension between the US and China
SOUTH AFRICAN EQUITY
Closer to home, SA equities experienced a relatively robust week, supported mainly by a stronger local currency and the small instance of hope emanating from the small good-will gestures made between US China within their trade war. Although global factors played a massive role in the moves seen within SA equity markets this week, there were definitely one or two interesting company movements that seemed to grab the spotlight.
On Wednesday morning, Naspers (NPN) was seen dropping around 32% upon open – this, however, only due to the unbundling and listing of its consumer internet company, Prosus (PRX), on Amsterdam’s Euronext stock exchange. PRX is now officially the largest listed consumer internet company in Europe, with operations and investments totaling more than $100 billion. The unbundling saw NPN closing Wednesday’s trading day at R2,465.00 per share (down from R3,513.00 on open). PRX closed its first trading day at R1,202.65. NPN, as a group, up around 4% on the day. NPN now only represents around 15% weight on the JSE All Share index, down from around 21.12% before the unbundling. NPN and PRX opened Friday’s trading day at R2,519.98 and R1,168.00 respectively.
After having had a relatively tough year so far, dropping 49% between January and August 2019, Aspen Pharmacare seems to be turning the corner, with major focus being placed on settling the large debt-pile the company has. The release of their results for the financial year ending 30 June 2019, saw investors definitely seeing the company in a more positive light. Some key figures were as follows:
- Revenue from continuing operations increased by 1% to R38.9 billion
- Earnings per share from continued operations decreased by 52% to R5.95 per share
- normalised earnings before interest, tax, depreciation and amortisation (Ebitda) dipped by 2% to R10.8 billion
- earnings per share up 19% to R15.73 per share
- no dividend released, due to debt management
- debt burden decreased to R39 billion from R53.5 billion.
Similarly to Aspen, Famous Brands has also found themselves in a tricky situation after their overvalued 2016 acquisition of the Gourmet Burger Kitchen (GBK), in the U.K., continues to create a financial drag on the company, as a whole. The group announced that system-wide sales numbers for the GBK business decreased by 12.5% for the six months ending 31 August 2019. Main reason for this sales drop was actually the closure of stores and not the actual burger sales, which actually increased for the period by 8.6%, where the same corresponding period in 2018 saw a 9.7% decrease in actual burger sales.
- System-wide sales for Wimpy, Steers and Debonairs (SA operations) grew by 6%
- Like-for-like sales rose 4% for SA operations
- Niche-brands like Tashas and Vovo Telo grew system-wide sales gaining 14%
- Like-for-like sales in this niche category only rose 1.4%
For September, so far:
- All Share and Top 40 indices: up around 2.92% and 3.22% respectively
- Resources: down around 1.45%
- Industrials: up around 4.31%
- Financials: up around 6.20%
THE WEEK AHEAD
The week ahead will see the focus shift toward the interest decision by the Federal Reserve, as well as South Africa’s Reserve Bank’s Monetary Policy Commission (MPC), taking place on the 18th and 19th of September respectively. From a data perspective the greater investor should keep an eye on Chinese and US production numbers, while CPI numbers from South Africa’s point-of-view will assist in setting the tone for the MPC interest rate decision.
With the rand managing to break below key technical levels this week, a leg lower in terms of range becomes applicable, with a new range of R14.50 - R14.70 against the US dollar being anticipated. The rand started the day trading at R14.59/$, R16.15/€ and R18.01/£
Advertisement (and yes South Africans can buy from Amazon as they deliver to SA)
Our highlight for the week:
Our highlight of the week is the financial results released by Spur Corporation, the owner of food franchise brands such as RocoMama's, Spur Steak Ranches, John Dory's etc. Below an extract from the financial review of Spur Corporation
Currently Rocomamas revenue is about 14.6% that of the group's biggest brand Spur Steak Ranches. So Rocomams is now a bigger contributor to Spur's revenues than John Dory's who only contributes 9.2% of the revenues that Spur Steak Ranches brings in. Rocomamas might soon bring in more revenues than Panarotti's and Casa Bela's combined
Read the full article here
- Revenue: R944.779 million (up 5.9% from R891.797 million for the same period of the previous year)
- Profit for the period: R173. 105 million (up 6.6% from R162.459 million for the same period of the previous year)
- Diluted earnings per share: R1.73 (up from R1.61 for the same period of the previous year)
- PE ratio: 12.89
- Dividend declared: R0.73
- Dividend yield: 3.27%
- Cash and equivalents: R283.979 million
- Cash and equivalents per share: R2.61
- Cash and equivalents makes up 11.7% of Spur's market capital
- Cash and equivalents makes up 27.3% of Spur's total assets
- Shareholders equity in Spur: R865.715 million
- Shareholders equity per share: R7.97
- So Spur is trading at 2.79 times its shareholders equity
- Cash generated from operations: R244.9 million
- Cash generated from operations per share: R2.25
Currently Rocomamas revenue is about 14.6% that of the group's biggest brand Spur Steak Ranches. So Rocomams is now a bigger contributor to Spur's revenues than John Dory's who only contributes 9.2% of the revenues that Spur Steak Ranches brings in. Rocomamas might soon bring in more revenues than Panarotti's and Casa Bela's combined
Read the full article here