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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 1 March 2019
MARKETS MOVE MILDLY THROUGH THE POLITICALLY PENSIVE PLANE
Governed primarily by the political woes of the global economy, most equity markets remained stagnant this week, as former attorney to Donald Trump, Michael Cohen, testified against the US president while he endeavored to resolve nuclear disarmament agreements with North Korean president, Kim Jong Un, in Hanoi, Vietnam. All the politics aside, China’s continual slowing economy, through weaker factory activity and export data, started to also tighten its chokehold on global markets in the final week of February. Has the mighty bull-run been stifled?
GLOBAL DATA AND POLITICS
The past week delivered nothing short of a turbulent global scenario, as political leaders once again clashed across the globe on various topics. It seems to be the status quo of late, as more geopolitical elements arise, ranging from diplomatic spats to trade tensions - all of which are to no benefit of the greater emerging market environment.
Emerging markets felt a slight sense of relief this week, as trade tensions between the US and China seemingly eased. The feeling soon dissipated. The most prominent contributor to the renewed risk-aversion is the tension between India and Pakistan which reached critical levels during the course of the week. Indian warplanes are believed to have exercised military action on Pakistan for the first time since 1971. Market participants quickly fled the emerging market environment, moving their exposure to safe havens such as the US dollar and the Japanese yen denominated investments. The selloff in the emerging markets, and the subsequent recovery of the dollar from a three-week low quickly eroded the value of the rand, pushing it above the key R14.00 mark once again, against the US dollar.
Market participants also re-evaluated their optimistic stance on the US/China trade negotiations, following comments by a US trade representative, stating that the issues between the US and China are too complex for a simple and time-efficient solution. The US relationship seems strained across Asia, as a collapse in talks between President Donald Trump and North Korean supreme leader, Kim Jong Un, once again escalates the threat of a fallout between the two countries. President Donald Trump abruptly ended the summit as no agreement on the lifting of sanctions imposed on North Korea could be reached. The effort to denuclearize the East Asian country is now once again out of reach.
A very light data calendar from the European Union (EU) this week, with consumer price index (CPI) and unemployment data due today. The EU remains under pressure as growth concerns, populist uprisings and diplomatic spats add pressure to the common area. Heading further west, the vicious Brexit battle continues in the United Kingdom (U.K.). Following a week of backtracking by both parties, and a number of votes, the Labour party is now in favor of a second referendum, after the vote by parliament on the Brexit deal got postponed to 12 March. The action plan from Teresa May now looks slightly different:
US POLITICS
US data also disappointed, as quarterly gross domestic product (GDP) for the fourth quarter (Q4) 2018 dropped to 2.60%, following growth of 3.40% in Q3, while a rise in initial jobless claims from 217k to 225k also dampened the mood on Thursday afternoon. The Federal Reserve, during the testimony delivered by Chairman, Jerome Powell, once again emphasized their patient approach to interest rate adjustments in the US during the course of 2019.
US EQUITIES
US markets, and global markets in general, saw its third declining day, mainly based on the weaker economic data going out of China - Chinese factory activity contracting to almost three-lows, while exports slowed at a pace last seen around ten years ago. US higher yielding bonds as well as US based equity exchange traded funds (ETFs) were the ‘flavour of the week’, as each asset class pulled in over $698 million and $7.5 billion, respectively, over the last trading week. Global investors, seemingly taking a brief step away from the risk attached to direct stock-picking solutions.
Notable moves this week came out of many of the young cannabis companies based in Canada and the US alike, as vertical integration becomes the next focal point for the marijuana industry. As the heavily regulated veil is slowly lifted from the sector, the long road ahead could lead the more-progressive and patient investor down a path of fruitful returns.
Hewlett-Packard (HP) was seen dropping over 17.00% this week, as its quarterly revenue numbers missed analyst expectations, mainly due to weaker sales during the period. Overall, revenue came in stronger for the quarter by 1.30% at $14.7 billion, however missing an expected $14.86 billion. HP currently trades at $19.73 per share on Friday morning, down from $23.83 before the release of their results.
