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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 November 2019
In 2019, political influence tends to have been pegged as the global guiding light, when looking at the world’s economic markets. Currency markets are swayed by politics and greed amongst politicians starts to breed stagnation and treachery within countries and political echelons alike. As open hearings at Donald Trump’s impeachment inquiry began on Wednesday and South Africa’s embattled state-owned enterprises SAA and Eskom face financial crises sparked by state capture, we ask if one’s faith in the world’s decaying political leaders is possibly a topic the greater investor should be looking at more intently.
US HOGGED THE LIMELIGHT
All eyes were on the US again this week, as both Donald Trump and the Fed’s Jerome Powell took center stage. Investors waited for a clearer picture of the US-China trade war to be painted this week. On Tuesday, addressing the Economic Club of New York, Trump seemed to praise himself and the policies implemented over his presidential term, taking credit for the US economic boom and growth of jobs witnessed over the last two years. In another highlight, he invited global dictator-run countries to look at forming relationships with the US government.
With the 2020 presidential elections around the corner, most presidential candidate campaigns are really starting to heat up. Having said this, Trump’s impeachment inquiry is well under way, with US Ambassador to Ukraine, Bill Taylor adding electrifying testimony to support the allegations.
On Wednesday, in his testimony to Congress, Federal Reserve Chair Jerome Powell alluded to a US unemployment level that could be turning for the worse in the near term. His dovish-leaning testimony, however, pointed to US rates being kept on hold while the economy is growing. Core inflation in the US came in higher than expected, indicating rising food and petrol prices.
In the UK, unemployment fell to 3.8% in September from 3.9% August, while wage growth came in weaker than expected at 3.6% vs 3.8%. In the Eurozone, a second estimate confirmed quarterly economic growth at 0.2% in the third quarter of 2019, the same as in Q2, with Germany avoiding entering a recession in the third quarter.
Industrial production and retail sales data being released out of China pointed towards a slowing economy. China's industrial production rose by 4.7% year-on-year in October of 2019, slowing from a 5.8% rise in the previous month and missing the market expectation of 5.4%. Industrial production was, however, up 5.6% for the first ten months of 2019 from the same period a year earlier.
SA BUCKLING UNDER SOE STRESSES
On the South African front, a relatively calm week was seen politically, with more focus being placed on foundational issues within the country such as government’s involvement in Eskom, SAA and Telkom. With Eskom finding itself on the wrong side of media headlines this year, this week it continued to underwhelm the market as questions over when or whether a new CEO will be appointed flooded headlines. Missing their promised deadline by the end of October, Eskom now sits halfway through November without a CEO as the political tussle for the position carries on in the undertow.
With approximately 3,000 employees and members of the African Cabin Crew Association (SACCA) and the National Union of Metalworkers of South Africa (NUMSA) looking to strike at SAA from Friday 15 November, the company finds itself in dire straits. With employees demanding an 8% salary increase amidst a company restructure that could see 944 jobs being lost, tensions were running on high on Thursday. SAA had initially offered to increase salaries by 5.9%, however the Union and employees weren’t amused. Thursday afternoon saw SAA announcing that they could look at offering another number at some point during the day.
When looking at South African data, retail sales came in extremely flat, both month-on-month and year-on-year while mining production numbers surprised to the upside in September, mainly on the back of and 8.2% expansion in iron ore production. The rand unfortunately gave way to the strengthening of the US dollar this week, losing around 1.7% between Monday and Thursday, slipping from R14.75/$ to R15.00. The rand did tend to scrape back some losses against the USD after the stronger-than-expected mining production numbers. The possibility of a new SAA offer to the unions may have added a further strengthening impetus to the rand.
THE RISKS ARE ON THE DOWNSIDE IN THE WEEK AHEAD
As 2019 draws to a close, the turbulent wake of political scuffles seems to be keeping global investors on their toes. As US-China trade tensions continue to unfold and the Trump impeachment inquiry plays out, caution remains the watchword. While Trump faces impeachment on US shores, one needs to keep a close eye on the situation on the ground in South Africa. With the industrial action at SAA almost setting up the state-owned-enterprise’s potential demise, Eskom’s internal politics puts it in a stalemate position when it comes to employing the right CEO.
The week ahead should be navigated with caution. There are simply too many negative political bubbles floating around in the economic markets that look very close to popping. For the rand, the risk is to the downside against the US dollar. We expect a range of R14.68 – R15.00 over the next week, however, should more than one of these major events turn sour, one could easily see the rand retreating back above the R15.00/$ level. The rand started the day trading at R14.78$, R16.29/€ and R19.03/£.
US HOGGED THE LIMELIGHT
All eyes were on the US again this week, as both Donald Trump and the Fed’s Jerome Powell took center stage. Investors waited for a clearer picture of the US-China trade war to be painted this week. On Tuesday, addressing the Economic Club of New York, Trump seemed to praise himself and the policies implemented over his presidential term, taking credit for the US economic boom and growth of jobs witnessed over the last two years. In another highlight, he invited global dictator-run countries to look at forming relationships with the US government.
