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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 6 September 2019
When looking at South Africa, a relatively negative atmosphere shrouded the Republic this week, with most media headlines covering the xenophobic, and frankly atrocious, attacks on foreign nationals. While the streets of Johannesburg and Pretoria burned, the greater financial market found itself in a less-heated situation, with sentiment taking a turn for the better.
GLOBAL DATA AND POLITICS
Global tensions eased, somewhat this week, as a new round of trade tariff implementations, between China and the US, kicked off on 1 September, bringing the trade war to a moment of pause. Unsurprisingly, China went ahead and laid a complaint against the US at the World Trade Organization, following the flurry of tariffs imposed on the country by Washington. Hong Kong assisted in the easing of growing tensions, following weeks of protests, as the controversial extradition bill got shelved for the time being.
The week generally got off to a slow start, as the US celebrated Labor Day on Monday. Data this week from the “mighty” US however, painted a different picture to the one that investors have recently become accustomed to, as ISM manufacturing purchasing managers index (PMI) data declined to 49.1 points in August, from 51.7, while the address from members of the Federal Reserve’s (Fed) monetary policy committee also leaned toward the contraction of the US economy, with mixed signals being sent by the average US consumer. ISM non-manufacturing data, such as business activity and PMI, rose in August to 61.5 points and 56.4points respectively, however ISM non-manufacturing employment contracted to 53.1 points from the previous 56.2. Total vehicle sales increased marginally to 16.9 million, while factory orders month-on-month improved by 1.4%.
On Friday, the greater investor’s focus will turn toward US non-farm payrolls, unemployment figures and a brief address by the Fed Chair, Jerome Powell, later that evening.
Manufacturing and services PMI, from the European Union (EU), met expectations at 47 points and 53.5 points respectively. Retails sales from the union contracted by 0.6%, month-on-month, in July, while accelerating by 2.2%, on a year-on-year basis. Employment and gross domestic product (GDP) are due for release on Friday, with the expectation of growth for the EU to remain largely subdued at 0.2% quarter-on-quarter.
Boris Johnson is slowly learning that being Prime Minister (PM) doesn’t mean that one will always get one’s way, as parliament overpowered him on Wednesday, following a bid by the PM to invoke a snap-election in October, later this year. The United Kingdom (U.K.) has been weighed down heavily by the uncertainty of Brexit, with the economy showing signs of relative strain. CIPS Manufacturing PMI remains below the 50 point mark at 47.4 points in August, while construction PMI declined further to 45 points, from the previous 45.3, undershooting market expectations. On Monday morning, China released their Caixin Manufacturing PMI numbers for August, indicating that a slight uptick in economic activity has been seen, reaching 50.4 points, while the second largest economy is due to release imports, exports and balance-of-trade data on Sunday. Turkey is bearing the brunt of a weak economy, with the economy contracting year-on-year by 1.5%, while quarterly growth indicates an expansion of 1.2%. Inflation in the region has eased from 16.65% to 15.01% year-on-year, in August.
US EQUITIES
Another slow week was experienced by investors, when looking at US equities. The trade war did however seem to take a turn for the better, after Trump’s implementation of further tariffs on China, on 1 September 2019, sent the market into a small free-fall. The US and China have now agreed to sit down in Washington and try work toward a happy middle-ground in early October. This, coupled with stronger Chinese data, and tensions easing around the Hong Kong protests, assisted markets in gaining back some of their losses from last week.
The only exchange which didn’t enjoy this small relief-rally was Hong Kong’s Hang Seng and its derivatives and futures market. The index’s futures and derivatives platforms had to be closed at 2pm, on Thursday, due to prolonged connectivity issues and lack of liquidity, as a consequence. The entire Hang Seng index reacted negatively to this news, as hedging abilities were taken away for the remainder of the afternoon. The Hang Seng ended up 0.03% down on the day – this, directly linked to the futures platform faults.
All-in-all, all three major indices in the US landed up flat for the last four trading days, with many analysts now starting to say that the smoke is finally clearing. With the trade wars looking more positive, albeit still in motion, stock markets are looking for some support from the world's Central Banks. Should the Fed implement interest rate cuts in 2019, and the European Central Bank move into another quantitative easing cycle, markets may just rally into 2020.