Year-to-date, the Dow Jones is up around 11.10%, the NASDAQ 13.52% and the S&P 500 11.08%.
COMMODITIES
Oil prices remained largely flat for the second consecutive week, as analysts tempered their views on the average price of Brent Crude oil during the remainder of 2019 – most analysts agreeing that Brent could average around $66.44 per barrel for the greater part of 2019. At present, two major factors govern the balancing-act of global oil prices, these being the cut in oil output by OPEC and Russia, while Venezuela’s output remains under US sanction threat, and then the global economic slowdown which may stifle demand. All-in-all, more chance of the oil price gradually strengthening marginally than decreasing in 2019.
Brent Crude traded at $66.54 per barrel, while the sweeter/lighter WTI oil changed hands at $57.35 per barrel on Friday morning. This week saw the gold price dipping slightly, while palladium saw a 2.90% positive move. On Friday morning, gold traded at $1,313.00 per fine ounce while palladium and platinum traded at $1,547.89 and $871.25 per fine ounce respectively.
SOUTH AFRICAN POLITICS
The local political climate is becoming more and more strained as we head toward the May elections, with tensions within the ruling party rising. The ANC has fallen victim to factionalism in recent years, making it extremely hard for the President to act purely in the best interest of the country. A majority win for the ANC will be largely considered as market positive, while a coalition with the opposition could rock the boat on both the political stability and policy certainty fronts. Eskom once again kicked off load shedding on Thursday afternoon - the embattled state owned enterprise is yet to announce the tariff increase that will see the underlying consumer battle even more to make ends meet.
Local data this week did little to bolster the currency, as the trade balance fell in to a R13.08 billion deficitin January, following a R16.7 billion surplus in December 2018, while producer price index (PPI) numbers decelerated to 4.10% year-on-year, falling short of the 5.00% market expectation. Manufacturing purchasing managers’ index (PMI), as well as total vehicle sales numbers, are due today and should give us a better idea of the economic activity on the ground for the local economy for the beginning of 2019.
SOUTH AFRICAN EQUITY
On local shores, the Steinhoff saga continues on its muddy path, as auditors, PricewaterhouseCoopers (PwC), revealed that a further delay in the release of the forensic report should be expected by shareholders. The forensic audit report is estimated to be released in mid-March 2019, after which the actual financial results of Steinhoff, for the 2017 and 2018 financial years, will be reported. Meanwhile in Europe, up to 2,000 jobs could be on the line, as Steinhoff takes aim at subsidiary, Conforama, in order to raise additional funds which will aide in assisting the settlement of their heavy debt burden created by Steinhoff’s questionable accounting practices implemented over the last few financial years. Up around 14.00% for the week, Steinhoff opened Friday’s trading day at R2.06 per share.
Massmart also caught the attention of global investors, as the company announced a 40.00% cut in its annual shareholder dividend. The company has stated that the massive cutback in dividends doesn’t indicate that a material issue is hidden within the firm however, have stated that the large pullback in consumer spending, veiled by the greater pressured economy, has forced the company to take a step back and reassess the way forward. Off the cuff, a drastic slowdown in the roll out of new stores will more than likely be seen in the coming years. Although the share traded up over 2.50% for the week, Massmart saw its share price correcting by 6.43% on Thursday’s trading day to close at R87.11 per share.
Notable stock price moves during February:
THE WEEK AHEAD
When looking at the holistic picture, a potentially positive outcome from the US/China trade talks could be the last “good news” for emerging markets for a while, as geopolitical tension, declining global gross domestic product (GDP), and populism all threaten risk appetite. The rand, while it will continue to present occasional buying opportunities, is likely to continue its weakening trajectory against major currencies.
On Friday morning a US dollar would set the South African investor back R14.07, a euro R16.00 and a British pound R18.66.
