WEEKLY REPORT

Market Update 30 June 2017:

South Africa

The mining charter has been appealed in court and has now effectively delaying (presumably more than a year) any changes to legislation while the charter gets argued in court. Producer Price Index YoY for May was released at 4.8%, beating expectations of 4.7% while Private Sector Credit for May also saw an increase from 5.9% to 6.69% suggesting an increase in growth as demand picks up. The Trade Balance saw a trade surplus of R9.49B however this reading was below expectations of R10.6B

The Rand saw some pressure during the week against major currency pairs. It depreciated 1.49% against the USD, 3.34% against the GBP and 3.39% against the EUR.

The FTSE/JSE All Share TR Index ended 0.25% higher.

US

Durable Goods Orders kicked off the week with disappointing results coming in at -1.1%, missing expectations of -0.6%. More negative results were with Initial Jobless Claims printed 224k, higher than the expected 240k. Gross Domestic Product Price Index for Q1 continued the negative data trend falling to 1.9% from the previous 2.2%, however the revised GDP annualised for Q1 saw in an adjustment upwards to 1.4%.

The S&P 500 TR index ended the lower by 0.58%.

UK

Consumer Credit saw a large spike in May printing £1.732B, a substantial increase from the previous £1.483B. Unsecured lending rose 10.3% from the previous year and is close to its fastest rate since 2005. Response by the BOE this week saw lenders being ordered to hold billions of pounds of extra capital as a cautionary measure should customers not be able to pay back their debts. According to Bloomberg, Traders increasingly expect the BOE to hike its benchmark rate this year ending a period of record low borrowing costs. Gross Domestic Product YoY for quarter 1 came in line with expectations at 2%.

The FTSE 100 TR had another negative week ending 1.47% lower.

Europe

Positive results came out of Europe this week with sentiment on the rise. Service sentiment as well as Economic Sentiment Indicator for June both beat market expectations showing positive signs for the region. Industrial Confidence also saw a large increase from 2.8 to 4.5 which again will add to the positive growth sentiment.

The euro appreciated following ECB president, Mario Draghi’s comments suggesting the ECB might start unwinding its balance sheet on signs of accelerating growth in the Eurozone.

Consumer Price Index YoY for June came in 1.3%, beating expectations of 1.2%.

The FSE DAX 30 TR and the Euronext CAC 40 PR saw terrible results ending 3.21% and 2.76% lower respectively.

(Source: MarketPulse, Bloomberg, Trading Economics, MorningStar)

~ Warren Davison Market Analyst
Caleo Capital investment committee

Market Update 23 June 2017:

South Africa

Looking back at the political noise for the week, we can once again breath a sigh of comfort as we see there has been a strong and concentrated defence of the SARB and its mandate. The Public Protector’s recommendations to intervene in the SARB’s mandate has been met with resistance and is likely to strengthen the independence of the Reserve bank and the role it plays in enhancing a stable monetary framework. The Chamber of Mines is also putting up a fight against the imposed mining charter and say this could lead to further job losses in the sector.

Inflation in South Africa for the month of May increased slightly higher than expectations to 5.4%. The figure edged higher from 5.3% in the previous month and supports the view that there is a general trend of disinflation, falling from the high of 7% seen in February 2016. This slight increase in prices was mainly caused by higher petrol and meat prices, however the lower trend is likely to continue throughout the year as oil prices came under pressure and has entered a bear market.

The FTSE/JSE All Share TR Index bounced back for the week and ended 1.41% higher.

US

Disappointing data on the job front was released with Initial Jobless Claims increasing from 238k to 241k, however looking over the longer term these figures are still within the normal range and show a gradual downward trend. Markit Manufacturing and Services PMI were released both showing a slowdown from their previous readings. Manufacturing and Services PMI printed 52.1 and 53 respectively.

The S&P 500 TR index ended the week relatively flat at 0.22%.

UK

Major news for the UK was the official start of the Brexit negotiations. The process is expected to last up to 15 months and will conclude with the UK formally leaving the EU. BOE Governor, Mark Carney, addressed the series of monetary and marco-financial measures that were implemented to soften the real feel of the weaker income growth in the UK. A positive reaction was seen by him, stating that “the stimulus is working” and that “Credit is widely available”.

The FTSE 100 TR had another negative week ending 0.5% lower.

Europe

PMI for the Eurozone saw mixed results with Markit Manufacturing PMI and Markit Services PMI printing 57.3 and 54.7 respectively. Preliminary consumer confidence for June surprised on the upside showing an increase from -3.3 to a reading of -1.3.

The FSE DAX 30 TR and the Euronext CAC 40 PR saw mixed results ending 0.15% lower and 0.05% higher respectively.

 

(Source: MarketPulse, Bloomberg, Trading Economics, MorningStar)

~ Warren Davison Market Analyst

Caleo Capital investment committee

Market Update 16 June 2017

South Africa

Business confidence in SA has collapsed to its lowest level since the Global Financial Crisis in 2009. This drop in confidence does not come as a surprise as data released does not support forward looking growth.

Retail sales for April beat expectations on a YoY basis printing 1.5% as opposed to 0.6% which markets forecasted. The boost in volumes for April were credited largely to April Easter holidays however over the longer term, a weakening trend is present.

The FTSE/JSE All Share TR Index came under pressure for the week and ended 2.63% lower.

US

The Fed met market expectations and raised interest rates from 1% to 1.25%. Looking through the highlighted sections, policy makers still forecast one more hike this year with growth forecasts being increased while inflation forecasts were lowered. CPI released for May on a YoY basis came in at 1.9%, missing market expectations of 2%. Retail Sales also saw disappointing results with a contraction of 0.3% for May. As the week progressed, we saw Initial Jobless Claims beating expectations printing a result of 237k.

The S&P 500 TR index ended the week relatively flat at 0.12%.

