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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 23 August 2019
The past week saw some relief in terms of trade friction, allowing market sentiment to recover somewhat. The rand however remained subdued for a large part of the week, as local fundamentals continue to weigh heavily on the country and its ability to attract sustainable long-term investment which should translate into subsequent growth.
GLOBAL DATA AND POLITICS
While declining global growth remains a key risk for markets, the focus will shift to the central bankers of the world today, as they meet for the Jackson Hole Economic Policy Symposium. Discussions relating to economic performance, monetary policy and the position of each central bank will take place, with markets taking a keen interest in the address due to be delivered by Fed Chair, Jerome Powell, later today.
Wednesday saw the release of the July FOMC minutes, indicating divisions amongst the chairs regarding the recent interest rate cut of 25bps. There is, however, consensus amongst the chairs that economic performance from the US will dictate monetary policy and that the Fed is not embarking on a rate-cutting cycle. Existing home sales for July from the US accelerated to 5.42m, exceeding market expectations, while initial jobless claims reaffirmed the resilience of the US job market, coming in at 206k for the week, versus the previous 221k. Services and manufacturing PMI indicated a decline, dropping to 50.9 and 49.9 points respectively in August.
Europe remains on shaky ground as the uncertainty in Italy specifically reaches new heights. The economic data from the union also continues to disappoint, with the current account dropping to 18.4bn in June, while CPI met expectations with 0.9% year-on-year. Construction output remained flat, while manufacturing PMI rose marginally to 47 points in August. Services PMI remained largely in line with expectations, reaching 53.4 points for the same period.
EQUITIES
The negatively infamous ‘yield curve’ was taken out of the spotlight this week, as strong retail sector earnings flooded headlines on US shores. With the US able to maintain the strong employment numbers that they have been experiencing and still sustain the robust consumer spending one has seen, especially in the retail sector numbers, it’s not necessarily all doom and gloom just yet.
While retail earning’s numbers impressed, the general indecision seen in the Fed’s minutes (when discussing the possibility of future interest rate cuts), opened up some space for equity markets to run, while gold, as a safe haven investment, took it’s foot off the accelerator.
The last week saw the three major US indices performing relatively strongly:
FAANGs performance for August, so far:
COMMODITIES
Brent crude and WTI were seen clawing back some of their losses, from a drastic 11% fall in early August. Brent Crude saw its price jumping back over the $60.00 a barrel mark as US oil inventories contracted. Given the rough and tricky political climate to navigate, oil prices maintain downside risk. Should Trump’s tariffs follow through in December, there’s a great potential for either Chinese retaliation, through their own tariffs, or further fiscal stimulus. Having said this, the battle to maintain global growth and production, may see oil prices drop lower, as oil demand drops off. Brent Crude opened Friday’s trading day at $60.26 per barrel, while US West Texas Intermediate (WTI) opened at $55.56.
After having had an extremely powerful run of up to 18.53% this year, gold prices seemed to cool this week, correcting around 1.66%. Gold will more than likely remain range-bound in the near-term, while the fog becomes clearer, when looking at the political tug-of-war. Both platinum and palladium had a positive week, although ‘nothing to write home about’. On Friday morning, gold, platinum and palladium were trading at levels of around $1,504.05 $862.85 and $11481.20 per fine ounce respectively.
SOUTH AFRICAN FUNDAMENTALS
When it comes to local elements, our broken record remains stuck in a groove with the dominant elements still being the ongoing Zondo commission, Eskom, Moody’s and of course the pressure on President Cyril Ramaphosa. Parliament turned the heat on the president this week, with a large portion of the attention remaining on the controversial Bosasa’s donation to Ramaphosa’s 2017 election campaign. With the contribution being marginal in the greater scheme of things and the election rules allowing for private fundraising, we cannot help but feel that this matter is being used to misdirect the attention of the nation while the sinister and corrupt deploy their agendas in the background.
It has been a quiet week for South Africa from a data perspective, with CPI coming in lower than expected in July at 4%, leaving room for the SARB to deploy additional stimulus in terms of interest rate cuts in an effort to assist the economy. The rand exhibited volatility this week, reaching lows of just above R15.49/$, before retracing back to R15.20 during early trade on Thursday. The cool down in global trade tension assisted in the recovery, while ZAR short sellers ran out of steam, following the overselling witnessed earlier this month. We would tread lightly, though, as any hawkish comment from the Federal Reserve at the Jackson Hole Symposium could easily send the rand tumbling once more.
