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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 November 2019
Doves, downgrades and the devil in the detail
From the US’ Federal Open Market Committee (FOMC) to South Africa’s own Medium-Term Budget Policy Statement (MTBPS) and the cancellation of APEC due to social unrest in Chile, where Donald Trump and Xi Jinping were due to meet, it’s almost as if the global economy is tip-toeing on a rather precarious tightrope. Reasonable quarter three (Q3) company earnings continue to roll out of the US, while South Africa faces a potentially material “slap on the wrists” by Moody’s credit rating agency later today.
Rate cutting in a weak global environment
A relatively interesting week of monetary policy adjustments was seen globally this week, primarily looking at the US. On Wednesday evening, the Federal Reserve’s Jerome Powell cut interest rates by 0.25% to a range of between 1.50% and 1.75% (from 1.75% - 2.00%). US dollar strength did tend to lose some steam shortly after the announcement, not that it mattered to the rand after Wednesday’s underwhelming budget speech. Right off the back of the interest rate cut in the US, China’s Hong Kong Monetary Authority also moved to lower interest rates by 25bp to 2%. Hong Kong’s policy is to move interest rates in lockstep with the US in order to manage currency disparity, due to the country’s pegged currency (to the USD).
Looking at US economic data, gross domestic product growth quarter-on-quarter came in stronger than expected at 1.9%, where estimates were just 1.6%. Although the numbers beat analyst forecasts, it’s important to note that GDP did fall from Q2’s 2% number, mainly due to trade war tensions. Moving west, a special changing of guard comes into effect today as long-standing president of the European Central Bank (ECB), Mario Draghi hands over the reins to Christine Lagarde.
After costing the UK economy around £66 billion since the idea of independence was launched, Brexit continues to leave damage in its wake. The British pound has lost around 13% of its value relative to the US dollar since Brexit began. Per UK citizen, the Brexit dilemma costs around R16.38 per head, per day, and now another two months have been added to the picture with general elections destined to take place in December. A confused parliament will seemingly try to find some form of solution to Brexit through a general election. It will be interesting to see how this pans out.
South African economy looking weaker
Closer to home, the MTBPS and pending Moody’s credit rating announcement veiled the country in a slight tone of gloom this week. To add a “cherry on the top” of the morbid economic climate, the South African unemployment rate hit its worst level in 11 years at 29.1% during Q3. Youth unemployment now sits at a devastatingly high 58.2%. With 16.4 million SA residents now unemployed, where did the South African economy shed the jobs? Mainly within the construction, manufacturing, trade and utilities sectors.
The SA producer price index numbers (PPI), for September, came in lower than expected at 4.1% vs 4.3% year-on-year.
The MTBPS seemed to rattle South Africa on a more foundational level than originally expected. One of the key influencers seeing the rand lose around 3.66% against the USD was the downward revision of SA’s growth rate to 0.5% for the 2019 fiscal year, from an initial 1.5% in February 2019.
A general focus was placed on tax compliance by citizens with the following key topics being discussed in the speech:
More volatility on the horizon
The week ahead is certain to be an exciting one, particularly if Moody’s decides to share its thoughts about the SA economy over the weekend. Monday may potentially bring turbulence for traders and longer-term investors alike. When casting one’s eyes further offshore, focus can still be placed on the US-China trade war, Brexit and US earnings. For the moment, however, the health of the South African landscape will more than likely dictate the direction of the JSE next week.
From the US’ Federal Open Market Committee (FOMC) to South Africa’s own Medium-Term Budget Policy Statement (MTBPS) and the cancellation of APEC due to social unrest in Chile, where Donald Trump and Xi Jinping were due to meet, it’s almost as if the global economy is tip-toeing on a rather precarious tightrope. Reasonable quarter three (Q3) company earnings continue to roll out of the US, while South Africa faces a potentially material “slap on the wrists” by Moody’s credit rating agency later today.
Rate cutting in a weak global environment
A relatively interesting week of monetary policy adjustments was seen globally this week, primarily looking at the US. On Wednesday evening, the Federal Reserve’s Jerome Powell cut interest rates by 0.25% to a range of between 1.50% and 1.75% (from 1.75% - 2.00%). US dollar strength did tend to lose some steam shortly after the announcement, not that it mattered to the rand after Wednesday’s underwhelming budget speech. Right off the back of the interest rate cut in the US, China’s Hong Kong Monetary Authority also moved to lower interest rates by 25bp to 2%. Hong Kong’s policy is to move interest rates in lockstep with the US in order to manage currency disparity, due to the country’s pegged currency (to the USD).