UK

Rising inflation is seen in the UK due to the weaker pound since Brexit as well as political uncertainty. CPI on a YoY basis for May saw an increase from 2.7% to 2.9%, the highest level seen in 4 years.

The BoE came out with their decision to keep interest rates on hold while there were more policy makers than expected voting for a rate hike. Retail Sales ending May printed a lower reading of 0.9% YoY, significantly down from the previous 4.2%. Concerns are rising over slow retail sale which will impact the rate of wage growth and its effect on GDP growth.

The FTSE 100 TR ended the week 0.81% lower.

Europe

A slow data week in Europe with CPI being the main data release. CPI ending May printed in line with expectations at 1.4%.

The FSE DAX 30 TR and the Euronext CAC 40 PR both ended the week lower at 0.49% and 0.69% respectively.

 

(Source: MarketPulse, Bloomberg, Trading Economics, MorningStar)

~ Warren Davison Market Analyst

Caleo Capital investment committee

Market Update 9 June 2017:

South Africa

News that caught market participants off-guard was that South Africa had entered a technical recession for the first time since the global financial crisis in 2009. Gross Domestic Product for the first quarter of 2017 saw a contraction of 0.7% following the previous quarters contraction of 0.3% illustrating two consecutive quarters of decline.

May saw the release of the Business Confidence Index which produced a result of 93.2, the lowest reading since 9 November 2016. Risks of further downgrades together with political uncertainty were key drivers pushing this lower. Moody’s was the last rating agency to change their credit rating on South Africa. Friday evening saw the agency downgrade SA by one notch with a negative outlook which is square in line with market expectations. This downgrade moves South Africa one notch above junk status.

The FTSE/JSE All Share TR Index had another negative week and ended 1.25% lower.

US

Markets felt some relief after there were no damaging findings in the investigation into Russia’s involvement in the Trump Presidential campaign. Friday also saw initial jobless claims being released at 245k which disappointed market expectations of 240k. Markit PMI Composite for May measured in line with previous month readings of 53.9.

The overall S&P 500 TR index ended the week lower at 0.27%.

UK

UK Prime Minister, Theresa May, called for an early election in the hope of securing more seats in parliament for the conservative party. This however did not go according to plan as the conservative party ended up losing seats to the Labour party resulting in a hung parliament. The pound suffered due to this losing 1% and ended the week at 1.27/$.

The FTSE 100 TR had a relatively flat week and ended 0.11% lower.

Europe

Thursday saw Mario Draghi, President of the ECB, hold a press conference. In this, it was decided to keep interest rates unchanged at 0% which was in line with market expectations. EU inflation was revised lower while growth was revised higher. A stronger positive momentum can be seen in the euro area economy and is projected to expand at a faster pace than previously expected. GDP figures for the first quarter came in at 0.6% while YoY growth came in at 1.9%. Markets were however looking for hints about policy changes surrounding the asset purchase program but there were no mentions to this.

The FSE DAX 30 TR and the Euronext CAC 40 PR both ended the week lower at 0.06% and 0.82% respectively.\

(Source: MarketPulse, Bloomberg, Trading Economics, MorningStar)

~ Warren Davison Market Analyst

Caleo Capital investment committee

Market Update 2 June 2017:

South Africa

Rating agencies reaffirmed their long-term rating on South Africa with Fitch keeping their rating at BB+ with a stable outlook while S&P Global ratings also kept their rating at BB+ with a negative outlook. The current political environment remains a concern together with the slow economic growth. Unemployment readings are not helping the growth cause as the unemployment rate in Q1 increased to 27.7% from 26.5%. South Africa’s trade balance also disappointed showing a surplus of R5.1B, missing market expectations of R5.5B and down from the previous month of R11.3B.

The FTSE/JSE All Share TR Index had a terrible week and ended 2.01% lower for the week.

US

Focus in the US was on the fact that US President Donald Trump announced that the US will exit the Paris climate accord, an undertaking that every other country in the world is a part of except Syria and Nicaragua. Impacts of the decisions could ultimately affect the renewable energy industry and other industries involved in curbing emissions in the US and globally. Unemployment figures were released of May showing Nonfarm payrolls missing market expectations of 185k and printed a figure of 138k. Give this, however, the unemployment rate for May beat market expectations and is currently sitting at 4.3%, the lowest level since May 2001. With this strength seen in the economy, chances for a rate hike are becoming more certain as the Fed strive to reach their target level of 3%.

The overall S&P 500 TR index ended the week higher at 1.01%.

UK

Data released for the week was scarce with Markit Manufacturing PMI and PMI Construction for May being the most important points. Markit Manufacturing PMI of 56.7 beat market expectations of 56.5 while PMI Construction printed 56, also beating expectations of 52.7. Looking ahead to next week, focus should shift to the UK general election on Thursday. General consensus has been for an overwhelming majority win for the Conservatives, however, polls of late started revealing that Labour has been fighting back strongly. The outcome of the election could have a huge impact on Brexit and should influence global markets and currencies.

The FTSE 100 TR had a relatively flat week and ended 0.08% higher.

Europe

Business climate deteriorated slightly in May as it dropped to 0.90, missing market expectations of 1.11. Following suit, Economic Sentiment Indicator, Services Sentiment and Industrial confidence all produced figures which missed expectations. Unemployment in Europe took a positive turn and beat expectations coming in at 9.3% for May with markets were expecting 9.4% (same as the print in April). Consumer Price Index YoY for May printed a preliminary reading of 1.4%, missing expectations of 1.5%.

The FSE DAX 30 TR and the Euronext CAC 40 PR both ended the week higher at 1.75% and 0.13% respectively.

(Source: MarketPulse, Bloomberg, Trading Economics, MorningStar)

~ Warren Davison Market Analyst

Caleo Capital investment committee

Market Update 26 May 2017:

South Africa

The FTSE/JSE All Share TR Index contracted 0.79% for the week.