Governed primarily by the political woes of the global economy, most equity markets remained stagnant this week, as former attorney to Donald Trump, Michael Cohen, testified against the US president while he endeavored to resolve nuclear disarmament agreements with North Korean president, Kim Jong Un, in Hanoi, Vietnam. All the politics aside, China’s continual slowing economy, through weaker factory activity and export data, started to also tighten its chokehold on global markets in the final week of February. Has the mighty bull-run been stifled?
GLOBAL DATA AND POLITICS
The past week delivered nothing short of a turbulent global scenario, as political leaders once again clashed across the globe on various topics. It seems to be the status quo of late, as more geopolitical elements arise, ranging from diplomatic spats to trade tensions - all of which are to no benefit of the greater emerging market environment.
Emerging markets felt a slight sense of relief this week, as trade tensions between the US and China seemingly eased. The feeling soon dissipated. The most prominent contributor to the renewed risk-aversion is the tension between India and Pakistan which reached critical levels during the course of the week. Indian warplanes are believed to have exercised military action on Pakistan for the first time since 1971. Market participants quickly fled the emerging market environment, moving their exposure to safe havens such as the US dollar and the Japanese yen denominated investments. The selloff in the emerging markets, and the subsequent recovery of the dollar from a three-week low quickly eroded the value of the rand, pushing it above the key R14.00 mark once again, against the US dollar.
Market participants also re-evaluated their optimistic stance on the US/China trade negotiations, following comments by a US trade representative, stating that the issues between the US and China are too complex for a simple and time-efficient solution. The US relationship seems strained across Asia, as a collapse in talks between President Donald Trump and North Korean supreme leader, Kim Jong Un, once again escalates the threat of a fallout between the two countries. President Donald Trump abruptly ended the summit as no agreement on the lifting of sanctions imposed on North Korea could be reached. The effort to denuclearize the East Asian country is now once again out of reach.
A very light data calendar from the European Union (EU) this week, with consumer price index (CPI) and unemployment data due today. The EU remains under pressure as growth concerns, populist uprisings and diplomatic spats add pressure to the common area. Heading further west, the vicious Brexit battle continues in the United Kingdom (U.K.). Following a week of backtracking by both parties, and a number of votes, the Labour party is now in favor of a second referendum, after the vote by parliament on the Brexit deal got postponed to 12 March. The action plan from Teresa May now looks slightly different:
- 12 March - Parliamentary vote on the Brexit deal
- 13 March - Vote for a no deal Brexit- this will only happen should the vote on 12 March fail
- 14 March - Should the vote for a no deal Brexit fail, parliament will vote for delay in Brexit
US POLITICS
US data also disappointed, as quarterly gross domestic product (GDP) for the fourth quarter (Q4) 2018 dropped to 2.60%, following growth of 3.40% in Q3, while a rise in initial jobless claims from 217k to 225k also dampened the mood on Thursday afternoon. The Federal Reserve, during the testimony delivered by Chairman, Jerome Powell, once again emphasized their patient approach to interest rate adjustments in the US during the course of 2019.
US EQUITIES
US markets, and global markets in general, saw its third declining day, mainly based on the weaker economic data going out of China - Chinese factory activity contracting to almost three-lows, while exports slowed at a pace last seen around ten years ago. US higher yielding bonds as well as US based equity exchange traded funds (ETFs) were the ‘flavour of the week’, as each asset class pulled in over $698 million and $7.5 billion, respectively, over the last trading week. Global investors, seemingly taking a brief step away from the risk attached to direct stock-picking solutions.
Notable moves this week came out of many of the young cannabis companies based in Canada and the US alike, as vertical integration becomes the next focal point for the marijuana industry. As the heavily regulated veil is slowly lifted from the sector, the long road ahead could lead the more-progressive and patient investor down a path of fruitful returns.
Hewlett-Packard (HP) was seen dropping over 17.00% this week, as its quarterly revenue numbers missed analyst expectations, mainly due to weaker sales during the period. Overall, revenue came in stronger for the quarter by 1.30% at $14.7 billion, however missing an expected $14.86 billion. HP currently trades at $19.73 per share on Friday morning, down from $23.83 before the release of their results.
