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Peregrine Treasury Services Weekly Market Wrap 29 March 2019
Date: 29 March 2019 Category: Stock Market |
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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
Political echelons were in the driving seat this week, with the underlying investor trying to position themselves as safely as possible ahead of various unravelling global events, such as Theresa May notifying supporters that she plans on stepping down after a Brexit deal has been concluded, while the US-China trade talks raged on, on Thursday evening. Closer to home, coupled with the emerging-market-ripples of a destabilizing Turkish financial system, the stance that Moody’s credit rating agency looks to take against South Africa and its economy, as an investable institution, on Friday, remains uncertain. With global equity markets starting to feel some pressure, their resilience, painted through recent market action, continues to impress investors.
GLOBAL DATA AND POLITICS
An interesting change of scenery was seen this week, as the spotlight on the US/China trade dynamic, and Brexit, was briefly aimed toward to a more-pressing emerging market matter. Turkey seemingly peaked interests this week, as the embattled country prepares for elections this coming weekend - elections that could indeed challenge the reign of President Erdogan, since 2014. Wednesday evening saw Turkish swap rates soar over 1000.00%, as local banks were pressured into tightening the tap on liquidity in order to buffer the rapid dumping of the Turkish Lira, forcing investors to load multiple forms of short-positions against various Turkish financial sector instruments, as well as turn to other emerging market currencies, as a proxy for the Lira. The spillover experienced, from this within the local South African market, was unsparing, with the rand retreating against all major currencies, topping R14.73 on Thursday afternoon, against the US dollar, after trading in the mid R14.20’s at the beginning of the week.
It’s been a relatively busy data-week for the Eurozone. French gross domestic product (GDP) figures remained largely flat at 0.30% quarter-on-quarter, while industrial and consumer sentiment, as well as business climate figures, declined in the European region during March. President of the European Central Bank (ECB), Mario Draghi, seemed to have a tough time attempting to portray a positive future outlook, as slow growth and populist movements continue to weigh heavily on the Eurozone.
After almost three years, following the vote by Britain to leave the European Union (EU), the U.K. remains in turmoil, as continuous deadlocks now threaten the exit of Theresa May as Prime Minister. A petition exceeding five million votes calling for a new public vote has been submitted, while wide spread anti-Brexit protests drew Britain to a standstill over the weekend. While politicians fear that a fresh public vote might threaten the very essence of democracy, fear on the streets of Britain is a bit more primal, with many citizens fearing food and medication shortages. While the date has been pushed from 29 March to late April or early May, the can-kicking-tactic is losing its muster and tension is palpable. The unfortunate reality, however, remains that Britain is no closer to a conclusion than it was immediately following the vote in 2016.
US POLITICS
Sluggish economic data dripping out of the US continues to fuel fears of a potential recession in 2020. The US saw a large decline in housing starts on Tuesday, dropping by 8.70% month-on-month in February, while consumer confidence declined to 124.1 points - well below the expected 132.0 points. Initial jobless claims numbers were one of the few sets of positive data from the US, declining to 211,000 from the previous 216,000. GDP undershot the target of 2.40% by 0.2% for the fourth quarter (Q4) of 2018. Pending home sales dropped by 1.00% during February, while new home sales are expected later today.
US EQUITIES
Political uncertainty shrouding the greater equity market has led most markets to progress in a cautious sideways manner for the last two weeks. Little more than a gentle sideways movement has been experience globally. Apple Inc. is only up 0.14% in the last two weeks of trading while Facebook (3.78%), Amazon (1.24%), Netflix (0.33%) and Alphabet (0.11%) have also shown to be trading hesitantly.
When looking at exchange traded funds (ETFs) in 2019, year-to-date flows have tended to indicate that the bulls aren’t necessarily ‘out and about’. Surprisingly, more action and liquidity-creation has been seen within the fixed income space of North America. Since mid-March, the outflow from US and global equities seems to have been reallocated to the likes of alternative, fixed income and commodity asset classes. It definitely seems as if there is some form of safe-haven-searching going on in the undertow. Year-to-date, the Dow Jones is up around 10.15%, the NASDAQ: 15.50% and the S&P 500: 12.22%. In South African rand-terms, add another 1.69% to each of these return figures to see what the South African investor could be up in 2019, with the currency-effect added.
COMMODITIES
Oil markets find themselves positioned where they were two weeks ago, at levels of around $66.64 and $58.38 for Brent Crude and WTI, respectively, after US Crude inventories grew more than expected for the week - 2.8 million barrels vs and expected 1.2 million barrels. On Friday, Brent Crude opened the trading day at $68.07 per barrel, while WTI opened at $59.58
Gold prices took a dip below the psychological $1,300.00 level on Thursday afternoon, following better than expected jobless claims numbers coming out of the United States. Considering the weaker Q4 GDP coming out of the US, coupled with a weakening Eurozone region, the price of gold should retest these $1,300.00 levels again very soon, as logic tends to point toward gold being a safe haven harbour in times of economic uncertainty. On Friday morning, gold, platinum and palladium were trading at levels of around $1,289.00, $845.68 and $1,363.77 per fine ounce respectively.