US

The overall S&P 500 TR index ended the week substantially higher at 1.47%.

UK

The FTSE 100 TR had another positive week and ended 1.05% higher.

Europe

The FSE DAX 30 TR and the Euronext CAC 40 PR had a mixed week and ended 0.29% lower and 0.23% higher respectively.

(Source: MorningStar)

~ Warren Davison Market Analyst

Caleo Capital investment committee

Market Update 19 May 2017:

South Africa

The FTSE/JSE All Share TR Index added 0.68% for the week.

US

The overall S&P 500 TR index ended the week marginally lower by 0.32%.

UK

The FTSE 100 TR end the week 0.73% higher for the week.

Europe

The FSE DAX 30 TR and the Euronext CAC 40 PR both ended the week lower at -1.03% and -1.5% respectively.

(Source: MorningStar)

~ Warren Davison Market Analyst

Caleo Capital investment committee

Market Update 12 May 2017:

South Africa

On the political front, South Africa does not disappoint when it comes to releasing news. We saw on Friday that Brian Molefe, former Eskom CEO, has now been reappointed as CEO. Market speculation around this reappointment has aligned itself to the nuclear deal which they think will become Molefe’s main focus over the next two years. Brain Molefe resigned after the release of the ‘State of Capture’ report last year. Soon after, his path was cleared to become the next Finance Minister which was rejected and he was subsequently pushed to the back bench. Now that his use as a minister has been vastly reduced and the R30 million pay-out did not happen, his return to Eskom seems to be the only viable option.

The FTSE/JSE All Share TR Index added 0.91% for the week.

US

The US, like South Africa, has also been providing interesting headlines with President Trump firing James Comey, FBI chief. James Comey was leading an investigation into the Trump 2016 presidential campaign which saw possible collusion with Russia to influence the election outcome.

Despite these political uncertainties, markets have remained relatively calm with the VIX fear gauge being at multi-decade lows and volatility decreasing significantly. Friday say majority of the data being released. Retailers dragged markets lower with Retail Sales MoM for April lower at 0.4%. CPI YoY ending April came in at2.2%, lower than the expected 2.3%.

US markets closed mixed on Friday following disappointing retail sales and inflation data mentioned above. The result is that traders have dialled back expectations for a June rate hike, sending the Dollar lower.

The overall S&P 500 TR index ended the week marginally lower by 0.26%.

UK

The mining sector is rebounding following weeks of mute performance and in the process, is helping the UK market edge higher. The Bank of England left rates unchanged on Thursday and lowered its forecast for GDP growth sending the pound lower against major trading pairs.

The FTSE 100 TR surged on Friday to end the week at record highs as it returned 2.08% for the week.

Europe

Friday saw German GDP for the first quarter beating previous readings coming in at 0.6% while the YoY reading came in at 1.7%. Data across the board came in with mixed results for the rest of the week.

The FSE DAX 30 TR and the Euronext CAC 40 PR had mixed results ending the week 0.42% higher and 0.5% lower respectively.

(Source: MarketPulse, Bloomberg, Trading Economics, MorningStar)

~ Warren Davison Market Analyst

Caleo Capital investment committee

Market Update 05 May 2017:

South Africa

Emerging Markets took some strain last week as the dollar strengthens again and as the market outlook in Europe becomes more favourable. The rand lost some ground against major currencies loosing 0.36% against the dollar, 0.57% against the sterling and 1.30% against the Euro. Shocking PMI data was released with the seasonally adjusted ABSA Manufacturing PMI falling to 44.7 in April from 52.2 in March. This contraction was the biggest fall since January 2016. Total New vehicle sales saw a sharp 28% drop in April ending the month at 38 956.

The FTSE/JSE All Share TR Index had a slow week contracting 0.44%.

US

The Fed Interest Rate decision was kept at 1% which was predicted by market participants. Forward looking comments are where the market is focusing their attention. Positive consumer spending, increasing disposable income, consumer sentiment and job creations were all key factors driving the rate decision and expectations for a hike next quarter are on the rise.

Adding to the positivity in the US market, Nonfarm Payrolls for April came in at 211K beating market expectations of 185k. The unemployment rate is also decreasing coming in at 4.4%, down from the previous 4.5%.

The overall S&P 500 TR index increased 0.66% for the week.

UK

Data was slow in the UK with PMI Construction being the indicator that market participants were watching. A reading of 53.1 surprised markets on the upside beating the consensus of 52. This positive increase shows life in the construction sector and that there is still hope after Brexit.

The FTSE 100 TR had another good week returning 1.34%.

Europe

Sunday saw Mr. Macron win the election race and has been elected the president of France. Positive market expectations had largely been priced in after he had won the first round of the elections.

Market data released during the week was mixed. Unemployment change for April was released with German data staying content at 5.8%. GDP YoY for the first quarter remined at 1.7% which is currently running somewhat higher than the long-term average. PMI numbers for April coming in higher with the Markit PMI composite increasing to 56.8 and Services PMI increasing to 56.4.

The FSE DAX 30 TR and the Euronext CAC 40 PR came in with more great returns of 2.24% and 3.13% respectively.

(Source: MarketPulse, Bloomberg, Trading Economics, MorningStar)

~ Warren Davison Market Analyst

Market Update 28 April 2017:

South Africa

Last week as another disjointed week with Thursday and Monday both being a public holiday. The global search for yield is still on the cards which saw some of these flows directed into South Africa. Although the currency lost some ground during the week, the R186 bond yield ended at 8.69%, showing signs of inflows.

As mentioned the rand weakened 1.93% against the dollar, 3.47% against the euro, and 3.01% against the pound.

Producer Price Index (PPI) YoY for March came in at 5.2%, lower than previous readings of 5.6%. Markets were somewhat disappointed as their expectations were around 7.2%. Exports were seen to increase 16% due to higher sales of precious metals and stones, vehicles and mineral products while imports increased 8.9% leading to an increase in the trade surplus from R4.788bn to R11.435bn

The FTSE/JSE All Share TR Index had a great week increasing 3.11%.

