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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 5 April 2019
While a fairly uneventful week was witnessed, in relation to the politically turbulent environment one has seen, so far, in 2019, attention was turned to the greater equity market that quietly added between 2.00% - 3.00% to the investor’s pockets this week. When casting one’s eyes upon South African shores, two major events guided the surprisingly positive week that was experienced on equity and currency markets alike. While the US-China trade talks start to show signs of a final crescendo, Moody’s credit rating agency painted a silver lining.
GLOBAL DATA AND POLITICS
Looking east, a positive uptick in Chinese data was released, with manufacturing and services purchasing managers index (PMI) data increasing to 50.8 and 54.4 points respectively in March. This compared to February figures of 49.9 and 51.1 points, respectively. Thanks to this robust data release, a short-term boost across most emerging markets was witnessed. European data remained subdued, as the manufacturing PMI for the greater Eurozone region decreased to 47.50 during March, from a previous 49.3, while unemployment remained flat at 7.80%. Consumer price index (CPI) data saw a marginal deceleration to 1.40% from the previous 1.50%, while retail sales rose 0.2% to 0.4% month-on-month during February.
US POLITICS
Moving to the not-so-mighty United States, retail sales saw a substantial drop during February, contracting to 0.20%, while manufacturing (PMI) slipped marginally to 52.40 points, from 53.00, for the same period. Durable goods orders also decelerated by 1.90% month-on-month for February.
Turning to transport, total vehicle sales ticked up to 17.45 million in March from 16.57 million in February, exceeding analyst expectations. Having said this, General Motors (GM) reported that their new vehicle sales came in around 7.00% lower, year-on-year, for the first quarter of 2019 – consumers opting to go for larger/higher margin sport-utility vehicles (SUVs) rather than cheaper/more-traditional passenger vehicles.
Some relief was felt in the jobs market, with the number of jobless claims declining to 202,000 from the previous 212,000. Many analysts are starting to feel that a recession may be looming in the US, with many even expecting rate cut by the Federal Reserve toward the end of the year, in an attempt to stimulate economic activity. Watch this space.
US EQUITIES
When looking at the greater flow of money within the US this year, one would be correct in assuming that absolute conviction in any-one asset class has been far from convincing. While equities remain the asset class of choice, it would be remiss to overlook the interest recently seen in shorter-term fixed income solutions, while a gradual uptick in inflows has also been seen trickling toward cheaper passive forms of investments such as exchange traded funds (ETFs) and notes (ETNs).
When comparing 2019’s US ETF inflows for the first quarter of the year ($47.8 billion), against 2018 ($61.3 billion) and 2017 ($134.7 billion), one could assume that the greater investor has preferred to rather play in direct equity markets or have even stayed out of riskier asset classes all together. With the S&P 500’s already-impressive run of over 14.64% in 2019, one can start to feel a gentle drop in the market winds that once filled the S&P’s sails at the beginning of the year.
Riddled by recent regulatory trials, and quite honestly having the whole ‘user-privacy’ kitchen sink thrown at them, Facebook seemed to kick it up a gear this week, having traded around 5.00% higher since Monday. While growth remains solid within the firm, the fine-tuning of their privacy responsibilities to users, shaped by recent scrutiny, will only make the company more of a trustworthy one in the foreseeable future. Due to these facts, both Deutsche Bank and Guggenheim were seen upgrading Facebook’s neutral rating to a ‘buy’ suggestion for one’s portfolio. On Friday morning, Facebook traded at $176.02, up from $167.86 on Monday.
All-in-all, a solid week for US equities, adding around 3.00% to each of the three major indices since last Friday.
FAANGs performance, for the first week of April:
COMMODITIES
With oil and gas prices on a gentle uptrend, South Africa may be in a bit of a pickle, should the oil price reach levels of around $86.00 per barrel. With Eskom’s grid already in a questionable position, the last thing the country needs is for the backup plan, in oil and diesel, to become unattainable, due to lack of funding. As the $70.00 per barrel level is nearing its breaching point, for Brent Crude oil, a new trading band of between $68.30 and $72.60 has come into play for the next trading week.