SOUTH AFRICAN EQUITY
South African equities had yet another tough week, even as the rand made a slight comeback, against the US dollar. While the rand was seen strengthening around 0.50% against the US dollar this week, local equity indices also enjoyed a mild 40-50 basis-point move higher. 2019 hasn’t been a great year for the retail sector, with most market values being pressed down quite heavily. Pick n Pay, The Foschini Group and Spar have all fallen between 10% - 20% this year. Truworths, Mr. Price, Massmart and Shoprite have seen between 35% and 60% of their value being stripped from the market in 2019. The only retailer holding it together, albeit seven percent underwater, happens to be Woolworths who have managed to somehow stop the bleeding that they had experienced quite heavily over the last two years, thanks to its underachieving David Jones clothing-arm, based in Australia.
While the underlying consumer experiences the pinch on their pockets, during this tightening economy, it’s interesting to note that both British American Tobacco and Anheuser Busch Inbev are up 53% and 17%, respectively, for the year. Although both companies have experienced the release of some undesirable financial numbers this year, could one start assuming that these ‘all-weather investments’ are starting to come into their own? Even in times of economic depression, tobacco and alcohol continue to successfully sell, as economically-impacted consumers try find ways of brightening up or numbing the gloomy effects brought upon by a global economic slowdown.
For August, so far:
Should Sasol not act towards addressing the control weaknesses flagged in the report, and sooner rather than later, waning investor sentiment could begin to weigh more heavily on the firm. South African investors are well aware that other prominent companies in the recent past have fallen prey to questionable management decisions. This is not to say that Sasol falls among their ranks, but the memory of these fallen stocks is all too fresh in investors’ minds. Sasol did need to delay its results presentation owing to certain international accounting standards and practices that had to be met, and more specifically relating to the control weaknesses raised in the initial independent review which was presented on 14 August 2019.
Although Sasol managed to scrape back their 14% drop since last Friday, the share is still around 41% down, since 01 May 2019. Down around 20% for the month of August, a small ray of hope shone through the clouds for Exxaro’s shareholders, who saw the company releasing reasonable results, especially when looking at the dividends, for the six months ending 30 June 2019. Some of the numbers seen coming out for the period were are follows:
THE WEEK AHEAD
We can assume that the currency market volatility is here to stay, while performance will largely be event driven. GDP data due for release from the US will be a highlight, as it will provide us with a clearer picture of the growth trajectory of the US, as well as provide us with guidance in terms of US interest rates. Locally we will turn our attention to the local trade balance for July. While the rand has managed to break below R15.20, and started the move to a leg stronger, our long term view remains biased towards a weaker rand. In the short and medium term, however, the rand could see a retracement to the R14.65 mark, should it manage to muster enough momentum. We remain reliant on global risk sentiment to determine direction of the currency, while local elements merely dictates the speed at which it moves in the determined direction. The rand started the day trading at R15.33/$, R16.87/€ and R18.64/£
GLOBAL DATA AND POLITICS
While declining global growth remains a key risk for markets, the focus will shift to the central bankers of the world today, as they meet for the Jackson Hole Economic Policy Symposium. Discussions relating to economic performance, monetary policy and the position of each central bank will take place, with markets taking a keen interest in the address due to be delivered by Fed Chair, Jerome Powell, later today.
Wednesday saw the release of the July FOMC minutes, indicating divisions amongst the chairs regarding the recent interest rate cut of 25bps. There is, however, consensus amongst the chairs that economic performance from the US will dictate monetary policy and that the Fed is not embarking on a rate-cutting cycle. Existing home sales for July from the US accelerated to 5.42m, exceeding market expectations, while initial jobless claims reaffirmed the resilience of the US job market, coming in at 206k for the week, versus the previous 221k. Services and manufacturing PMI indicated a decline, dropping to 50.9 and 49.9 points respectively in August.
Europe remains on shaky ground as the uncertainty in Italy specifically reaches new heights. The economic data from the union also continues to disappoint, with the current account dropping to 18.4bn in June, while CPI met expectations with 0.9% year-on-year. Construction output remained flat, while manufacturing PMI rose marginally to 47 points in August. Services PMI remained largely in line with expectations, reaching 53.4 points for the same period.