US

News around the tax proposal has added to positivity in the markets. President Trump’s tax proposal is now out (with limited detail) and markets are awaiting to see whether these changes will be accepted. On a data front, New home sales came in with positive growth numbers of 5.8% MoM. The S&P/Case-Shiller Home Price Indices for Feb YoY showed an increase of 5.9%. GDP Price index increased to 2.2% from previous readings of 2.1%

The overall S&P 500 TR index increased 1.53% for the week.

UK

GDP YoY for the first quarter showed a disappointing reading of 2.1% missing market expectations of 2.2%. This reading however, is still higher than the previous reading of 1.9%.

Nationwide Housing Price YoY saw a decline coming in at 2.6%, down from 3.5%. The decrease in prices was predominantly caused during the Brexit period.

The FTSE 100 TR bounced back returning 1.32%.

Europe

Global markets have reacted positively to Mr. Macron winning the first round. The expectation around the probability the Le Pen will win and break apart the Eurozone has decreased significantly.

European Central bank kept their deposit rates on hold at -0.4% with interest rates also remaining unchanged at 0%. Industrial Confidence for April showed positive signs increase from 1.3 to 2.6 with a stable increasing trend. Services Sentiment also surprised on the upside with a reading of 14.2, up from the previous 12.8.

The FSE DAX 30 TR and the Euronext CAC 40 PR came in with great returns of 3.23% and 4.11% respectively.

 

(Source: MarketPulse, Bloomberg, Trading Economics, MorningStar)

~ Warren Davison Market Analyst

Caleo Capital investment committee

Market Update 21 April 2017:

South Africa

The global political environment together with the global risk appetite for emerging markets were the main factors impacting asset classes. The Rand continued its impressive recovery last week as global emerging market currencies rode the crest of the wave. The Rand strengthened 2.39% against the dollar, 1.23% against the euro, and remained flat against the pound.

It was a quiet week on the data front with CPI YoY for March coming in at 6.1%, dropping from 6.3%.

The FTSE/JSE All Share TR Index declined sharply by 2.36% during the week with Friday and Monday both being a public holiday. This decline was the steepest weekly decline since December.

US

Data released in the US largely disappointed market expectations missing many of the forecasted numbers. Initial Jobless Claims came in at 244K, both higher than forecasts and previous readings of 242K and 234K respectively. However, over the longer-term trend, these numbers are improving. Markit Manufacturing and Services PMI came in at 52.8 and 52.5 respectively. Although these numbers missed market expectations, they are still above the 50 market which represents expansion.

The overall S&P 500 TR index increased 0.87% for the week.

UK

Data over the Easter weekend was slow with Retail Sales being the only major data release. The readings largely disappointed with retail sales YoY producing 1.7% down from previous readings of 3.7%

The FTSE 100 TR had another negative week falling 2.86%.

Europe

The French elections have been a dominant theme lately as we near the final stretch. As we all turn to polls to gage where each candidate stands, its shows Macron as the favourite with Le Pen following in second. Market participants seem to be positioning themselves for a Macron win which is favourable for the country.

PMI data across the Eurozone continued to post positive readings with both French and German Markit Manufacturing PMI coming in at 55.1 and 58.2 respectively. Inflation for the Eurozone was in line with the headline number of 1.5% YoY.

The FSE DAX 30 TR and the Euronext CAC 40 PR came in with negative returns of -0.5% and -0.23% respectively.

(Source: MarketPulse, Bloomberg, Trading Economics, MorningStar)

 

~ Warren Davison Market Analyst

Caleo Capital investment committee

Market Update 14 April 2017:

South Africa

Economic data released has been mixed thus far. Manufacturing Production Index released on Tuesday saw a massive decline on a YoY basis dropping from 0.8% to -3.6%. The long-term trend however has been relatively flat. Retail sales YoY saw a slight increase from -2.3% to -1.7%, however still representing a negative reading. On a MoM basis, there was a slight improvement increasing 0.8%.

On the political front, the parliamentary vote of no confidence in President Zuma has been delayed beyond the originally scheduled date of 18 April as South Africa’s Constitutional Court considers an application from the United Democratic Movement (UDM), one of the smaller opposition parties, to force a secret ballot.

The Rand strengthened 2.34% against the dollar, 1.36% against the pound and 2.32% against the euro. The FTSE/JSE All Share TR Index gained 1.26% during the week with Friday being a public holiday.

US

Large amounts of disappointing data were released last week. Retail sales MoM was down 0.2% which missed market expectations of -0.1%. Consumer Price Index YoY missed expectations of 2.6% with a reading of 2.4%. Investors are now looking forward and will be focused on the Q1 earnings season, which is about to begin. Growth forecasts for 8.4% for the quarter are the highest since 2011. US headline nonfarm payrolls printed disappointing numbers of 98k which expectations around the 170.6k mark.

The overall S&P 500 TR index declined sharply by 1.11% for the week.

 UK

Despite average weekly earnings growing at its slowest rate since 2014, the Office of National Statics reported a drop in the number of people in the UK looking for work. Consumer Price Index YoY came in in line with previous readings of 2.3%. Retail Price Index YoY saw a decline in March with a reading of 3.1%.

The FTSE 100 TR had a negative week returned -0.25%.

Europe

The Eurozone faced its own geopolitical risk as French Gov bonds sold off last week as polls revealed an increased support for Jean-Luc Melenchon. 10 Year French Gov bond yields rose over 0.96% while its spread versus similar maturity German bonds reached its widest level in more than a month. Industrial Production YoY for Feb came in lower than expected with a reading of 1.2% with the overall trend remaining relatively flat.