SOUTH AFRICAN POLITICS
While Turkey’s political situation veils many global economic headlines, for the time being, local pressures also contributed their fair share of disorder to the rand’s recent instability. Even though the lights are on for the time being, load-shedding may now present itself as a defining part of the South African environment for the foreseeable future, pulsing a negative ripple throughout all sectors of the local economy. On Thursday afternoon, the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) announced that interest rates will remain on hold and that future inflationary pressures will largely be attributed to the increase in Eskom tariffs, rise in fuel cost, as well as a weaker rand. SARB governor, Lesetja Kganyago, also warned of the effects sluggish global growth environment, as well as the current global market dynamic, listing trade tensions and Brexit as some of the key risk factors. The governor proceeded to deliver more negative news, by announcing that local growth is more subdued than initially anticipated, and revised the growth forecasts from 1.70% to 1.30% for 2019.
Thursday also saw the release of local producer price index (PPI) figures rising 4.70% year-on-year in February - marginally higher than the anticipated 4.60%. Today will see the release of the trade balance, expected to indicate a surplus of R2 billion.
Another key event is also in store for the local economy, with ratings agency Moody’s expected to deliver their ratings decision, with one of the following possible outcomes:
Politics in South Africa remains largely subdued as the election creeps closer, with the normal run-of-the-mill election antics playing out. While an ANC win is largely expected to be market positive, one cannot help but find the list of proposed cabinet members somewhat worrisome, as many infamous names implicated in state capture makes its appearance. We expect the volatility in markets to escalate closer to the election date, with many expecting a strong rebound in the currency post-election.
SOUTH AFRICAN EQUITY
Local SA equity markets remained surprisingly flat over the last two weeks, considering the stumbling rand. The financial sector continued to fall around 2.00%, while resources strengthened over 4.00% during the last two trading weeks.
Capitec have been working hard at cutting their underlying client fee structure, specifically targeting digital banking and administration fees. They’ve done this while also improving and streamlining the digital and self-service banking experience. Capitec’s banking app, for example, is zero-rated for mobile data charges. This means their clients can bank on Capitec’s mobile platforms without consuming data, facilitating greater exploration and use of their app and by extension, products and services.
Going against the grain, Capitec released a set of results that weren’t too far off expectations, although topline growth tended to be muted year-on-year (YoY), while the heavy use of impairments did tend to raise some flags.
Key Capitec figures:
EOH continued down its ‘road to ruin’, as management gave negative guidance on company profits and earnings, due to Microsoft severing ties with the company. Around R30 million in profit-before-tax may be lost on the back of the Microsoft ordeal. Over the last 10 trading days, EOH has cratered over 30.00%, from R16.50 to levels of around R11.10 per share. EOH’s market value, now currently worth just over R1.94 billion on Thursday afternoon.
Notable market moves in February (month-to-date):
Year-to-date, the JSE All Share index is up 6.30% and the Top 40 up 6.80%, both relatively stable over the last nine trading days. Leading the way, sector-wise, resources remains in top spot, returning around 14.47% for the year so far, followed closely by industrials with 7.22%. In last spot, SA financials now stand at 2.34% down for the year, mainly attributed to both a slowing global economy and the largely unsettled rand.
THE WEEK AHEAD
Turbulent markets is no new concept for 2019, with the expectation for the week to come largely being in line with the bumpy first quarter. The rand is expected to remain under pressure, with short bursts of strength leading up to the elections. The currency will largely continue to be driven by global sentiment- or rather lack thereof, as well geopolitical developments. On Friday morning a US dollar would set the investor back, R14.60, a euro R16.38 and a British pound R19.07.
GLOBAL DATA AND POLITICS
An interesting change of scenery was seen this week, as the spotlight on the US/China trade dynamic, and Brexit, was briefly aimed toward to a more-pressing emerging market matter. Turkey seemingly peaked interests this week, as the embattled country prepares for elections this coming weekend - elections that could indeed challenge the reign of President Erdogan, since 2014. Wednesday evening saw Turkish swap rates soar over 1000.00%, as local banks were pressured into tightening the tap on liquidity in order to buffer the rapid dumping of the Turkish Lira, forcing investors to load multiple forms of short-positions against various Turkish financial sector instruments, as well as turn to other emerging market currencies, as a proxy for the Lira. The spillover experienced, from this within the local South African market, was unsparing, with the rand retreating against all major currencies, topping R14.73 on Thursday afternoon, against the US dollar, after trading in the mid R14.20’s at the beginning of the week.
