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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 15 March 2019
A week that was surprisingly driven by slowing Chinese economic data and the ongoing Brexit tussle, saw emerging markets taking a back seat, as the US dollar and its local equity indices took center stage in entertaining the bulls.
GLOBAL DATA AND POLITICS
Looking east, Chinese economic data continued to paint a gloomy picture of a slowing global economy. Unemployment numbers for February increased to 5.30% from the 4.90%, while industrial output on Chinese shores slowed to 5.30% for January and February, year-on-year – the slowest growth for the first two months of a year in around 17 years. Fixed asset investments in China remain within the expected range, gaining 6.10% year-on-year in February, while retail sales are still performing fairly well gaining 8.1% year-on-year.
This week, Brexit has once again crept onto the radar, as the United Kingdom (U.K.) parliament, once again, voted-down the new deal negotiated by Prime Minister, Theresa May, which was shortly followed by the parliament also voting against a hard Brexit. Since May’s second upset, yet another quiet vote done in the background has made it even harder for the U.K. to exit the European Union (EU). Industrial production in the EU improved, gaining 1.40% month-on-month, while consumer price index (CPI) is due for release later today. The market expects CPI to remain flat at 1.50% year-on-year.
US POLITICS
While trade tensions between the US and some of its trade partners, such as China, has been largely overshadowed by the political events occurring in the U.K., one should not underestimate the ‘pummeling effect’ that re-ignition of trade tensions could have on global markets. The two economic giants delayed a meeting that was believed to potentially end the ongoing trade war, adding additional uncertainty to an already jittery environment. Once again, export-driven and emerging economies, such as South Africa and Australia, with China being the largest trade partner for these countries, could be caught in the crossfire. The Australian dollar is already portraying these fears, dropping by 0.54% during trade on Thursday.
US retail sales ticked up marginally during January, gaining 0.20% month-on-month, while CPI remained subdued, rising by 1.50% year-on-year in February, once again reiterating the patient approach by the Federal Reserve with regard to interest rate hikes. The number of citizens claiming unemployment benefits also accelerated, with initial jobless claims increasing to 229,000 compared to the previous 223,000.
US EQUITIES
US equities clawed higher this week, assisted by a stronger underlying US dollar. With the S&P 500 index now trending upward during the last five consecutive days, all three major indices have now each delivered over 10.00% to the underlying investor in 2019. US equity funds were seen attracting more than $25.4 billion in investor funds between Monday and Thursday as the world takes a hesitant view against emerging markets. With ‘futures close out’ and foreign exchange options expiring later today, the volumes seen going through global indices could be inflated heavily today.
Talk of the week was mainly around Boeing Company, down around 11.65% for the last four trading days, following the devastating Ethiopian airlines crash leaving 157 dead – this in relation to the immediate global grounding and discontinued use of Boeing 737 MAXs by airport companies worldwide. Although tragedy shrouds this story, analysts have already started to address the fact that now may be a good time to re-enter the stock as an investment.
Major moves this week:
COMMODITIES
As the sanctions imposed by the United States on Venezuelan oil exports continues to tighten its grip on oil being supplied by the South American country, the agreed slowdown of oil output by Oil and Petroleum Exporting Countries (OPEC) has added further downward pressure on the amount of barrels readily available for oil consuming nations, thus inflating the oil price slightly this week due to increasing demand. Brent Crude oil traded 3.34% stronger for the week during Thursday’s trading day, while WTI traded 4.27% stronger. Brent Crude traded at $67.63 per barrel, while the sweeter/lighter WTI oil changed hands at $58.73 per barrel on Friday morning.
After starting the second trading week of March on a strong foot and touching two-week-highs, the price of gold experienced a slight pull back after the release of both weaker Chinese industrial growth and a drop in new home sales in the US, to the tune of 6.90%, in January. The recent strength of the underlying US dollar stifled gold’s run this week, as investors turn to other hard currency investments as the price of gold, coupled with the rising US dollar, puts downward pressure on the underlying gold buyer.