Since last Friday morning, equity markets have attempted to scrape back some losses with performance for the week currently around:
Some general news coming out of a few US companies this week saw Starbucks (SBUX) closing lower for the last five trading days, as the coffee brewer announced that it would be cutting its guidance on earnings for the 2020 financial period. Along with SBUX, Tyson Foods (TSN) were also seen lowering their guidance on earning per share for the 2019 period. TSN were down around 5% for the week.
Coupa Software Inc, United Airlines Holdings Inc and Michaels Cos. Inc. were all seen rallying on the back of a mix of stronger-than-expected earnings and stable forward-looking earnings guidance.
FAANGs performance for the week, so far:
In South African rand-terms, add 3.62% against each of these return-figures to see what the South African investor could be up in 2019, with the currency-effect added.
COMMODITIES
After falling a good 5% over the weekend, due to the rollout of further US trade tariffs on China, oil prices were seen clawing back their losses, after China released stronger-than-expected economic data, mainly attributed to a growing services sector. China saw their oil import numbers gradually growing during August - 2.03% more than what was imported during the month of July. This growing demand for oil could point toward underlying production and growth-levels trying to pick up again in China.
After falling to levels of around $57.25 and $52.94 per barrel, respectively, by Wednesday, Brent and WTI were able to utilize the positive news coming out of China as a means to fight back. Technically speaking, Brent Crude oil faces a long few days ahead of it, as it now finds itself attempting to break back above a now downward trending resistance level.
With trade tensions easing slightly, oil now focuses on further economic data being released out of the USA this week, most importantly the jobs report.
Brent Crude opened Friday’s trading day at $60.97 per barrel, while US West Texas Intermediate (WTI) opened at $56.30. Platinum and palladium had a relatively strong week, compared to gold, both moving higher by over 4.9% since last Friday. Platinum currently trades at levels last seen around one-and-a-half years ago, with the potential for more upside, should the momentum continue. The key resistance level to watch would be around the $1,030.00 per ounce level. Should the price manage to break and hold above this level, investors could see another strong leg up.
Although gold only managed a roughly 1% move higher this week, it’s continued to reach new highs. With the potential of interest rate cuts on the horizon for the US, the investor may still see gold rallying higher than current levels. For now, the precious metal seem stuck in a holding pattern. On Friday morning, gold, platinum and palladium were trading at levels of around $1,518.51, $944.30 and $1,551.44 per fine ounce respectively.
SOUTH AFRICAN FUNDAMENTALS
It’s not often that one feels ashamed of being South African (SA). It’s normally a badge one tends to wear with pride. This week, however, has been an exception. The last week was blemished by multiple gruesome attacks on foreign nationals, while protesters took to the streets in protest against the violent culture portrayed toward the woman and children of this beautiful nation - the protest being ignited by the rape and murder of UCT student, Uyinene Mrwetyana, at the Clareinch post office in Claremont, Cape Town.
A tricky question to ask is, how can a person justify violence against any one other person, in this case, foreign nationals, while countering violence against South Africa’s own woman and children? These violent outbreaks are simply a symptom of a country, and economy, in dire need of real leadership and economic reform. While there have been many reasons to draw one’s thoughts and forward-looking-hopes in a negative direction, one should also keep in mind a few more-positive points that have come to light:
SOUTH AFRICAN EQUITY
Closer to home, South African markets edged up slightly, supported by a stronger local currency, off the back of stronger economic growth numbers released earlier in the week. Some key takeaways came from the likes of Firstrand Bank who saw their normalized earnings jumping 6% to R27.9 billion, for the year ended 30 June 2019. RMB saw once-off hits coming from their private equity division during the year, while Wesbank also suffered slightly, due to the pressured economic climate that South African’s find themselves in. Firstrand Bank, up over 3.3% for the week, opened Friday’s trading day at R61.00 per share.
Behemoth, Discovery, also released their numbers for the year ending 30 June 2019. One can see how they’ve allocated a material amount of money into new ventures, which will hopefully create even more value for shareholders in the future. Some of their numbers were as follows:
The economic road ahead will definitely put some strain on Discovery, as citizens and clients become more aware of their spending habits. Having said this, Discovery are laying the foundations to quite an interesting and diversified investment opportunity for the general investor.
