11 July 2014
Our regular look at the news making the headlines, using our market insight information and analysis tools - now with online videos and tutorials.
By Shaun Murison, Market Analyst
The JSE All-Share index has traded to new all-time high territory, led by the heavy weight industrial and resource counters with rand hedging attributes. Although one may look at the recent run of economic data, such as contracting first quarter GDP and ratings downgrades as a negative reflection on our economy, the extensive earnings from outside South Africa for JSE listed securities has kept the upward momentum on the aforementioned index intact.
The rand has weakened significantly as South Africa moves from having the longest strike in history within the platinum sector to the largest strike in 5 years within the manufacturing sector. The NUMSA led strike of 220 000 workers is said to affect around 10 500 businesses in the industrial sector. Union wage demands have increased from 12% to 15%, while there are also calls to remove labour brokers within the sector.
Trade balance data showed a deficit of R6.57bn in May which provided temporary relief for the rand as the data was well ahead of expectation.
The celebration of Independence Day witnessed a shortened trading week in the US. As a result, the much anticipated employment figures were reported on Thursday as Friday was closed for a public holiday. The data was good, coming in ahead of expectation with the unemployment rate declining to 6.1% (6.3% expected) and 288 000 jobs being added to the non-farming payroll (215 000 expected). The employment data is being closely monitored by market participants in anticipation of the US Federal Reserve’s timeline in terms of raising interest rates. Upbeat data supports the notion that we could start witnessing the raising of benchmark lending rates as soon as the second quarter of 2015.
Also in the US, month on month Pending Home Sales data was a significant beat on consensus forecasts at 1.4%, coming in at 6.1%. ISM Manufacturing and Non-Manufacturing data alluded to industry expansion in line with forecasts, while the trade balance data showed a slightly smaller deficit than was expected.
The major data point in Europe was the European Central Bank (ECB) meeting. Benchmark lending rates were left unchanged as expected with the key lending rate remaining at 0.15%, the deposit rate at -0.1% and the marginal-lending rate at 0.4%. The unemployment rate for the region was reported at 11.6% while month-on-month retail sales showed 0% growth and services PMI showed 0.7% industry growth.
The JSE All-Share index has more or less erased this month’s gains, shedding around 2.5% from its all-time high last week Thursday. The move questions whether we are experiencing a natural pullback from new high territory, or the beginning of a more significant correction. In the last eighteen months, corrections on our local index have ranged from 4% to 8%, and proved to be healthy precursors to further gains.
A look at the top decliners list reveals the presence of four of the top seven shares in terms of market capitalization (excluding inward listed BATS and Glencore), with their significant weighting on our local index taking its toll. Weakness in our market capitulated following a worse than expected trade surplus reported out of China. Resource counters have borne the brunt of the hampered sentiment for Chinese demand as well as poor mining production and sales figures, while Naspers mirrors weakness of its Tencent Holdings counterpart within the region.
Gains on the JSE have been marginal relative to the losses incurred. Anglogold has exaggerated a strong push on spot gold and weaker rand. The company has announced the appointment of new CFO Christine Ramon, who will commence with her new role on the 1st October 2014.
Barclays Africa Group released a voluntary trading statement indicating that the company expects headline earnings per share to be between 8% and 11% higher than the restated 655.7c cents per share over the interim period.
Woolworths listed Australian subsidiary, Country Road, released a trading update which was met favourably by investors both locally and abroad. The company announced that it expected profit before tax for the year ending June 2014 to be in the region of $87m to $95m from $55.9m the previous year.
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Source: I-Net Bridge, as of 11/07/2014