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The week opened with China’s report of a trade surplus in May of $35.9bn, which was nearly double the surplus reported in April. A noticeable surge in exports to the US (+21%) providing a buoyant start to the trading week for global markets as the largest economy in the world looks to be improving further whilst starting to consume more.
Further data releases during the week out of the US were relatively disappointing. Core Retail and Retail sales month on month showed only minor growth of 0.1% and 0.3% respectively, while weekly unemployment data showed 317 000 people claimed unemployment benefits over the period, which was 11 000 more than expected and 4000 more people than the previous week.
Employment data out of the UK showed that 27 000 less people claimed unemployment related benefits in May while the unemployment rate unexpectedly improved more than anticipated to 6.6%.
The Rand has continued to depreciate this week against major currency peers and at an even faster rate than a fair number of fellow emerging market currencies. The underperformance can in part be linked to poor domestic data such as contracting GDP and a worse than expected trade deficit reported in recent weeks. The now 21 week strike within the platinum sector has also been a contributor to the weakness, although this week, optimism over a resolve “in principle” provided the only near term relief for the rand, which started to strengthen on the news. Unfortunately a ratings downgrade on our currency from the Fitch Ratings agency more than offset the optimism of a platinum strike resolution’s effect on the rand.
Fitch has maintained a “BBB” rating for our domestic currency, while downgrading the outlook from “stable” to “negative”.
Manufacturing production decreased by 1.5% annualised and 1.8% from the previous 3 months comparative as the sector shows signs of further contraction.
Mining production grew an annualised 0.2% in April, which was ahead of analyst expectations for a significant contraction.
The top gainers list this week is dominated by rand hedge counters, as the rand continues to weaken amidst poor local economic data and a ratings downgrade. The heavy weighting of counters SABMiller, Naspers and Sasol in the Jse All-Share and Top40 indices has however managed to see these benchmark indices trade to new high territory once again.
Sasol has broken out of a short term trading range as it benefits from both a late in the week surge of the price of Brent crude oil, as well as the aforementioned rand depreciation. Escalating tension, between Iraqi forces and Islamist militants in Iraq has provided the catalyst for the sharp increase in the oil price as the country is a major oil producer and the threat of further contagion to neighboring oil producers hampers investor sentiment.
Mondi finds itself amongst the top blue chip decliners this week on what appears to be profit taking. Also possessing rand hedging attributes the counter headed up the gainers list and traded to new all-time highs just last week and despite losing traction in the current week was well of the session lows.
Also in the decliners list this week is another market darling of previous weeks, Mediclinic. The weakness in price can however be attributed to the dilution of shares through the completion of a bookbuild offering. Mediclinic successfully raised R3.17bn in the issue of 41 000 000 new ordinary shares at a discount of 1.7% to the value weighted average price (vwap) at the close of trade on Wednesday.
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Source: I-Net Bridge, as of 06/06/2014