Used in the dental, agricultural, retail and motoring world, palladium’s amazing run, recently met by a small pullback around two weeks ago, has recovered to all time high levels, indicating a rather interesting setup technically. Should the price of palladium meet its record topping levels of around $1,566.00 and not push through this level, a ‘double top’ may be exposed, whereby a psychological glass ceiling gets installed at that level. Should the $1,566.00 level be breached and close above that level, palladium could be on its next major upward run of 2019. At this point, it’s anyone’s guess.
On Friday morning, gold, platinum and palladium were trading at levels of around $1,298.23, $828.97 and $1,557.50 per fine ounce respectively.
SOUTH AFRICAN POLITICS
Reality seems to be kicking in for the local currency, as the rand struggles to maintain hard-fought rebounds against the greenback (US dollar) and other major currencies. With the global market risk appetite being hot and cold on an almost daily basis, as geopolitical events continues to unfold, it’s challenging to keep track of where the rand is heading and for how long it will remain there. Our overall bias however is tipping toward rand weakness, with the local and global environment simply not conducive to sustaining any form of rand strength
This week saw the rand seesawing between R14.19 and R14.56, with local and global political and economic turbulence doing their part to ensure volatility. Locally, the market is clearly starting to gear up for the highly anticipated Moody's credit ratings announcement, due on the 29th of March, merely a day after the interest rate announcement is expected to take place. Shortly after the budget speech in February, market participants were fairly certain that Moody's would hold back with a downgrade, however, judging from the recent market behavior, it seems as if this belief could be shifting.
Recent political events such as the release of the African National Congress’ (ANC) proposed cabinet, recent talks regarding the nationalisation of the South African Reserve Bank (SARB) and the public disregard of finance minister, Tito Mboweni, by deputy president, David Mabuza, all seem to be threatening the belief that Cyril Ramaphosa will be able to steer the country in the right direction. Continued rolling-blackouts implemented by Eskom remained in the spotlight this week, as citizens try and cast their minds on anything else besides the thought of the slow erosion of the SA economy deriving from these load shedding events.
Quite an uneventful week on the local data front, with mining production performing slightly better than expected, decelerating by 3.30% opposed to the expected 3.90%, while both gold and manufacturing production disappointed to the downside, declining by 22.5% (year-on-year) and 2.0% (month-on-month) respectively. The RMB business sentiment index fell to the lowest levels since 2017, slipping for four consecutive quarters, indicating the eroded sentiment in the local economy.
SOUTH AFRICAN EQUITY
On South African shores, local equity indices lost around 1.00% over the last trading week mainly due to the emerging market risk-off situation created by a stronger move of most hard currency competitors against the rand. Weaker Chinese industrial growth data adding further pressure to emerging markets globally.
It seems to be a more frequent occurrence that one sees financial scandal or financial collapse veiling South African entities, mainly influenced by corruption, malpractice or simply the stressors of the current economic climate. This week saw construction-company Group Five filing for business rescue, while immediately suspending trading of its share (89 cents) on the Johannesburg Securities Exchange (JSE) on Tuesday. Joining Esor and Basil Read in the slow collapse of the construction industry, Group Five’s appointed business rescue team aren’t too positive on a successful overall outcome of the company’s dilemma, once all is said and done.
Sticking to the building/real estate industry, Growthpoint declared a 105.8 cent dividend for the six months ended 31 December 2018, citing that most of their future growth and earnings should be expected to come from their offshore allocation of their portfolio, as their outlook on the local real estate environment is a stagnant to negative growth one.
March month-to-date movers on the JSE:
THE WEEK AHEAD
The financial market environment remains cautious, as uncertainty in many areas of key global economies persist. We expect the current conditions to continue into the second quarter of the year. The current level of the rand is deemed as a realistic reflection of where the currency should be trading, with very few "good news" events on the cards for the rest of the year. We consider any dip below R14.20 as a good foreign currency buying opportunity, with a bias for the unit to set its sights on R14.60 to R14.80 as the year progresses. The daily range of the rand is expected to be between R14.44 and R14.58 against the US dollar.
On Friday morning a US dollar would set the investor back, R14.50, a euro R16.40 and a British pound R19.19.