On the mining front, DRD Gold was seen increasing their revenue by 11 percent to R2.76 billion. Operating profit was up 5% to R371.8 million, while production output, from their major Ergo mine, was down 4% for the period in question.
For September, so far:
THE WEEK AHEAD
As always, a close eye should be kept on the global environment, with focus mainly being directed toward a few key elements
GLOBAL DATA AND POLITICS
Global tensions eased, somewhat this week, as a new round of trade tariff implementations, between China and the US, kicked off on 1 September, bringing the trade war to a moment of pause. Unsurprisingly, China went ahead and laid a complaint against the US at the World Trade Organization, following the flurry of tariffs imposed on the country by Washington. Hong Kong assisted in the easing of growing tensions, following weeks of protests, as the controversial extradition bill got shelved for the time being.
The week generally got off to a slow start, as the US celebrated Labor Day on Monday. Data this week from the “mighty” US however, painted a different picture to the one that investors have recently become accustomed to, as ISM manufacturing purchasing managers index (PMI) data declined to 49.1 points in August, from 51.7, while the address from members of the Federal Reserve’s (Fed) monetary policy committee also leaned toward the contraction of the US economy, with mixed signals being sent by the average US consumer. ISM non-manufacturing data, such as business activity and PMI, rose in August to 61.5 points and 56.4points respectively, however ISM non-manufacturing employment contracted to 53.1 points from the previous 56.2. Total vehicle sales increased marginally to 16.9 million, while factory orders month-on-month improved by 1.4%.
On Friday, the greater investor’s focus will turn toward US non-farm payrolls, unemployment figures and a brief address by the Fed Chair, Jerome Powell, later that evening.
Manufacturing and services PMI, from the European Union (EU), met expectations at 47 points and 53.5 points respectively. Retails sales from the union contracted by 0.6%, month-on-month, in July, while accelerating by 2.2%, on a year-on-year basis. Employment and gross domestic product (GDP) are due for release on Friday, with the expectation of growth for the EU to remain largely subdued at 0.2% quarter-on-quarter.
Boris Johnson is slowly learning that being Prime Minister (PM) doesn’t mean that one will always get one’s way, as parliament overpowered him on Wednesday, following a bid by the PM to invoke a snap-election in October, later this year. The United Kingdom (U.K.) has been weighed down heavily by the uncertainty of Brexit, with the economy showing signs of relative strain. CIPS Manufacturing PMI remains below the 50 point mark at 47.4 points in August, while construction PMI declined further to 45 points, from the previous 45.3, undershooting market expectations. On Monday morning, China released their Caixin Manufacturing PMI numbers for August, indicating that a slight uptick in economic activity has been seen, reaching 50.4 points, while the second largest economy is due to release imports, exports and balance-of-trade data on Sunday. Turkey is bearing the brunt of a weak economy, with the economy contracting year-on-year by 1.5%, while quarterly growth indicates an expansion of 1.2%. Inflation in the region has eased from 16.65% to 15.01% year-on-year, in August.
US EQUITIES
Another slow week was experienced by investors, when looking at US equities. The trade war did however seem to take a turn for the better, after Trump’s implementation of further tariffs on China, on 1 September 2019, sent the market into a small free-fall. The US and China have now agreed to sit down in Washington and try work toward a happy middle-ground in early October. This, coupled with stronger Chinese data, and tensions easing around the Hong Kong protests, assisted markets in gaining back some of their losses from last week.
The only exchange which didn’t enjoy this small relief-rally was Hong Kong’s Hang Seng and its derivatives and futures market. The index’s futures and derivatives platforms had to be closed at 2pm, on Thursday, due to prolonged connectivity issues and lack of liquidity, as a consequence. The entire Hang Seng index reacted negatively to this news, as hedging abilities were taken away for the remainder of the afternoon. The Hang Seng ended up 0.03% down on the day – this, directly linked to the futures platform faults.
All-in-all, all three major indices in the US landed up flat for the last four trading days, with many analysts now starting to say that the smoke is finally clearing. With the trade wars looking more positive, albeit still in motion, stock markets are looking for some support from the world's Central Banks. Should the Fed implement interest rate cuts in 2019, and the European Central Bank move into another quantitative easing cycle, markets may just rally into 2020.
