The Week Ahead

6 June 2014

Our regular look at the news making the headlines, using our market insight information and analysis tools.

By Shaun Murison,  IG Market Analyst

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Company announcements

Dividends

Economic catalysts

Market overview

International

The two major data points this week internationally have been the European Central Bank meeting as well as the employment data out of the US.

Showing a commitment to supporting economic growth within the Eurozone, the ECB reduced the benchmark lending rate from 0.25% to 0.15%, the marginal lending rate from 0.75% to 0.40% and moved the deposit rate into negative territory from 0% to -0.1%. Forward guidance by ECB president Mario Draghi stated that the interest rates have now reached their lowest levels, although the purchase of asset backed securities was a consideration should conditions deteriorate.

In the US, the unemployment rate for May was recorded at 6.3%, better than consensus estimates had predicted and in line with the April’s figure. The Non-Farm employment data showed 217 000 jobs were added to the payroll which was also slightly ahead of expectations. The number of working age people in the labour force does however remain a concern, as only 62.8% participated which is the lowest level in more than 36 years.

In China, final HSBC Manufacturing PMI data reached a 4 month high of 49.4, showing a substantial improvement over the previous month’s figure of 48.1, albeit still alluding to minor industry contraction. Non-Manufacturing PMI data out of the region showed the services industry to be expanding with an index reading of 55.5.

Local Data

Local economic data was overshadowed this week by the anticipation of major releases from international peers Europe and the US.

The business confidence index for South Africa showed a larger than expected decline to 88.9 index points from 92.6 previously. The figure, although disappointing, is hardly a surprise in the context of looming and current labour inactivity.

The government’s proposed wage increase within the platinum sector has been rejected by labour union AMCU who continue to demand a R12, 500 salary for workers, leaving the now, 19 week platinum strike deadlocked once again.

Gross gold and foreign exchange reserves, as reported by the South African Reserve Bank, came in slightly below expectation at 49.2 billion US Dollars.

Source: IG Insight, as of  06/06/2014

Top movers

Source: IG Insight, as of 06/06/2014

Losses on our market have been subdued, relative to the magnitude of gains, equating to a mostly positive week on our market. Resource counters African Rainbow and Anglo American Platinum have found their way onto the gainers list after spending the last few weeks in negative territory and in the top decliners list.

A significantly weaker rand and more upbeat data from China has helped sentiment around the mining sector, as better export prices and improved demand favours these counters amidst what has been depressed commodity prices. However, the platinum sector remains deadlocked in wage negotiations and iron ore remains in oversupply. With this in mind it remains to be seen whether the short-term rebound in resource counters is sustainable.

Mondi has outperformed its fellow blue chip counters this week to trade at all-time highs. The company announced that it plans to acquire Graphic Packaging International Inc. in the US for $105m. The acquisition will be funded on a debt and cash free basis and add to Mondi’s production capacity and possibly reduce operational costs moving forward.

The decliners list witnesses a resource free but otherwise diverse group of industrial counters. Incurring only minor losses, in the absence of any direct news, it would appear these counters are drifting lower on the back of caution in a market trading at all-time highs. 

Broker consensus

Brokers view on the markets.

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Broker consensus

Source: I-Net Bridge, as of 06/06/2014

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