With Brent Crude and US West Texas Intermediate (WTI), up around 28.00% and 37.00%, respectively, this year, it seems that OPEC’s cuts on oil production, coupled with US’ sanctions placed on Venezuela, have potentially blindsided the general oil analyst. On Friday, Brent Crude opened the trading day at $69.22 per barrel, while WTI opened at $62.07.
The price of gold stumbled on Thursday afternoon, as US jobless claims reached a 49-year low, under Trump’s reign. The obscure nature of recent economic data releases, coming out of the US, has ultimately left the precious metal scratching its head. Although gold and palladium spent the last trading week moving in a sideways direction, platinum decided to add some value this week, ending over 5.50% up since last Friday’s levels of around $852.00 per fine ounce. There’s no saying what catalyst are needed for platinum’s revival, however the gap between palladium and platinum is indeed starting to close. Will China revert back to platinum use within cars before the ‘electric generation’ rolls in, or has platinum’s heyday come and gone? One thing’s for sure, the pendulum always swings back – it’s just a question of when.
On Friday morning, gold, platinum and palladium were trading at levels of around $1,288.26, $886.08 and $1,366.88 per fine ounce respectively.
SOUTH AFRICAN POLITICS
Local markets started the week off on the front foot, following the surprise move by Moody's to skip the local rating announcement along with six other countries, leaving the rating one notch above sub investment grade at BAA3, with a stable outlook. With markets having expected a change in outlook to negative, the inaction offered a welcome boost to the currency, following a turbulent week.
Surprisingly, the good news did not quite end there.
A further unexpected announcement, on Tuesday, by Moody's, reassured local and foreign investors that a downgrade had, for the moment, been avoided, stating that although an official rating review would not be released, it was the credit ratings agency's view that the current rating of BAA3 was a fair representation of the local investment environment. This ‘positive’ news promptly triggered a mildly turbulent knee-jerk reaction within the realms of the local currency. In all likelihood, Moody’s will only reassess a potential ratings adjustment post-election, with the focus then falling on governing party policies, agendas and, of course, economic growth - largely hinging on the country's ability to provide sustainable electricity supply.
The second dominant driver for the week was the expectation that the two powerhouse economies, US and China, were finally moving toward the final stages of trade talks that would potentially see months of trade conflict finally coming to an end. The full scope of what the agreement will entail, how it will be implemented and enforced still remains murky. However, judging from market behaviour and the reignited appetite for emerging market assets, one can only assume that the general sentiment towards the agreement is positive. While volatility has been the status quo this week the local currency has remained surprisingly stable, with a bias towards strength. When looking at the US dollar/SA rand relationship, the dominant range over the past few days has been R14.12 - R14.20, lacking sufficient momentum to significantly drive the pair in any one direction, with conviction.
With national elections being a mere five weeks away, one would have expected a bit more sensitivity to local factors than what we are currently witnessing, however, expect an increase in volatility as D-day moves closer. Locally, total vehicle sales numbers were released on Monday, indicating a contraction of 3.10% year-on-year, for March. Standard Bank’s PMI numbers for March came in at 48.80, down from a previous 50.20, while ABSA’s Manufacturing PMI decelerated to 45.00 points, down from a previous 46.20, indicating a contraction in the manufacturing industry, overall, for the month of March. The rolling blackouts implemented by Eskom, more than likely one of the material attributors to these weaker numbers in the manufacturing sector.
SOUTH AFRICAN EQUITY
Breathing a sigh of relief, following the postponement of an official credit rating decision which was expected last Friday evening by Moody’s, the JSE rallied on the back of the absence of a widely expected downgrade. Moody’s clarified their postponement, by stating that they felt that South African economy still tends to meet the requirements of a sovereign country operating within the realms of a BAA3 credit rating with a stable outlook. This clarity of opinion however, did not constitute an official ratings announcement.
“SA Inc.” stocks (JSE listed companies generating their revenue primarily in rands), mainly banks and industrials, enjoyed the brief flurry of foreign and local investors restoring their waning faith in the local market and currency alike. Although a positive flow of money has been experienced on local shores this week, it’s important to note that the volume of money flow, associated with this move, wasn’t entirely convincing. It will be interesting to see how the market plays out on the run-up to elections.