Looking at US economic data, gross domestic product growth quarter-on-quarter came in stronger than expected at 1.9%, where estimates were just 1.6%. Although the numbers beat analyst forecasts, it’s important to note that GDP did fall from Q2’s 2% number, mainly due to trade war tensions. Moving west, a special changing of guard comes into effect today as long-standing president of the European Central Bank (ECB), Mario Draghi hands over the reins to Christine Lagarde.
After costing the UK economy around £66 billion since the idea of independence was launched, Brexit continues to leave damage in its wake. The British pound has lost around 13% of its value relative to the US dollar since Brexit began. Per UK citizen, the Brexit dilemma costs around R16.38 per head, per day, and now another two months have been added to the picture with general elections destined to take place in December. A confused parliament will seemingly try to find some form of solution to Brexit through a general election. It will be interesting to see how this pans out.
South African economy looking weaker
Closer to home, the MTBPS and pending Moody’s credit rating announcement veiled the country in a slight tone of gloom this week. To add a “cherry on the top” of the morbid economic climate, the South African unemployment rate hit its worst level in 11 years at 29.1% during Q3. Youth unemployment now sits at a devastatingly high 58.2%. With 16.4 million SA residents now unemployed, where did the South African economy shed the jobs? Mainly within the construction, manufacturing, trade and utilities sectors.
The SA producer price index numbers (PPI), for September, came in lower than expected at 4.1% vs 4.3% year-on-year.
The MTBPS seemed to rattle South Africa on a more foundational level than originally expected. One of the key influencers seeing the rand lose around 3.66% against the USD was the downward revision of SA’s growth rate to 0.5% for the 2019 fiscal year, from an initial 1.5% in February 2019.
A general focus was placed on tax compliance by citizens with the following key topics being discussed in the speech:
- The budget shortfall is R52.5 billion, lower than anticipated
- SA’s economic growth is slowing and unemployment is rising
- Almost half of the country’s three-year spend (R6.3 trillion) will be allocated to education, social grants and healthcare
- The budget deficit is rising and both debt and debt-service costs are increasing
- Government will cut costs within the ranks of parliament
- National Treasury agreed to further assist embattled state-owned enterprise, Eskom
- e-tolls are to remain in place and payment will be enforced
More volatility on the horizon
The week ahead is certain to be an exciting one, particularly if Moody’s decides to share its thoughts about the SA economy over the weekend. Monday may potentially bring turbulence for traders and longer-term investors alike. When casting one’s eyes further offshore, focus can still be placed on the US-China trade war, Brexit and US earnings. For the moment, however, the health of the South African landscape will more than likely dictate the direction of the JSE next week.
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Our highlight for the week:
Our highlight of the week is the latest JSE trading statistics that shows foreigners continue to sell JSE listed shares in their droves. Below an extract of the latest JSE trading statistics
Number of trades:
Number of trades (2019): 1 704 285
Number of trades (2018): 1 719 112
% change year on year: -0.86%
Volume traded:
Volume traded (2019): 1 451 657 000
Volume of traded (2018): 1 705 751 000
% change year on year: -14.90%
Value of trades:
Value of trades (2019): R103 114 198 000
Value of trades (2018): R107 889 543 000
% change year on year: 0.88%
Foreign purchase/selling:
Net sales/Purchases (2019): -R4 441 728 000
Net sales/Purchases (2018): -R3 192686 000
So year to date (YTD) foreigners have been net seller/buyers:
Net sales/Purchases (2019): -R91.290 billion
Net sales/Purchases (2018): -R20.192 billion
So a year ago foreigners were net sellers of SA listed shares to the value of -R20.192 billion for the YTD while this year they have been net sellers to the tune of -R91.290 billion in the year to date (YTD). That is a R71.1 billion difference between the net buying/selling position last year compared to this year as foreigners accelerate their selling of SA's listed stocks.
Read the full article here
Number of trades (2019): 1 704 285
Number of trades (2018): 1 719 112
% change year on year: -0.86%
Volume traded:
Volume traded (2019): 1 451 657 000
Volume of traded (2018): 1 705 751 000
% change year on year: -14.90%
Value of trades:
Value of trades (2019): R103 114 198 000
Value of trades (2018): R107 889 543 000
% change year on year: 0.88%
Foreign purchase/selling:
Net sales/Purchases (2019): -R4 441 728 000
Net sales/Purchases (2018): -R3 192686 000
So year to date (YTD) foreigners have been net seller/buyers:
Net sales/Purchases (2019): -R91.290 billion
Net sales/Purchases (2018): -R20.192 billion
So a year ago foreigners were net sellers of SA listed shares to the value of -R20.192 billion for the YTD while this year they have been net sellers to the tune of -R91.290 billion in the year to date (YTD). That is a R71.1 billion difference between the net buying/selling position last year compared to this year as foreigners accelerate their selling of SA's listed stocks.
Read the full article here