With the 2020 presidential elections around the corner, most presidential candidate campaigns are really starting to heat up. Having said this, Trump’s impeachment inquiry is well under way, with US Ambassador to Ukraine, Bill Taylor adding electrifying testimony to support the allegations.
On Wednesday, in his testimony to Congress, Federal Reserve Chair Jerome Powell alluded to a US unemployment level that could be turning for the worse in the near term. His dovish-leaning testimony, however, pointed to US rates being kept on hold while the economy is growing. Core inflation in the US came in higher than expected, indicating rising food and petrol prices.
In the UK, unemployment fell to 3.8% in September from 3.9% August, while wage growth came in weaker than expected at 3.6% vs 3.8%. In the Eurozone, a second estimate confirmed quarterly economic growth at 0.2% in the third quarter of 2019, the same as in Q2, with Germany avoiding entering a recession in the third quarter.
Industrial production and retail sales data being released out of China pointed towards a slowing economy. China's industrial production rose by 4.7% year-on-year in October of 2019, slowing from a 5.8% rise in the previous month and missing the market expectation of 5.4%. Industrial production was, however, up 5.6% for the first ten months of 2019 from the same period a year earlier.
SA BUCKLING UNDER SOE STRESSES
On the South African front, a relatively calm week was seen politically, with more focus being placed on foundational issues within the country such as government’s involvement in Eskom, SAA and Telkom. With Eskom finding itself on the wrong side of media headlines this year, this week it continued to underwhelm the market as questions over when or whether a new CEO will be appointed flooded headlines. Missing their promised deadline by the end of October, Eskom now sits halfway through November without a CEO as the political tussle for the position carries on in the undertow.
With approximately 3,000 employees and members of the African Cabin Crew Association (SACCA) and the National Union of Metalworkers of South Africa (NUMSA) looking to strike at SAA from Friday 15 November, the company finds itself in dire straits. With employees demanding an 8% salary increase amidst a company restructure that could see 944 jobs being lost, tensions were running on high on Thursday. SAA had initially offered to increase salaries by 5.9%, however the Union and employees weren’t amused. Thursday afternoon saw SAA announcing that they could look at offering another number at some point during the day.
When looking at South African data, retail sales came in extremely flat, both month-on-month and year-on-year while mining production numbers surprised to the upside in September, mainly on the back of and 8.2% expansion in iron ore production. The rand unfortunately gave way to the strengthening of the US dollar this week, losing around 1.7% between Monday and Thursday, slipping from R14.75/$ to R15.00. The rand did tend to scrape back some losses against the USD after the stronger-than-expected mining production numbers. The possibility of a new SAA offer to the unions may have added a further strengthening impetus to the rand.
THE RISKS ARE ON THE DOWNSIDE IN THE WEEK AHEAD
As 2019 draws to a close, the turbulent wake of political scuffles seems to be keeping global investors on their toes. As US-China trade tensions continue to unfold and the Trump impeachment inquiry plays out, caution remains the watchword. While Trump faces impeachment on US shores, one needs to keep a close eye on the situation on the ground in South Africa. With the industrial action at SAA almost setting up the state-owned-enterprise’s potential demise, Eskom’s internal politics puts it in a stalemate position when it comes to employing the right CEO.
The week ahead should be navigated with caution. There are simply too many negative political bubbles floating around in the economic markets that look very close to popping. For the rand, the risk is to the downside against the US dollar. We expect a range of R14.68 – R15.00 over the next week, however, should more than one of these major events turn sour, one could easily see the rand retreating back above the R15.00/$ level. The rand started the day trading at R14.78$, R16.29/€ and R19.03/£.
Advertisement (and yes South Africans can buy from Amazon as they deliver to SA)
Our highlight for the week:
Yesterday we looked at the average price per kilogram of fresh whole chicken paid per province in South Africa. Below a short extract from that article.
So which province pays the most for a whole fresh chicken in South Africa? The summary below shows the average price per kilogram for whole fresh chicken per province, sorted from the province paying the most to the province paying the least.
So the Eastern Cape is the province that pays the most per kilogram for whole fresh chicken at R5311, just beating out their neighbours the Western Cape who pays on average R53.11 per kilogram for whole fresh chicken. KwaZulu-Natal pays the least with the average price per kilogram of fresh whole chicken coming in at R43.85 or 17.4% less than what those living the Eastern Cape pays per kilogram of whole fresh chicken.
Read the full article here
So which province pays the most for a whole fresh chicken in South Africa? The summary below shows the average price per kilogram for whole fresh chicken per province, sorted from the province paying the most to the province paying the least.
- Eastern Cape: R53.11
- Western Cape: R53.10
- Northern Cape: R47.32
- Limpopo: R47.21
- Free State: R45.99
- Gauteng: R45.62
- North West: R45.07
- Mpumalanga: R44.82
- KwaZulu-Natal: R43.85
So the Eastern Cape is the province that pays the most per kilogram for whole fresh chicken at R5311, just beating out their neighbours the Western Cape who pays on average R53.11 per kilogram for whole fresh chicken. KwaZulu-Natal pays the least with the average price per kilogram of fresh whole chicken coming in at R43.85 or 17.4% less than what those living the Eastern Cape pays per kilogram of whole fresh chicken.
Read the full article here