One of the more interesting moves this week came out of Aspen Pharmaceuticals which educated the average investor on the incredible power of news-reading algorithms. When an unknown media source simply reiterated the already known sale of Aspen’s French dairy company Lactalis International, based in New Zealand, the share jumped over 9.00% over the course Wednesday afternoon and Thursday. No official statements were given, or necessarily needed, by either Aspen or Lactalis representatives. The standard media-related reminder, of the upcoming conclusion of the sale, seemed to trigger a few news-related trading algorithms into prematurely pricing-in positive news of the closure of the deal, which has been earmarked for the end of May 2019. Opening the week at R93.01, Aspen stormed into Friday’s trading day at R100.38 per share. While battling with an already challenging economic year, Nampak made the move to dispose of its Nigerian subsidiary, Nampak Carton’s Nigeria, to AR Packaging– this, in line with the overall forward –looking strategy of the company. Down over 10.00% for the week, Nampak opened Friday’s trading day at R10.28 per share. Some of April’s bigger movers on the JSE, as at Friday morning:
THE WEEK AHEAD
Declining global growth remains as the top threat, with emerging markets likely to bear the heaviest burden, as market participants lean toward safer, more-conservative investment destinations. The key for the local economy however, will be to try and keep up with the greater global market, and to not fall astray again once global growth starts turning positive again, as it did post the 2008 financial crises. For now, the rand remains stable against the US dollar, with the possibility of another stronger move toward the all-important R14.00 mark anticipated.
On Friday morning a US dollar would set the investor back, R14.12, a euro R15.85 and a British pound R18.49.
GLOBAL DATA AND POLITICS
Looking east, a positive uptick in Chinese data was released, with manufacturing and services purchasing managers index (PMI) data increasing to 50.8 and 54.4 points respectively in March. This compared to February figures of 49.9 and 51.1 points, respectively. Thanks to this robust data release, a short-term boost across most emerging markets was witnessed. European data remained subdued, as the manufacturing PMI for the greater Eurozone region decreased to 47.50 during March, from a previous 49.3, while unemployment remained flat at 7.80%. Consumer price index (CPI) data saw a marginal deceleration to 1.40% from the previous 1.50%, while retail sales rose 0.2% to 0.4% month-on-month during February.
US POLITICS
Moving to the not-so-mighty United States, retail sales saw a substantial drop during February, contracting to 0.20%, while manufacturing (PMI) slipped marginally to 52.40 points, from 53.00, for the same period. Durable goods orders also decelerated by 1.90% month-on-month for February.
Turning to transport, total vehicle sales ticked up to 17.45 million in March from 16.57 million in February, exceeding analyst expectations. Having said this, General Motors (GM) reported that their new vehicle sales came in around 7.00% lower, year-on-year, for the first quarter of 2019 – consumers opting to go for larger/higher margin sport-utility vehicles (SUVs) rather than cheaper/more-traditional passenger vehicles.
Some relief was felt in the jobs market, with the number of jobless claims declining to 202,000 from the previous 212,000. Many analysts are starting to feel that a recession may be looming in the US, with many even expecting rate cut by the Federal Reserve toward the end of the year, in an attempt to stimulate economic activity. Watch this space.
US EQUITIES
When looking at the greater flow of money within the US this year, one would be correct in assuming that absolute conviction in any-one asset class has been far from convincing. While equities remain the asset class of choice, it would be remiss to overlook the interest recently seen in shorter-term fixed income solutions, while a gradual uptick in inflows has also been seen trickling toward cheaper passive forms of investments such as exchange traded funds (ETFs) and notes (ETNs).
When comparing 2019’s US ETF inflows for the first quarter of the year ($47.8 billion), against 2018 ($61.3 billion) and 2017 ($134.7 billion), one could assume that the greater investor has preferred to rather play in direct equity markets or have even stayed out of riskier asset classes all together. With the S&P 500’s already-impressive run of over 14.64% in 2019, one can start to feel a gentle drop in the market winds that once filled the S&P’s sails at the beginning of the year.