GLOBAL DATA AND POLITICS
Looking east, Chinese economic data continued to paint a gloomy picture of a slowing global economy. Unemployment numbers for February increased to 5.30% from the 4.90%, while industrial output on Chinese shores slowed to 5.30% for January and February, year-on-year – the slowest growth for the first two months of a year in around 17 years. Fixed asset investments in China remain within the expected range, gaining 6.10% year-on-year in February, while retail sales are still performing fairly well gaining 8.1% year-on-year.
This week, Brexit has once again crept onto the radar, as the United Kingdom (U.K.) parliament, once again, voted-down the new deal negotiated by Prime Minister, Theresa May, which was shortly followed by the parliament also voting against a hard Brexit. Since May’s second upset, yet another quiet vote done in the background has made it even harder for the U.K. to exit the European Union (EU). Industrial production in the EU improved, gaining 1.40% month-on-month, while consumer price index (CPI) is due for release later today. The market expects CPI to remain flat at 1.50% year-on-year.
US POLITICS
While trade tensions between the US and some of its trade partners, such as China, has been largely overshadowed by the political events occurring in the U.K., one should not underestimate the ‘pummeling effect’ that re-ignition of trade tensions could have on global markets. The two economic giants delayed a meeting that was believed to potentially end the ongoing trade war, adding additional uncertainty to an already jittery environment. Once again, export-driven and emerging economies, such as South Africa and Australia, with China being the largest trade partner for these countries, could be caught in the crossfire. The Australian dollar is already portraying these fears, dropping by 0.54% during trade on Thursday.
US retail sales ticked up marginally during January, gaining 0.20% month-on-month, while CPI remained subdued, rising by 1.50% year-on-year in February, once again reiterating the patient approach by the Federal Reserve with regard to interest rate hikes. The number of citizens claiming unemployment benefits also accelerated, with initial jobless claims increasing to 229,000 compared to the previous 223,000.
US EQUITIES
US equities clawed higher this week, assisted by a stronger underlying US dollar. With the S&P 500 index now trending upward during the last five consecutive days, all three major indices have now each delivered over 10.00% to the underlying investor in 2019. US equity funds were seen attracting more than $25.4 billion in investor funds between Monday and Thursday as the world takes a hesitant view against emerging markets. With ‘futures close out’ and foreign exchange options expiring later today, the volumes seen going through global indices could be inflated heavily today.
Talk of the week was mainly around Boeing Company, down around 11.65% for the last four trading days, following the devastating Ethiopian airlines crash leaving 157 dead – this in relation to the immediate global grounding and discontinued use of Boeing 737 MAXs by airport companies worldwide. Although tragedy shrouds this story, analysts have already started to address the fact that now may be a good time to re-enter the stock as an investment.
Major moves this week:
- Facebook: up 2.43%
- Amazon: up 5.13%
- Apple: up 7.87%
- Netflix: up 3.86%
- Alphabet: up 5.30%
COMMODITIES
As the sanctions imposed by the United States on Venezuelan oil exports continues to tighten its grip on oil being supplied by the South American country, the agreed slowdown of oil output by Oil and Petroleum Exporting Countries (OPEC) has added further downward pressure on the amount of barrels readily available for oil consuming nations, thus inflating the oil price slightly this week due to increasing demand. Brent Crude oil traded 3.34% stronger for the week during Thursday’s trading day, while WTI traded 4.27% stronger. Brent Crude traded at $67.63 per barrel, while the sweeter/lighter WTI oil changed hands at $58.73 per barrel on Friday morning.
After starting the second trading week of March on a strong foot and touching two-week-highs, the price of gold experienced a slight pull back after the release of both weaker Chinese industrial growth and a drop in new home sales in the US, to the tune of 6.90%, in January. The recent strength of the underlying US dollar stifled gold’s run this week, as investors turn to other hard currency investments as the price of gold, coupled with the rising US dollar, puts downward pressure on the underlying gold buyer.
Used in the dental, agricultural, retail and motoring world, palladium’s amazing run, recently met by a small pullback around two weeks ago, has recovered to all time high levels, indicating a rather interesting setup technically. Should the price of palladium meet its record topping levels of around $1,566.00 and not push through this level, a ‘double top’ may be exposed, whereby a psychological glass ceiling gets installed at that level. Should the $1,566.00 level be breached and close above that level, palladium could be on its next major upward run of 2019. At this point, it’s anyone’s guess.