The FSE DAX 30 TR and the Euronext CAC 40 PR came in with negative returns of -0.95% and -1.25% respectively.

(Source: MarketPulse, Bloomberg, Trading Economics, MorningStar)

~ Warren Davison Market Analyst
Caleo Capital investment committee

Market Update 7 April 2017:

South Africa

After Zuma’s cabinet reshuffle from the previous week, we saw two major rating agencies downgrade South Africa’s debt rating. Standard and Poor’s moved the foreign currency rating to BB+ (sub-investment grade) and the local currency rating to BBB- (investment grade), with a negative outlook. Fitch accordingly followed suit by cutting both foreign and local currency ratings to BB+ with a stable outlook. This means that two of the three major rating agencies have appraised our foreign currency debt below investment grade while one of the agencies has assigned a below investment grade rating to our local currency debt. As a consequence, JP Morgan has announced that they will remove South Africa from their investment grade EM bonds indexes which will cause large outflows as institutional will follow suite.

During the week, the Rand saw significant negative moves throwing away the hard gains it made during the first quarter. The Rand depreciated 2.58% against the dollar, 1.20% against the pound and 2.0% against the euro. The FTSE/JSE All Share TR Index gained 1.66% as the rand hedge companies added to the return.

US

The strength in US labour markets has been the main talking point of recent US macroeconomic data released last week. An improvement in the unemployment rate coming in at 4.5%, lower than the previous 4.7%. The trend has been on a steady decline since the 2008 financial crisis. Positive numbers were also seen in the ADP Employment change increasing by 263K. Initial Jobless Claims saw a low reading of 234K, slightly higher than the lowest point of 223K seen in March but the overall trend however is improving. The Nonfarm Payrolls however disappointed markets printing a reading of 98K while they were expecting 180K. ISM Manufacturing PMI beat market expectations with a reading of 57.2 while Non-Manufacturing PMI disappointed with a reading of 55.2. These reading however are both above the expansionary level of 50 which shows strong US sentiment.

The overall S&P 500 TR index subtracted 0.24% for the week.

UK

Data released in the UK was largely negative. Markit Manufacturing PMI missed expectations coming in at 54.2. PMI Construction was also lower at 52.2.

The FTSE 100 TR had a positive week despite the negative data and returned 0.5%.

Europe

Markit Manufacturing PMI for Germany came in at 58.3 and Services PMI at 55.6, all in line with expectations. Factory orders grew 3.4% (Exp. 3.5%) in February whilst industrial production increased by 2.2%. France saw the Markit PMI composite come in at 56.8 missing market consensus of 57.6. However, industrial output disappointed with a sharp drop of -1.6% in February when expectations were for a print of 0.5% growth.

The FSE DAX 30 TR and the Euronext CAC 40 PR came in with mixed returns of -0.71% and 0.25% respectively.

(Source: MarketPulse, Bloomberg, Trading Economics, MorningStar)

~ Warren Davison Market Analyst
Caleo Capital investment committee

Market Update 31 March 2017:

South Africa
Last week we saw a volatile situation play out in SA politics with the Finance Minister, Pravin Gordhan, being replaced by Malusi Gigaba. This move was just one of the 20 cabinet positions that were reshuffled. Markets reacted negatively with the Rand blowing out to a R13.50 level against the Dollar. This move to replace the finance minister and his deputy has brought back the threat of a credit downgrade to SA markets and we could see South Africa fall into Junk Status should President Zuma continue on his reign. SARB interest rates were kept unchanged at 7%.

During the week, the Rand saw significant negative moves throwing away the hard gains it made during the first quarter. The Rand depreciated 7.88% against the dollar, 8.59% against the pound and 6.44% against the euro. The FTSE/JSE All Share TR Index gained 0.69% as the rand hedge companies would have pulled this higher.

US
Consumer Confidence saw increase for March coming in at 125.6, up from the previous 116.1. Historical results show a strong uptrend which is a positive sign for markets and the US economy. Data also showed fourth quarter GDP growing at a faster pace than initially reported thanks to a rise in consumption.

The overall S&P 500 TR index added 0.82% for the week.

UK
All eyes were on the UK government as they went ahead and triggered Article 50, officially setting the plan of Brexit in motion. The potential 728-day process has now begun and as negotiations emerge, volatility is expected to arise in the UK stock market, gits and most certainly the pound. Gross Domestic Product for the fourth quarter of 2016 came in at 1.9%, missing analyst expectations of 2%.

The FTSE 100 TR had a relatively smooth week returning -0.12%.

Europe
Major concerns are still around Brexit mentioned above and how this movement will affect the European Union. Preliminary Consumer Price Index was released at 1.5%, lower than estimates of 2%.

The FSE DAX 30 TR and the Euronext CAC 40 PR came in with strong returns of 2.06% and 2.02% respectively to end the first quarter on a positive note.
(Source: MarketPulse, Bloomberg, Trading Economics, MorningStar)

 

 ~ Warren Davison Market Analyst

Caleo Capital investment committee

Market Update 24 March 2017:

South Africa
SA Headline CPI data YoY ending February was released coming in at 6.3%, lower than previous readings of 6.6%. Reasons for the decrease are due to the large drop seen in food inflation dropping from 11.4% down to 9.9%. Core CPI also saw a decrease from 5.5% to 5.2%. The current account deficit narrowed sharply during the 4th Quarter of 2016 falling 3.8% of GDP down to 1.7% of GDP.

During the week, the Rand continued on its path of strength appreciating 1.68% against the dollar, 0.71% against the pound and 1.08% against the pound. The FTSE/JSE All Share TR Index lost some ground last week detracting 1.19%.

US
Friday saw the US Healthcare bill fail to even go to a vote as President Trump struggled to get the necessary votes needed to pass the bill in the lower house of congress. This, together with the tax rate cuts, places large amounts of doubt on Trump and his ability to implement his future policies. Due to this, the dollar came under pressure on Friday and saw safe havens like Gold and the Yen rise.