EQUITIES
The negatively infamous ‘yield curve’ was taken out of the spotlight this week, as strong retail sector earnings flooded headlines on US shores. With the US able to maintain the strong employment numbers that they have been experiencing and still sustain the robust consumer spending one has seen, especially in the retail sector numbers, it’s not necessarily all doom and gloom just yet.
While retail earning’s numbers impressed, the general indecision seen in the Fed’s minutes (when discussing the possibility of future interest rate cuts), opened up some space for equity markets to run, while gold, as a safe haven investment, took it’s foot off the accelerator.
The last week saw the three major US indices performing relatively strongly:
- S&P 500: up 2.74%
- NASDAQ: up 3.30%
- Dow Jones: up 2.64%
FAANGs performance for August, so far:
- Facebook: down around 5.57%
- Amazon: down around 2.62%
- Apple: down around 0.28%
- Netflix: down around 8.08%
- Alphabet: down around 2.35%
COMMODITIES
Brent crude and WTI were seen clawing back some of their losses, from a drastic 11% fall in early August. Brent Crude saw its price jumping back over the $60.00 a barrel mark as US oil inventories contracted. Given the rough and tricky political climate to navigate, oil prices maintain downside risk. Should Trump’s tariffs follow through in December, there’s a great potential for either Chinese retaliation, through their own tariffs, or further fiscal stimulus. Having said this, the battle to maintain global growth and production, may see oil prices drop lower, as oil demand drops off. Brent Crude opened Friday’s trading day at $60.26 per barrel, while US West Texas Intermediate (WTI) opened at $55.56.
After having had an extremely powerful run of up to 18.53% this year, gold prices seemed to cool this week, correcting around 1.66%. Gold will more than likely remain range-bound in the near-term, while the fog becomes clearer, when looking at the political tug-of-war. Both platinum and palladium had a positive week, although ‘nothing to write home about’. On Friday morning, gold, platinum and palladium were trading at levels of around $1,504.05 $862.85 and $11481.20 per fine ounce respectively.
SOUTH AFRICAN FUNDAMENTALS
When it comes to local elements, our broken record remains stuck in a groove with the dominant elements still being the ongoing Zondo commission, Eskom, Moody’s and of course the pressure on President Cyril Ramaphosa. Parliament turned the heat on the president this week, with a large portion of the attention remaining on the controversial Bosasa’s donation to Ramaphosa’s 2017 election campaign. With the contribution being marginal in the greater scheme of things and the election rules allowing for private fundraising, we cannot help but feel that this matter is being used to misdirect the attention of the nation while the sinister and corrupt deploy their agendas in the background.
It has been a quiet week for South Africa from a data perspective, with CPI coming in lower than expected in July at 4%, leaving room for the SARB to deploy additional stimulus in terms of interest rate cuts in an effort to assist the economy. The rand exhibited volatility this week, reaching lows of just above R15.49/$, before retracing back to R15.20 during early trade on Thursday. The cool down in global trade tension assisted in the recovery, while ZAR short sellers ran out of steam, following the overselling witnessed earlier this month. We would tread lightly, though, as any hawkish comment from the Federal Reserve at the Jackson Hole Symposium could easily send the rand tumbling once more.
SOUTH AFRICAN EQUITY
South African equities had yet another tough week, even as the rand made a slight comeback, against the US dollar. While the rand was seen strengthening around 0.50% against the US dollar this week, local equity indices also enjoyed a mild 40-50 basis-point move higher. 2019 hasn’t been a great year for the retail sector, with most market values being pressed down quite heavily. Pick n Pay, The Foschini Group and Spar have all fallen between 10% - 20% this year. Truworths, Mr. Price, Massmart and Shoprite have seen between 35% and 60% of their value being stripped from the market in 2019. The only retailer holding it together, albeit seven percent underwater, happens to be Woolworths who have managed to somehow stop the bleeding that they had experienced quite heavily over the last two years, thanks to its underachieving David Jones clothing-arm, based in Australia.
