The Week Ahead

9 May 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


Economic catalysts

Market overview

Volatility was relatively muted this week, major indices drifted marginally lower as anticipated international catalysts failed to produce any surprises to financial markets.

Local Data

The economic data released out of South Africa this week was disappointing for the most part, with the manufacturing sector proving to have slowed more than expected.

The Markit and Kagiso Manufacturing Purchasing Managers Index’s (PMI) both recorded readings of 47.40 for April, alluding to industry contraction where minor expansion was expected. A Statistics South Africa report showed that manufacturing production in South Africa fell 1.9% in the first quarter of 2014, on a seasonally adjusted monthly basis, while growing a mere 0.7% on an annualised basis.

The unemployment rate in South Africa worsened to 25.2% in the first quarter of 2014, largely as a result of the informal sector shedding 110 000 jobs (122 000 jobs were over the period). The figure now equates to 5.1m people being unemployed in South Africa. 

International Data

The European Central Bank (ECB) left benchmark lending rates unchanged once again, while alluding to further economic stimulus as soon as June 2014. ECB president Mario Draghi cited concerns over a stronger Euro invoking a deflationary environment as reasons for the nearing of easing policy measures.

In the UK the current asset purchase facility remained unchanged, as did the BOE’s lending rates.

In the US, Fed Chairlady Janet Yellen reaffirmed a dovish stance after last week’s positive employment data. With the unemployment rate falling below the 6.5% threshold, investors may be cautious of an increasing interest rate cycle. However, with inflation lingering at lower levels, Mrs Yellen has reassured investors of a prolonged lifespan of the status quo.

Source: IG Insight, as of  09/05/2014

Top movers

Source: IG Insight, as of 09/05/2014

Resource counters have underperformed this week, as a stronger rand and weaker commodity prices have weighed on our local miners. Despite a positive quarterly update from Harmony Gold, gold shares have found themselves the laggards of even the resource sector.

Tensions between Russia and Ukraine have provided the directional catalyst for dollar denominated gold as of late.This week Russian President Vladimir Putin has promised to withdraw his troops from the Ukrainian border, which combined with last week’s strong jobs report out of the US witnesses the precious yellow metal trading softer. The renewed strength in our local rand has added to the unfavourable conditions for local gold miners.

Industrial and financial counters remain the preferred sectors in our local equity market this week. Foreign investment flows into our domestic companies over the last month have favoured the likes of Firstrand, MTN, Vodacom and Barclays Africa Group among others.

Mediclinic International released a trading statement which was met favourably by the investment community. Normalised headline earnings per share (excluding once off items) is expected to have increased an impressive 40% to 50% relative to the corresponding full year reporting period.

Broker consensus

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