The Week Ahead

Following a soft 3^rd quarter, equity markets appear to have started a recovery, which accelerated as the week progressed. Gains have been largely broad-based, although firmly led by a sharp rebound in the resource sector.

Top gainers

The dollar has weakened following worse than expected trade balance and services PMI data out of the U.S., a move furthered by dovish Federal Open Market Committee (FOMC) meeting minutes released on Thursday. The data points have furthered sentiment that the current accommodative monetary stance in the U.S. could be prolonged into 2016. In turn, the weaker dollar has provided a short-term inflationary lift to commodity prices.

Local resource counter have gained sharply as a result, a move that looks to have been exaggerated by short covering in the market.

The price of crude oil has risen sharply over the week, supported by reports of falling production in the U.S. and Russian airstrikes commencing in Syria. Sasol and BHP Billiton were the most notable beneficiaries of the rising oil price on our local exchange.

Top Decliners

SABMiller Plc leads the blue chip decliners list, as the proposed merger with Anhueser-Busch Inbev (ABI) falters for the time being. ABI finally released a formal offer of £42.15 per issued ordinary share of SABMiller Plc, which was promptly rejected by the SAB board, as the offer price was only 15 pence per share more than the figure, which was rejected in meetings preceding the formal offer. SABMiller has alluded to the offer as undervaluing the strategic geographical positioning of the company and in turn the future growth potential of its business.

International Data

Following on from last week’s disappointing non-farm jobs report in the U.S., minutes from the Federal Open Market Committee (FOMC) meeting released on Thursday further catalysed weakness in the U.S. dollar. The minutes reiterated concerns around global economic growth as the primary delay factor in terms of the Federal Reserve’s decision to raise lending rates, thereby prolonging the current loose monetary policy in place. The sentiment of a rate hike in December of this year has been greatly reduced following the aforementioned data points with the majority of analysts now expecting the tightening cycle to only commence in 2016.

Local data

Mining production increased by 3.8% year-on-year in August 2015. The highest positive growth rates and main positive contributors to the increase were Platinum Group Metals (PGMs) and diamonds.

Iron ore (-17.1% and contributing -3.4 percentage points) and coal (-5.3% and contributing -1.5 percentage points) were significant negative contributors.

Manufacturing production decreased by 0.2% in August 2015 compared with August 2014. The largest negative contribution was made by the basic iron and steel, non-ferrous metal products, metal products and machinery division (-8.0% and contributing -1.6 percentage points).

The following divisions made large positive contributions:

• Petroleum, chemical products, rubber and plastic products
• Food and beverages

The week ahead

Trade balance data out of China for the last few months has been a negative catalyst for markets as the value of both imports and exports have been contracting, as the pace of global economic growth appears to be slowing. Tuesday will look to Tuesday’s release of the trade data and markets will be hoping to see some signs of improvement in the world’s second largest economy.

In the U.S., markets will find importance with Thursday’s CPI inflation data, in lure of the timeline theme relating to U.S. monetary tightening.