Since last Friday morning, equity markets have attempted to scrape back some losses with performance for the week currently around:
- S&P 500: up around 1.69%
- NASDAQ: up around 1.90%
- Dow Jones: up around 1.71%
Some general news coming out of a few US companies this week saw Starbucks (SBUX) closing lower for the last five trading days, as the coffee brewer announced that it would be cutting its guidance on earnings for the 2020 financial period. Along with SBUX, Tyson Foods (TSN) were also seen lowering their guidance on earning per share for the 2019 period. TSN were down around 5% for the week.
Coupa Software Inc, United Airlines Holdings Inc and Michaels Cos. Inc. were all seen rallying on the back of a mix of stronger-than-expected earnings and stable forward-looking earnings guidance.
FAANGs performance for the week, so far:
- Facebook: up around 2.25%
- Amazon: up around 1.96%
- Apple: up around 2.19%
- Netflix: down around 3.83%
- Alphabet: up around 0.57%
In South African rand-terms, add 3.62% against each of these return-figures to see what the South African investor could be up in 2019, with the currency-effect added.
COMMODITIES
After falling a good 5% over the weekend, due to the rollout of further US trade tariffs on China, oil prices were seen clawing back their losses, after China released stronger-than-expected economic data, mainly attributed to a growing services sector. China saw their oil import numbers gradually growing during August - 2.03% more than what was imported during the month of July. This growing demand for oil could point toward underlying production and growth-levels trying to pick up again in China.
After falling to levels of around $57.25 and $52.94 per barrel, respectively, by Wednesday, Brent and WTI were able to utilize the positive news coming out of China as a means to fight back. Technically speaking, Brent Crude oil faces a long few days ahead of it, as it now finds itself attempting to break back above a now downward trending resistance level.
With trade tensions easing slightly, oil now focuses on further economic data being released out of the USA this week, most importantly the jobs report.
Brent Crude opened Friday’s trading day at $60.97 per barrel, while US West Texas Intermediate (WTI) opened at $56.30. Platinum and palladium had a relatively strong week, compared to gold, both moving higher by over 4.9% since last Friday. Platinum currently trades at levels last seen around one-and-a-half years ago, with the potential for more upside, should the momentum continue. The key resistance level to watch would be around the $1,030.00 per ounce level. Should the price manage to break and hold above this level, investors could see another strong leg up.
Although gold only managed a roughly 1% move higher this week, it’s continued to reach new highs. With the potential of interest rate cuts on the horizon for the US, the investor may still see gold rallying higher than current levels. For now, the precious metal seem stuck in a holding pattern. On Friday morning, gold, platinum and palladium were trading at levels of around $1,518.51, $944.30 and $1,551.44 per fine ounce respectively.
SOUTH AFRICAN FUNDAMENTALS
It’s not often that one feels ashamed of being South African (SA). It’s normally a badge one tends to wear with pride. This week, however, has been an exception. The last week was blemished by multiple gruesome attacks on foreign nationals, while protesters took to the streets in protest against the violent culture portrayed toward the woman and children of this beautiful nation - the protest being ignited by the rape and murder of UCT student, Uyinene Mrwetyana, at the Clareinch post office in Claremont, Cape Town.
A tricky question to ask is, how can a person justify violence against any one other person, in this case, foreign nationals, while countering violence against South Africa’s own woman and children? These violent outbreaks are simply a symptom of a country, and economy, in dire need of real leadership and economic reform. While there have been many reasons to draw one’s thoughts and forward-looking-hopes in a negative direction, one should also keep in mind a few more-positive points that have come to light:
- Gross domestic product. It has been a tough ride for South African’s, with 2019 proving to be just as hard, if not harder, than 2018. The year started with rolling blackouts and a massive economic contraction in quarter one (Q1), yet here one finds oneself, basking in the afterglow of an impressive set of Q2 GDP numbers. While markets expected 2.4% growth, the SA economy outshone itself, growing by 3.2% quarter-on-quarter, and 0.9%, year-on-year. A statement made by Citadel Asset Management’s Chief Economist, Maarten Ackerman, comes to mind: “growth follows sentiment”, and not considering the dire headlines one has witnessed over the past few weeks. Overall, local sentiment seems to be regaining some of its resilience, as household expenditure, as well as fixed capital formation, contributed to the increase in GDP data.