On the data front, initial jobless claims came in at 258K, higher than both 240K as markets expected and previous readings of 243K. Markit Services PMI and Markit Manufacturing PMI were also both disappointing at 52.9 (Exp. 54.2) and 53.4 (Exp. 54.8) respectively.

The overall US market came under pressure with the S&P 500 TR index falling 1.42% for the week.

UK
Tuesday saw CPI figures on a YoY basis be released coming in at 2.3% higher than previous readings of 1.8%. Retail Sales YoY surprised on the upside at 3.7% ending February, beating previous readings of 1%. However, the overall trend still remains fairly weaker.

The FTSE 100 TR also felt the pressure of negative sentiment and fell 1.19% for the week.

Europe
Data was slow on the European front with Markit Manufacturing and Services PMI coming in at 56.2 (Exp. 55.3) and 56.5 (Exp. 55.3) respectively.

The FSE DAX 30 TR and the Euronext CAC 40 PR returned mixed numbers with -0.26% and 0.07% respectively for the week.

(Source: MarketPulse, Bloomberg, Trading Economics, MorningStar) 

~ Warren Davison Market Analyst
   Caleo Capital investment committee

Market Update 17 March 2017:

South Africa
The JSE gold mining surged during the week as Gold was a huge benefactor of the dovish tones by the Fed. During the week, the sector rose 10.25%, wiping out majority of the losses seen in the previous weeks. On a year to date basis however this is in negative territory at -3.44%. On the data front, it was another quiet week last week. SA Manufacturing Production Index YoY for January ended higher at 0.8%, beating previous readings of -2%. Retail Sales YoY ending January took a massive dive coming in at -2.3% down substantially from the previous 1% reading. Consumer spending appears to be on a slow down after the December festive season rush.

During the week, the Rand saw massive gains against other developed market currencies. It appreciated 3.43% against the dollar, 2.84% against the pound and 1.56% against the pound. The FTSE/JSE All Share TR Index had a great recovery last week adding 2.69%.

US
The US Federal Reserve raised benchmark interest rates as was anticipated and priced in by market participants. Markets however reacted aggressively following Fed Chair, Janet Yellen’s comments that may suggest the Fed is not eager to hike quickly again this year. The dollar plunged, sending commodities higher while equity markets rallied strongly. It was a clear indication of how much expectations had been ramped up and that the risk increasingly was that the Fed would not be able to match expectations.

The overall US market appears to have found some momentum again as positive data flowed through into the S&P 500 TR index and added 0.28% for the week.

UK
Average Earnings excluding bonus for the 3months ending January declined to 2.3% form previous readings of 2.6% and missing forecasts of 2.5%. This figure has been slowly declining since its peak. The BoE kept their interest rates constant at 0.25% with the MPC votes remaining majority unchanged.

The FTSE 100 TR had a good week in positive territory adding 1.25% for the week.

Europe
Industrial Production YoY for January came in with disappointing readings at 0.6%, missing previous readings and market expectations of 2.5% and 0.9% respectively. CPI for the Eurozone YoY was also released coming in in line with expectations of 2%.CPI figures for France and Germany YoY remained constant at 1.4% and 2.2% respectively.

The FSE DAX 30 TR and the Euronext CAC 40 PR were both positive returning 1.1% and 0.72% respectively for the week.

(Source: MarketPulse, Bloomberg, Trading Economics, MorningStar)

~ Warren Davison Market Analyst
   Caleo Capital investment committee

Market Update 10 March 2017:

South Africa
The JSE gold mining had a tough past few weeks declining 8.45% last week and 9.06% the week before. On the data front, it was a quiet week last week. SA GDP growth estimates for Q4 2016 were released at -0.3%, putting growth for 2016 at 0.7% lower than market expectations. Business Confidence index was also released coming in at 95.5 for February, lower than previous reading of 97.7.

During the week, the rand depreciated 1.16% against the dollar, 0.11% against the pound and 1.65% against the pound. The FTSE/JSE All Share TR Index had another negative week pulling back 0.96%.

US
The market was all over the impressive numbers released in the ADP Employment Change report. The numbers came in with an impressing 298k vs the 190k expected by market participants. The strong data continued the trend in the labour market with Nonfarm Payrolls coming in at 235k and the unemployment rate dropping from 4.8% to 4.7%. With regards to the FOMC rate decision, these positive numbers have confirmed the improving labour environment and a rate hike has been 100% priced in.

The overall US market appears to have reached a slight resistance point with the S&P 500 TR index contracting by 0.35% for the week.

UK
Growth in the UK decelerated sharply compared to the same time last year. Fortunately, most UK economic indicators have appeared rather stable in recent months, although this week was on the disappointing side. Industrial Production fell -0.4% in January which was in line with expectations. This however resulted in a fall in growth to 3.2% year on year. Manufacturing Production growth also slowed to 2.7% year on year missing market forecasts of 3%. At these levels, the economy still shows healthy activity, but the UK numbers need to be carefully watched for signs of further deceleration.

The FTSE 100 TR came in in line with global declining markets with a reading of -0.46% for the week.

Europe
The Eurozone economies have generally displayed robust growth this year. The trend appears to continue, with a sharp improvement in German Industrial Production to 2.8% growth in January. German exports showed a similar turnaround with an increase of 2.7% in January.

Although the French economy has been impressive in recent months, economic news released this week disappointed markets somewhat. Industrial output fell 0.3% in January completely missing market forecasts of a positive 0.5%. Nonfarm Payrolls for France QoQ for the fourth quarter came in at 0.4% in line with expectations.

The DAX 30 TR and the CAC 40 PR returned -0.8% and 0.59% respectively for the week.