Year-to-date, the Dow Jones is up around 11.10%, the NASDAQ 13.52% and the S&P 500 11.08%.
COMMODITIES
Oil prices remained largely flat for the second consecutive week, as analysts tempered their views on the average price of Brent Crude oil during the remainder of 2019 – most analysts agreeing that Brent could average around $66.44 per barrel for the greater part of 2019. At present, two major factors govern the balancing-act of global oil prices, these being the cut in oil output by OPEC and Russia, while Venezuela’s output remains under US sanction threat, and then the global economic slowdown which may stifle demand. All-in-all, more chance of the oil price gradually strengthening marginally than decreasing in 2019.
Brent Crude traded at $66.54 per barrel, while the sweeter/lighter WTI oil changed hands at $57.35 per barrel on Friday morning. This week saw the gold price dipping slightly, while palladium saw a 2.90% positive move. On Friday morning, gold traded at $1,313.00 per fine ounce while palladium and platinum traded at $1,547.89 and $871.25 per fine ounce respectively.
SOUTH AFRICAN POLITICS
The local political climate is becoming more and more strained as we head toward the May elections, with tensions within the ruling party rising. The ANC has fallen victim to factionalism in recent years, making it extremely hard for the President to act purely in the best interest of the country. A majority win for the ANC will be largely considered as market positive, while a coalition with the opposition could rock the boat on both the political stability and policy certainty fronts. Eskom once again kicked off load shedding on Thursday afternoon - the embattled state owned enterprise is yet to announce the tariff increase that will see the underlying consumer battle even more to make ends meet.
Local data this week did little to bolster the currency, as the trade balance fell in to a R13.08 billion deficitin January, following a R16.7 billion surplus in December 2018, while producer price index (PPI) numbers decelerated to 4.10% year-on-year, falling short of the 5.00% market expectation. Manufacturing purchasing managers’ index (PMI), as well as total vehicle sales numbers, are due today and should give us a better idea of the economic activity on the ground for the local economy for the beginning of 2019.
SOUTH AFRICAN EQUITY
On local shores, the Steinhoff saga continues on its muddy path, as auditors, PricewaterhouseCoopers (PwC), revealed that a further delay in the release of the forensic report should be expected by shareholders. The forensic audit report is estimated to be released in mid-March 2019, after which the actual financial results of Steinhoff, for the 2017 and 2018 financial years, will be reported. Meanwhile in Europe, up to 2,000 jobs could be on the line, as Steinhoff takes aim at subsidiary, Conforama, in order to raise additional funds which will aide in assisting the settlement of their heavy debt burden created by Steinhoff’s questionable accounting practices implemented over the last few financial years. Up around 14.00% for the week, Steinhoff opened Friday’s trading day at R2.06 per share.
Massmart also caught the attention of global investors, as the company announced a 40.00% cut in its annual shareholder dividend. The company has stated that the massive cutback in dividends doesn’t indicate that a material issue is hidden within the firm however, have stated that the large pullback in consumer spending, veiled by the greater pressured economy, has forced the company to take a step back and reassess the way forward. Off the cuff, a drastic slowdown in the roll out of new stores will more than likely be seen in the coming years. Although the share traded up over 2.50% for the week, Massmart saw its share price correcting by 6.43% on Thursday’s trading day to close at R87.11 per share.
Notable stock price moves during February:
- Sibanye Gold – up 36.71%
- Anglo American Platinum – up 20.16%
- Richemont – up 17.84%
- EOH – down 38.66%
THE WEEK AHEAD
When looking at the holistic picture, a potentially positive outcome from the US/China trade talks could be the last “good news” for emerging markets for a while, as geopolitical tension, declining global gross domestic product (GDP), and populism all threaten risk appetite. The rand, while it will continue to present occasional buying opportunities, is likely to continue its weakening trajectory against major currencies.
On Friday morning a US dollar would set the South African investor back R14.07, a euro R16.00 and a British pound R18.66.
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.