Riddled by recent regulatory trials, and quite honestly having the whole ‘user-privacy’ kitchen sink thrown at them, Facebook seemed to kick it up a gear this week, having traded around 5.00% higher since Monday. While growth remains solid within the firm, the fine-tuning of their privacy responsibilities to users, shaped by recent scrutiny, will only make the company more of a trustworthy one in the foreseeable future. Due to these facts, both Deutsche Bank and Guggenheim were seen upgrading Facebook’s neutral rating to a ‘buy’ suggestion for one’s portfolio. On Friday morning, Facebook traded at $176.02, up from $167.86 on Monday.
All-in-all, a solid week for US equities, adding around 3.00% to each of the three major indices since last Friday.
FAANGs performance, for the first week of April:
- Facebook: up around 6.17%
- Amazon: up around 1.92%
- Apple: up around 3.00%
- Netflix: up around 2.44%
- Alphabet: up around 3.41%
COMMODITIES
With oil and gas prices on a gentle uptrend, South Africa may be in a bit of a pickle, should the oil price reach levels of around $86.00 per barrel. With Eskom’s grid already in a questionable position, the last thing the country needs is for the backup plan, in oil and diesel, to become unattainable, due to lack of funding. As the $70.00 per barrel level is nearing its breaching point, for Brent Crude oil, a new trading band of between $68.30 and $72.60 has come into play for the next trading week.
With Brent Crude and US West Texas Intermediate (WTI), up around 28.00% and 37.00%, respectively, this year, it seems that OPEC’s cuts on oil production, coupled with US’ sanctions placed on Venezuela, have potentially blindsided the general oil analyst. On Friday, Brent Crude opened the trading day at $69.22 per barrel, while WTI opened at $62.07.
The price of gold stumbled on Thursday afternoon, as US jobless claims reached a 49-year low, under Trump’s reign. The obscure nature of recent economic data releases, coming out of the US, has ultimately left the precious metal scratching its head. Although gold and palladium spent the last trading week moving in a sideways direction, platinum decided to add some value this week, ending over 5.50% up since last Friday’s levels of around $852.00 per fine ounce. There’s no saying what catalyst are needed for platinum’s revival, however the gap between palladium and platinum is indeed starting to close. Will China revert back to platinum use within cars before the ‘electric generation’ rolls in, or has platinum’s heyday come and gone? One thing’s for sure, the pendulum always swings back – it’s just a question of when.
On Friday morning, gold, platinum and palladium were trading at levels of around $1,288.26, $886.08 and $1,366.88 per fine ounce respectively.
SOUTH AFRICAN POLITICS
Local markets started the week off on the front foot, following the surprise move by Moody's to skip the local rating announcement along with six other countries, leaving the rating one notch above sub investment grade at BAA3, with a stable outlook. With markets having expected a change in outlook to negative, the inaction offered a welcome boost to the currency, following a turbulent week.
Surprisingly, the good news did not quite end there.
A further unexpected announcement, on Tuesday, by Moody's, reassured local and foreign investors that a downgrade had, for the moment, been avoided, stating that although an official rating review would not be released, it was the credit ratings agency's view that the current rating of BAA3 was a fair representation of the local investment environment. This ‘positive’ news promptly triggered a mildly turbulent knee-jerk reaction within the realms of the local currency. In all likelihood, Moody’s will only reassess a potential ratings adjustment post-election, with the focus then falling on governing party policies, agendas and, of course, economic growth - largely hinging on the country's ability to provide sustainable electricity supply.
The second dominant driver for the week was the expectation that the two powerhouse economies, US and China, were finally moving toward the final stages of trade talks that would potentially see months of trade conflict finally coming to an end. The full scope of what the agreement will entail, how it will be implemented and enforced still remains murky. However, judging from market behaviour and the reignited appetite for emerging market assets, one can only assume that the general sentiment towards the agreement is positive. While volatility has been the status quo this week the local currency has remained surprisingly stable, with a bias towards strength. When looking at the US dollar/SA rand relationship, the dominant range over the past few days has been R14.12 - R14.20, lacking sufficient momentum to significantly drive the pair in any one direction, with conviction.
With national elections being a mere five weeks away, one would have expected a bit more sensitivity to local factors than what we are currently witnessing, however, expect an increase in volatility as D-day moves closer. Locally, total vehicle sales numbers were released on Monday, indicating a contraction of 3.10% year-on-year, for March. Standard Bank’s PMI numbers for March came in at 48.80, down from a previous 50.20, while ABSA’s Manufacturing PMI decelerated to 45.00 points, down from a previous 46.20, indicating a contraction in the manufacturing industry, overall, for the month of March. The rolling blackouts implemented by Eskom, more than likely one of the material attributors to these weaker numbers in the manufacturing sector.