(Source: MarketPulse, Bloomberg, Trading Economics, MorningStar)

~ Warren Davison Market Analyst
   Caleo Capital investment committee

Market Update 3 March 2017:

South Africa
The JSE gold mining had a tough start to the week declining 2.85% on Monday with these losses continuing into the rest of the week and ending 9.06% lower.

Private Sector Credit for January came in at 5.56%, higher than previous readings of 5.10%. This has been on a steady decline since January 2016 and a higher reading is welcomed as this suggests growth.

The Rand has been fighting a stronger dollar this week and has lost some of the gains seen earlier in the year. During the week, the rand depreciated 0.59% against the dollar, 1.14% against the euro and appreciated 0.79% against the pound. The FTSE/JSE All Share TR Index had a negative week pulling back 0.9%.

US
A stronger dollar was the main theme for the week as market participants are pricing in a rate hike in March by the FOMC. Durable Goods Orders and ISM Manufacturing PMI both beat market expectations with a reading of 1.8% and 57.7 respectively which continues to add to the dollar strength.

Fed members were saying last week that it would be appropriate to raise interest rates soon, a tactic used in the past to prepare the market for a move. The probably that the Fed will hike rates in March has shot up to 84% and these reading are seen in the Dollar strength over the past week.

The overall US market is continuing its strong momentum with the S&P 500 TR index adding 0.89%

UK
A very quiet week in the UK with Markit Manufacturing PMI being the major data point released. This reading came in at 54.6, lower than the market forecast of 55.6. This figure however has been on the rise since August 2016 so a slight pullback sooner or later should be expected.

The FTSE 100 TR came in with a stellar week returning 1.44%.

Europe
Markit Manufacturing PMI was also released for the European Monetary Union coming in at 55.4 slightly missing forecasts of 55.5. PPI yoy for January increased to 3.5% while CPI yoy remained at 2%.

The DAX 30 TR and the CAC 40 PR returned 0.67% and 2.12% respectively for the week.

(Source: MarketPulse, Bloomberg, Trading Economics, MorningStar)

~ Warren Davison Market Analyst
   Caleo Capital investment committee

Market Update 24 February 2017:

South Africa
All eyes were focused on the National Budget speech which took place on Wednesday. Fin Min Gordhan managed to deliver his budget uninterrupted with market participants digesting the information positively. To make up for the revenue shortfall in 2016/17, policy changes were made to raise this additional revenue. Personal income tax was affected with a new 45% bracket included, higher dividend tax, sin tax and higher excise levies on fuel were also announced. Government spending was also cut by R20bn in an attempt to reduce the deficit. As a percentage of GDP, the budget deficit for 2017/18 comes in at -3.1% of GDP with GDP and CPI coming in at 1.3% and 6.3% respectively.

The Rand has been relatively flat since it broke through the key R13/$ support line. During the week, the rand appreciated 0.66% against the dollar, 0.45 against the pound and 1.24 against the euro. The FTSE/JSE All Share TR Index had a negative week pulling back 1.86%.

US
Looking at the data for the US, it was yet another quiet week. Markit Manufacturing PMI for February was released at 54.3 missing market consensus of 55.3. Although this reading is still above the expansionary reading of 50, it appears to be slowing somewhat from its highs of 55.1 one month ago, and may weigh in negatively on the dollar. Initial Jobless Claims also came in disappointing markets with a reading of 224k, higher than previous readings of 238k. Although this was a disappointing reading, the general trend however is improving.

The overall US market is continuing its strong momentum with the S&P 500 TR index adding 0.9%

UK
This week the UK Office for National Statistics released their 2016 GDP growth reading at 2.0% YoY annualised for the 4th quarter as well as the QoQ reading of 0.7%. Although the yearly GDP reading missed forecasts of 2.2%, the quarterly reading came in beating expectations.

The FTSE 100 came in slightly negative for the returning -0.12%.

Europe
Impressive numbers we released in Germany with the Markit Manufacturing PMI coming in at 57, better than the already high expected 56 level and previous reading of 56.4. Services PMI was 54.4, also better than expected.

For the European Monetary Union, consumer confidence released by the European Commission disappointed greatly with a reading of -6.2, however on a longer time frame this reading has increased since March 2016.

The DAX 30 TR and the CAC 40 PR returned 0.4% and -1.11% respectively for the week.

(Source: MarketPulse, Bloomberg, Trading Economics, MorningStar) 

~ Warren Davison Market Analyst
   Caleo Capital investment committee

Market Update 10 February 2017:

South Africa
Last week, the main focus was on the State of the Nation Address which was hardly one of Zuma’s better ones. Much of the same was addressed and through this all the Rand only lost 0.53% against the Dollar.

For the week ahead, retail sales and inflation data will be the key focus. Both these data points will have an impact on interest rate expectations and through that, will potentially affect fixed income and currency markets.

US
Last week we saw the Initial Jobless Claims data released with actual readings of 234k claims beating market expectations of 250k claims. Over a 10-year period it appears these claims are reducing by trending downwards which will benefit Janet Yellen’s case for rate hikes as the job market is improving. Other positive data saw the release of ISM Manufacturing rise to 56.

The week ahead will see talks from FED Chair, Janet Yellen. CPI YoY for January will also be a main focus.

UK
Industrial Production (MoM) for December came in with a reading of 1.1% beating market forecasts of 0.2% as well as a YoY reading of 4.3%. These positive moves show growth in outputs from UK factories and mines which is a great sign post the referendum. Manufacturing Production also surprised on the upside with a YoY reading of 4%.

The week ahead will focus mainly on CPI and PPI data for the YoY ending January.

(Source: MarketPulse, Bloomberg, Trading Economics, Business Day)

~ Warren Davison Market Analyst
   Caleo Capital investment committee

Market Update 3 February 2017:

South Africa
Political risk is still the driving concern in South African markets. Cabinet reshuffle is an area of concern with particular focus on Finance Minister Gordhan. President Zuma however, will maintain these positions for the medium term as rating agencies keep a close eye.