While the underlying consumer experiences the pinch on their pockets, during this tightening economy, it’s interesting to note that both British American Tobacco and Anheuser Busch Inbev are up 53% and 17%, respectively, for the year. Although both companies have experienced the release of some undesirable financial numbers this year, could one start assuming that these ‘all-weather investments’ are starting to come into their own? Even in times of economic depression, tobacco and alcohol continue to successfully sell, as economically-impacted consumers try find ways of brightening up or numbing the gloomy effects brought upon by a global economic slowdown.
For August, so far:
- All Share and Top 40 indices: down around 4.70%
- Resources: down around 5.90%
- Industrials: down around 5.17% (Naspers: down 3.13%)
- Financials: down around 4.42%
Should Sasol not act towards addressing the control weaknesses flagged in the report, and sooner rather than later, waning investor sentiment could begin to weigh more heavily on the firm. South African investors are well aware that other prominent companies in the recent past have fallen prey to questionable management decisions. This is not to say that Sasol falls among their ranks, but the memory of these fallen stocks is all too fresh in investors’ minds. Sasol did need to delay its results presentation owing to certain international accounting standards and practices that had to be met, and more specifically relating to the control weaknesses raised in the initial independent review which was presented on 14 August 2019.
Although Sasol managed to scrape back their 14% drop since last Friday, the share is still around 41% down, since 01 May 2019. Down around 20% for the month of August, a small ray of hope shone through the clouds for Exxaro’s shareholders, who saw the company releasing reasonable results, especially when looking at the dividends, for the six months ending 30 June 2019. Some of the numbers seen coming out for the period were are follows:
- headline earnings per share, up 42%
- revenue, down 2%, to R12 billion
- net operating profit, down 24%, to R2.4 billion
- Interim dividend up to R8.64 per share from R3.34
- Special dividend of R8.97 per share
THE WEEK AHEAD
We can assume that the currency market volatility is here to stay, while performance will largely be event driven. GDP data due for release from the US will be a highlight, as it will provide us with a clearer picture of the growth trajectory of the US, as well as provide us with guidance in terms of US interest rates. Locally we will turn our attention to the local trade balance for July. While the rand has managed to break below R15.20, and started the move to a leg stronger, our long term view remains biased towards a weaker rand. In the short and medium term, however, the rand could see a retracement to the R14.65 mark, should it manage to muster enough momentum. We remain reliant on global risk sentiment to determine direction of the currency, while local elements merely dictates the speed at which it moves in the determined direction. The rand started the day trading at R15.33/$, R16.87/€ and R18.64/£
Advertisement (and yes South Africans can buy from Amazon as they deliver to SA)
Our highlight for the week:
Yesterday Mr Price shares declined sharply yesterday after they released their latest trading statement which the markets didn't like at all. By 1pm the the stock was down 8.4%. Below a short extract from their trading statement
Apparel Segment Retail Sales Comparable store sales Units RSP Inflation
Mr Price -2.1% -5.3% -1.6% -0.6%
Mr Price Sport 9.3% 5.9% 4.0% 5.0%
Miladys 3.4% -1.2% 2.1% 1.7%
Total for apparel segment -0.5% -3.9% -1.0% 0.5%
Home Segment Retail Sales Comparable store sales Units RSP Inflation
Mr Price Home 3.2% 1.7% -4.4% 8.0%
Sheet Street 5.4% 2.9% -5.4% 11.4%
Total for Home segment 3.9% 2.1% -4.8% 9.1%
Total for the group Retail Sales Comparable store sales Units RSP Inflation
Group 0.6% -2.5% -1.9% 2.5%
Read the full article here
Apparel Segment Retail Sales Comparable store sales Units RSP Inflation
Mr Price -2.1% -5.3% -1.6% -0.6%
Mr Price Sport 9.3% 5.9% 4.0% 5.0%
Miladys 3.4% -1.2% 2.1% 1.7%
Total for apparel segment -0.5% -3.9% -1.0% 0.5%
Home Segment Retail Sales Comparable store sales Units RSP Inflation
Mr Price Home 3.2% 1.7% -4.4% 8.0%
Sheet Street 5.4% 2.9% -5.4% 11.4%
Total for Home segment 3.9% 2.1% -4.8% 9.1%
Total for the group Retail Sales Comparable store sales Units RSP Inflation
Group 0.6% -2.5% -1.9% 2.5%
Read the full article here