On Friday morning, gold, platinum and palladium were trading at levels of around $1,298.23, $828.97 and $1,557.50 per fine ounce respectively.
SOUTH AFRICAN POLITICS
Reality seems to be kicking in for the local currency, as the rand struggles to maintain hard-fought rebounds against the greenback (US dollar) and other major currencies. With the global market risk appetite being hot and cold on an almost daily basis, as geopolitical events continues to unfold, it’s challenging to keep track of where the rand is heading and for how long it will remain there. Our overall bias however is tipping toward rand weakness, with the local and global environment simply not conducive to sustaining any form of rand strength
This week saw the rand seesawing between R14.19 and R14.56, with local and global political and economic turbulence doing their part to ensure volatility. Locally, the market is clearly starting to gear up for the highly anticipated Moody's credit ratings announcement, due on the 29th of March, merely a day after the interest rate announcement is expected to take place. Shortly after the budget speech in February, market participants were fairly certain that Moody's would hold back with a downgrade, however, judging from the recent market behavior, it seems as if this belief could be shifting.
Recent political events such as the release of the African National Congress’ (ANC) proposed cabinet, recent talks regarding the nationalisation of the South African Reserve Bank (SARB) and the public disregard of finance minister, Tito Mboweni, by deputy president, David Mabuza, all seem to be threatening the belief that Cyril Ramaphosa will be able to steer the country in the right direction. Continued rolling-blackouts implemented by Eskom remained in the spotlight this week, as citizens try and cast their minds on anything else besides the thought of the slow erosion of the SA economy deriving from these load shedding events.
Quite an uneventful week on the local data front, with mining production performing slightly better than expected, decelerating by 3.30% opposed to the expected 3.90%, while both gold and manufacturing production disappointed to the downside, declining by 22.5% (year-on-year) and 2.0% (month-on-month) respectively. The RMB business sentiment index fell to the lowest levels since 2017, slipping for four consecutive quarters, indicating the eroded sentiment in the local economy.
SOUTH AFRICAN EQUITY
On South African shores, local equity indices lost around 1.00% over the last trading week mainly due to the emerging market risk-off situation created by a stronger move of most hard currency competitors against the rand. Weaker Chinese industrial growth data adding further pressure to emerging markets globally.
It seems to be a more frequent occurrence that one sees financial scandal or financial collapse veiling South African entities, mainly influenced by corruption, malpractice or simply the stressors of the current economic climate. This week saw construction-company Group Five filing for business rescue, while immediately suspending trading of its share (89 cents) on the Johannesburg Securities Exchange (JSE) on Tuesday. Joining Esor and Basil Read in the slow collapse of the construction industry, Group Five’s appointed business rescue team aren’t too positive on a successful overall outcome of the company’s dilemma, once all is said and done.
Sticking to the building/real estate industry, Growthpoint declared a 105.8 cent dividend for the six months ended 31 December 2018, citing that most of their future growth and earnings should be expected to come from their offshore allocation of their portfolio, as their outlook on the local real estate environment is a stagnant to negative growth one.
March month-to-date movers on the JSE:
- Tongaat Hulett Ltd: down 40.15%
- Absa Bank: down 10.41%
- Discovery ltd: down 8.01%
- Reinet Investments: up8.15%
- Coronation: up 7.13%
- AB Inbev: up 5.97%
THE WEEK AHEAD
The financial market environment remains cautious, as uncertainty in many areas of key global economies persist. We expect the current conditions to continue into the second quarter of the year. The current level of the rand is deemed as a realistic reflection of where the currency should be trading, with very few "good news" events on the cards for the rest of the year. We consider any dip below R14.20 as a good foreign currency buying opportunity, with a bias for the unit to set its sights on R14.60 to R14.80 as the year progresses. The daily range of the rand is expected to be between R14.44 and R14.58 against the US dollar.
On Friday morning a US dollar would set the investor back, R14.50, a euro R16.40 and a British pound R19.19.
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.