It’s been a relatively busy data-week for the Eurozone. French gross domestic product (GDP) figures remained largely flat at 0.30% quarter-on-quarter, while industrial and consumer sentiment, as well as business climate figures, declined in the European region during March. President of the European Central Bank (ECB), Mario Draghi, seemed to have a tough time attempting to portray a positive future outlook, as slow growth and populist movements continue to weigh heavily on the Eurozone.
After almost three years, following the vote by Britain to leave the European Union (EU), the U.K. remains in turmoil, as continuous deadlocks now threaten the exit of Theresa May as Prime Minister. A petition exceeding five million votes calling for a new public vote has been submitted, while wide spread anti-Brexit protests drew Britain to a standstill over the weekend. While politicians fear that a fresh public vote might threaten the very essence of democracy, fear on the streets of Britain is a bit more primal, with many citizens fearing food and medication shortages. While the date has been pushed from 29 March to late April or early May, the can-kicking-tactic is losing its muster and tension is palpable. The unfortunate reality, however, remains that Britain is no closer to a conclusion than it was immediately following the vote in 2016.
US POLITICS
Sluggish economic data dripping out of the US continues to fuel fears of a potential recession in 2020. The US saw a large decline in housing starts on Tuesday, dropping by 8.70% month-on-month in February, while consumer confidence declined to 124.1 points - well below the expected 132.0 points. Initial jobless claims numbers were one of the few sets of positive data from the US, declining to 211,000 from the previous 216,000. GDP undershot the target of 2.40% by 0.2% for the fourth quarter (Q4) of 2018. Pending home sales dropped by 1.00% during February, while new home sales are expected later today.
US EQUITIES
Political uncertainty shrouding the greater equity market has led most markets to progress in a cautious sideways manner for the last two weeks. Little more than a gentle sideways movement has been experience globally. Apple Inc. is only up 0.14% in the last two weeks of trading while Facebook (3.78%), Amazon (1.24%), Netflix (0.33%) and Alphabet (0.11%) have also shown to be trading hesitantly.
When looking at exchange traded funds (ETFs) in 2019, year-to-date flows have tended to indicate that the bulls aren’t necessarily ‘out and about’. Surprisingly, more action and liquidity-creation has been seen within the fixed income space of North America. Since mid-March, the outflow from US and global equities seems to have been reallocated to the likes of alternative, fixed income and commodity asset classes. It definitely seems as if there is some form of safe-haven-searching going on in the undertow. Year-to-date, the Dow Jones is up around 10.15%, the NASDAQ: 15.50% and the S&P 500: 12.22%. In South African rand-terms, add another 1.69% to each of these return figures to see what the South African investor could be up in 2019, with the currency-effect added.
COMMODITIES
Oil markets find themselves positioned where they were two weeks ago, at levels of around $66.64 and $58.38 for Brent Crude and WTI, respectively, after US Crude inventories grew more than expected for the week - 2.8 million barrels vs and expected 1.2 million barrels. On Friday, Brent Crude opened the trading day at $68.07 per barrel, while WTI opened at $59.58
Gold prices took a dip below the psychological $1,300.00 level on Thursday afternoon, following better than expected jobless claims numbers coming out of the United States. Considering the weaker Q4 GDP coming out of the US, coupled with a weakening Eurozone region, the price of gold should retest these $1,300.00 levels again very soon, as logic tends to point toward gold being a safe haven harbour in times of economic uncertainty. On Friday morning, gold, platinum and palladium were trading at levels of around $1,289.00, $845.68 and $1,363.77 per fine ounce respectively.
SOUTH AFRICAN POLITICS
While Turkey’s political situation veils many global economic headlines, for the time being, local pressures also contributed their fair share of disorder to the rand’s recent instability. Even though the lights are on for the time being, load-shedding may now present itself as a defining part of the South African environment for the foreseeable future, pulsing a negative ripple throughout all sectors of the local economy. On Thursday afternoon, the South African Reserve Bank’s (SARB) Monetary Policy Committee (MPC) announced that interest rates will remain on hold and that future inflationary pressures will largely be attributed to the increase in Eskom tariffs, rise in fuel cost, as well as a weaker rand. SARB governor, Lesetja Kganyago, also warned of the effects sluggish global growth environment, as well as the current global market dynamic, listing trade tensions and Brexit as some of the key risk factors. The governor proceeded to deliver more negative news, by announcing that local growth is more subdued than initially anticipated, and revised the growth forecasts from 1.70% to 1.30% for 2019.