- The 77 page economic reform plan by Treasury. The plan, overall, being a mere 77 pages Is deemed to be not only achievable, but digestible by the average South African
- Even though an off-putting rumor of load shedding pops up occasionally, the lights have remained on since May, which in its own right is quite an achievement, considering the dismal position of the embattled state-owned enterprise, Eskom.
SOUTH AFRICAN EQUITY
Closer to home, South African markets edged up slightly, supported by a stronger local currency, off the back of stronger economic growth numbers released earlier in the week. Some key takeaways came from the likes of Firstrand Bank who saw their normalized earnings jumping 6% to R27.9 billion, for the year ended 30 June 2019. RMB saw once-off hits coming from their private equity division during the year, while Wesbank also suffered slightly, due to the pressured economic climate that South African’s find themselves in. Firstrand Bank, up over 3.3% for the week, opened Friday’s trading day at R61.00 per share.
Behemoth, Discovery, also released their numbers for the year ending 30 June 2019. One can see how they’ve allocated a material amount of money into new ventures, which will hopefully create even more value for shareholders in the future. Some of their numbers were as follows:
- Normalized profit down 3% to R7.74 billion
- Headline earnings down 11% to R5.14 billion
- Normalized headline earnings down 7% to R5.03 billion
- Discovery Health’s normalized operating profit increased by 10% to R3.04 billion
- Discovery Life’s normalized operating profit decreased by 9% to R3.23 billion, due to high claims
- Confirmed that more than 22,000 clients using Discovery Bank within the first two months
- New business/venture spending increased to R1.31 billion (21% of group earnings)
The economic road ahead will definitely put some strain on Discovery, as citizens and clients become more aware of their spending habits. Having said this, Discovery are laying the foundations to quite an interesting and diversified investment opportunity for the general investor.
On the mining front, DRD Gold was seen increasing their revenue by 11 percent to R2.76 billion. Operating profit was up 5% to R371.8 million, while production output, from their major Ergo mine, was down 4% for the period in question.
For September, so far:
- All Share and Top 40 indices: up around 1.10%
- Resources: down around 2.55%
- Industrials: up around 1.53% (Naspers: up 4.14%)
- Financials: up around 3.13%
THE WEEK AHEAD
As always, a close eye should be kept on the global environment, with focus mainly being directed toward a few key elements
- Trade dynamics
- Global growth expectations; and
- Brexit
Advertisement (and yes South Africans can buy from Amazon as they deliver to SA)
Our highlight for the week:
Our highlight of the week is our latest JSE trading statistics which showed continued selling of foreigners of locally listed shares. Below an extract from the latest JSE trading statistics article.
JSE Trading Statistics for the week ending 30 August 2019
Number of trades:
Number of trades (2019): 1 475 367
Number of trades (2018): 1 703 118
% change year on year: -13.37%
Volume traded:
Volume traded (2019): 1 731 408 000
Volume of traded (2018): 1 655 961 000
% change year on year: 4.56%
Value of trades:
Value of trades (2019): R101 948 185 000
Value of trades (2018): R113 871 554 000
% change year on year: -10.4%
Foreign purchase/selling:
Net sales/Purchases (2019): -R10 901 079 000
Net sales/Purchases (2018): -R4 298 697 000
So year to date (YTD) foreigners have been net seller/buyers:
Net sales/Purchases (2019): -R63.521 billion
Net sales/Purchases (2018): R431 million
Read the full article here
JSE Trading Statistics for the week ending 30 August 2019
Number of trades:
Number of trades (2019): 1 475 367
Number of trades (2018): 1 703 118
% change year on year: -13.37%
Volume traded:
Volume traded (2019): 1 731 408 000
Volume of traded (2018): 1 655 961 000
% change year on year: 4.56%
Value of trades:
Value of trades (2019): R101 948 185 000
Value of trades (2018): R113 871 554 000
% change year on year: -10.4%
Foreign purchase/selling:
Net sales/Purchases (2019): -R10 901 079 000
Net sales/Purchases (2018): -R4 298 697 000
So year to date (YTD) foreigners have been net seller/buyers:
Net sales/Purchases (2019): -R63.521 billion
Net sales/Purchases (2018): R431 million
Read the full article here