SOUTH AFRICAN EQUITY
Breathing a sigh of relief, following the postponement of an official credit rating decision which was expected last Friday evening by Moody’s, the JSE rallied on the back of the absence of a widely expected downgrade. Moody’s clarified their postponement, by stating that they felt that South African economy still tends to meet the requirements of a sovereign country operating within the realms of a BAA3 credit rating with a stable outlook. This clarity of opinion however, did not constitute an official ratings announcement.
“SA Inc.” stocks (JSE listed companies generating their revenue primarily in rands), mainly banks and industrials, enjoyed the brief flurry of foreign and local investors restoring their waning faith in the local market and currency alike. Although a positive flow of money has been experienced on local shores this week, it’s important to note that the volume of money flow, associated with this move, wasn’t entirely convincing. It will be interesting to see how the market plays out on the run-up to elections.
One of the more interesting moves this week came out of Aspen Pharmaceuticals which educated the average investor on the incredible power of news-reading algorithms. When an unknown media source simply reiterated the already known sale of Aspen’s French dairy company Lactalis International, based in New Zealand, the share jumped over 9.00% over the course Wednesday afternoon and Thursday. No official statements were given, or necessarily needed, by either Aspen or Lactalis representatives. The standard media-related reminder, of the upcoming conclusion of the sale, seemed to trigger a few news-related trading algorithms into prematurely pricing-in positive news of the closure of the deal, which has been earmarked for the end of May 2019. Opening the week at R93.01, Aspen stormed into Friday’s trading day at R100.38 per share. While battling with an already challenging economic year, Nampak made the move to dispose of its Nigerian subsidiary, Nampak Carton’s Nigeria, to AR Packaging– this, in line with the overall forward –looking strategy of the company. Down over 10.00% for the week, Nampak opened Friday’s trading day at R10.28 per share. Some of April’s bigger movers on the JSE, as at Friday morning:
- Barloworld: up around 6.27%
- Standard Bank: up around 4.90%
- Sasol: up around 3.22%
- Kumba Iron Ore: up around 2.49%
- Tongaat Hulett: down around 5.38%
- Fortress B: down around 4.92%
THE WEEK AHEAD
Declining global growth remains as the top threat, with emerging markets likely to bear the heaviest burden, as market participants lean toward safer, more-conservative investment destinations. The key for the local economy however, will be to try and keep up with the greater global market, and to not fall astray again once global growth starts turning positive again, as it did post the 2008 financial crises. For now, the rand remains stable against the US dollar, with the possibility of another stronger move toward the all-important R14.00 mark anticipated.
On Friday morning a US dollar would set the investor back, R14.12, a euro R15.85 and a British pound R18.49.
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.
A few things that stood out for us this week is the boardroom issues and chinanigans going on at SuperDry (listed on the London Stock Exchange), in which the founder who wasnt's even part of the company anymore but still held a big stake, got himself voted back on the board, marginally and then the board appointed him interim CEO. The share price of Superdry fell by almost 8% on that news. Read more on this story here.
And in other news Nampak (NPN)sold their paper packaging company in Nigeria, forcing us to take a look at South African firms and their wins and losses in the large and lucrative market of Nigeria. Unfortunately the Nigerian authorities has a propensity to slap foreign firms with ridiculous penalties and fines. Read more on that story here.
A few things that stood out for us this week is the boardroom issues and chinanigans going on at SuperDry (listed on the London Stock Exchange), in which the founder who wasnt's even part of the company anymore but still held a big stake, got himself voted back on the board, marginally and then the board appointed him interim CEO. The share price of Superdry fell by almost 8% on that news. Read more on this story here.
And in other news Nampak (NPN)sold their paper packaging company in Nigeria, forcing us to take a look at South African firms and their wins and losses in the large and lucrative market of Nigeria. Unfortunately the Nigerian authorities has a propensity to slap foreign firms with ridiculous penalties and fines. Read more on that story here.