Thursday also saw the release of local producer price index (PPI) figures rising 4.70% year-on-year in February - marginally higher than the anticipated 4.60%. Today will see the release of the trade balance, expected to indicate a surplus of R2 billion.
Another key event is also in store for the local economy, with ratings agency Moody’s expected to deliver their ratings decision, with one of the following possible outcomes:
- No downgrade - Moody’s keeps the South African outlook at stable, with no downgrade in the sovereign rating. The announcement will be rand positive in the immediate and short term, however the retracement will be limited by the dominant global environment
- Outlook changed from stable to negative (most widely expected outcome) – Moody’s keeps the sovereign rating unchanged, while the outlook is changed from stable to negative, likely giving SA a stern warning about fiscal expenditure and growth concerns. The impact on the currency will likely also be positive in the immediate and short term, however, the change in outlook opens the door for a potential downgrade in November
- Downgrade (largely unexpected) – Moody’s cuts the sovereign rating, as well as changes the outlook from stable to negative. The rand is likely to have a kneejerk reaction in the short term, potentially breaking the R15.00 mark
- Postponement - Moody’s takes the decision to wait until after the election to make its decision. This will leave the market in limbo, but a small retracement in the currency could be expected
Politics in South Africa remains largely subdued as the election creeps closer, with the normal run-of-the-mill election antics playing out. While an ANC win is largely expected to be market positive, one cannot help but find the list of proposed cabinet members somewhat worrisome, as many infamous names implicated in state capture makes its appearance. We expect the volatility in markets to escalate closer to the election date, with many expecting a strong rebound in the currency post-election.
SOUTH AFRICAN EQUITY
Local SA equity markets remained surprisingly flat over the last two weeks, considering the stumbling rand. The financial sector continued to fall around 2.00%, while resources strengthened over 4.00% during the last two trading weeks.
Capitec have been working hard at cutting their underlying client fee structure, specifically targeting digital banking and administration fees. They’ve done this while also improving and streamlining the digital and self-service banking experience. Capitec’s banking app, for example, is zero-rated for mobile data charges. This means their clients can bank on Capitec’s mobile platforms without consuming data, facilitating greater exploration and use of their app and by extension, products and services.
Going against the grain, Capitec released a set of results that weren’t too far off expectations, although topline growth tended to be muted year-on-year (YoY), while the heavy use of impairments did tend to raise some flags.
Key Capitec figures:
- Headline earnings increased to R5.29 billion (19.00%)
- Headline earnings per share increased to 4,577 cents (19.00%)
- 15.00% increase in client base, now up to 11.4 million active clients
- 2.20 million active banking app clients
- Dividend increased 19.00% YoY to R17.50
EOH continued down its ‘road to ruin’, as management gave negative guidance on company profits and earnings, due to Microsoft severing ties with the company. Around R30 million in profit-before-tax may be lost on the back of the Microsoft ordeal. Over the last 10 trading days, EOH has cratered over 30.00%, from R16.50 to levels of around R11.10 per share. EOH’s market value, now currently worth just over R1.94 billion on Thursday afternoon.
Notable market moves in February (month-to-date):
- EOH: down around 29.26%
- Tongaat Hulett: 25.61%
- Absa Bank: down around 16.22%
- Discovery: down around 13.77%
- Shoprite: down around 9.73%
- Kumba Iron Ore: up around 10.37%
- Anheuser-Busch: up around 11.18%
- Exxaro: up around 7.11%
Year-to-date, the JSE All Share index is up 6.30% and the Top 40 up 6.80%, both relatively stable over the last nine trading days. Leading the way, sector-wise, resources remains in top spot, returning around 14.47% for the year so far, followed closely by industrials with 7.22%. In last spot, SA financials now stand at 2.34% down for the year, mainly attributed to both a slowing global economy and the largely unsettled rand.
THE WEEK AHEAD
Turbulent markets is no new concept for 2019, with the expectation for the week to come largely being in line with the bumpy first quarter. The rand is expected to remain under pressure, with short bursts of strength leading up to the elections. The currency will largely continue to be driven by global sentiment- or rather lack thereof, as well geopolitical developments. On Friday morning a US dollar would set the investor back, R14.60, a euro R16.38 and a British pound R19.07.
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.
EOH provided an update to their Microsoft Channel Agreement this week, and the market is continuing to punish the group. Phumelela gaming reported earnings earlier today and stated that their local South African operations are really struggling. The tough economic climate is hurting the group and their share price decline over recent years shows that they are struggling. Read more about Phumelela's latest result here.
EOH provided an update to their Microsoft Channel Agreement this week, and the market is continuing to punish the group. Phumelela gaming reported earnings earlier today and stated that their local South African operations are really struggling. The tough economic climate is hurting the group and their share price decline over recent years shows that they are struggling. Read more about Phumelela's latest result here.