The main focus for the week ahead will be the State of the Nations address. Market commentators are predicting much of the same however, there may be areas of social issues being addressed.

Data continues to show signs of growth with private sector credit, balance of payment and PMIs all on the rise.

US
The week started on a strong note with ISM Manufacturing PMI for January beating market forecast with a reading of 56. This reading has been on a steady recovery since 1 September 2016 and confirms that economic activity in the US is recovering.

As the week progressed, all eyes were on the US Department of Labour as they release the first Nonfarm payroll figures for 2017. There was a great upside surprise with the headline number coming in at 227k new jobs, much higher than the previous 157k and market forecasts of 175k. Labour force participation rate was also on the rise by 0.2% and may be the cause of the unemployment rate producing a slightly higher reading of 4.8%.

The S&P500 index ended the week slightly higher adding 0.12% for the week.

UK
Thursday, we saw the Bank of England meet and keep all decisions constant. The MPC vote remained unchanged and interest rates were kept at 0.25%. The outlook of Brexit still remains unclear for now. Data on the other hand is showing signs of growth with PMIs producing expansionary readings and consumer confidence on the rise.

Europe
The main data release last week was the release of the European GDP figure. The reported growth surprised on the upside with a reading of 1.8%, beating forecasts however remained in line with previous readings. This is evident that the monetary policy is doing its job and keeping the EU on the right track of recovery.

(Source: MarketPulse, Bloomberg, Trading Economics, Business Day)

~ Warren Davison Market Analyst
    Caleo Capital investment committee

Market Update 27 January 2017:

South Africa
The USDZAR had a strong week hitting a low of R13.20/$. This strong run however appears to have ended on Friday with the Rand pulling back to the R13.45 level. We saw the first soft break at a level of R13.45/$ with a support level at R13.17/$.

MPC meeting that took place on Tuesday was nothing to write home about. The SARB kept rates unchanged as expected, yet warning that they are cautious about second round effects of inflation (6.2%).

South Africa’s sovereign rating is not clear from downgrade just yet. Konrad Reuss, managing director of Standard and Poor’s South Africa and sub-Saharan Africa said the rating hangs on three issues. First is the GDP and fiscal performance, second is related to institutional strength and finally the risk of government enterprises placing pressure on government fiscal and debt position.

US
Traders showed great excitement on Wednesday when the Dow Jones Industrial Average hit 20 000 for the first time. The S&P 500 also hit new highs, both helped along by the rally in economically-sensitive sectors directly affected by Trump’s deregulation and infrastructure moves. The S&P 500 ended the week stronger by 1.17% with the Dow Jones up 1.49%.

UK
On Thursday, we saw Theresa May caution the U.S. against withdrawing from world affairs. The relationship between the US and the UK is one of the “greatest forces for progress this world has ever known”.

Tuesday, we saw the supreme court rule that the Brexit trigger needs the approval vote from parliament before it can go ahead. This can be seen as a defeat for May’s argument that she alone had the power to begin the withdrawal from the EU. They will now need to win parliament approval first which will put pressure on her 31 March deadline.

(Source: Bloomberg, Business Insider, Forexfactory Fin24, Trading Economics)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 20 January 2017:

South Africa
South African equities had a slower week pulling back on performance by -0.50%, however year to date it is still positive by 3.71%.

Average annual CPI increased to 6.4% in 2016 from 4.6% in 2015. Inflation also increased with a YoY rate ending December 2016 at 6.8%. Retail sales are on the rise with a positive reading of 3.8%, up from previous readings of -0.2%

US
Last week was a slight negative week for the S&P 500 loosing -0.15%, however still showing signs of growth on a year to date basis. Core CPI m/m readings stayed unchanged with a reading of 0.2%.

Unemployment claims were announced showing some positive signs with the actual reading coming in at 234K, less than both forecast and previous readings of 252k and 249k respectively.

Chinese president, Xi Jinping, spoke at the WEF annual meeting in Davos, Switzerland, warning Trump about potential isolation from the US economy through Trump’s proposed economic strategy. On Friday, we saw the Inauguration of President Trump with his first public speech as President. The focus of his speech was to take back America and give it back to the people. Prior trade agreements will be renegotiated for the benefit of the US and was encouraged that countries think of themselves first when making agreements.

UK
BOE Governor, Mark Carney, delivered his speech about policies affecting the Bank of England. The unemployment report was also released with a reading of 4.8%. This was in line with analyst expectations however it was slightly lower than the theorised value of 4.9%. CPI y/y figure came in at 1.6% showing an increase from prior readings of 1.2%. Close importance is paid to this data point as central banks use this as their inflation target and adjust interest rates (0.25%) accordingly.

Asia
There was no major data flow for the week besides GDP readings. Data shows a slight increase in the reading of 0.1%, showing a figure of 6.8% q/y. The CSI 300 index ending higher by 1.05%, while the Japanese Nikkei 225 index ended in the red returning -0.77%.

(Source: Bloomberg, Business Insider, Forexfactory Fin24, Trading Economics)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 26 September 2016:

South Africa
On Thursday the Reserve Banks’s monetary policy committee decided to keep interest rates on hold, as it had been widely expected to do so. Rate cuts are still seen to be far away as the outlook for the economy is slowly starting to improve. Economic growth forecasts were revised upwards from zero to 0.4% for this year.

The Rand reacted positively to the Reserve Bank’s announcement but the other driver for the rand strengthening was due to ABInbev buying ZAR for the purchase of SABMiller. Although the deal will only be complete next week Wednesday after shareholder’s vote, it is unlikely that ABI will wait to conduct their FX conversions after the deal has been finally approved, this is why we see some of the strength in the rand taking place now. Positive news from Moody’s also gave the rand strength as the chance of downgrade came in at 33%.

1_sept_26

CPI YoY for august decreased from 6% down to 5.9%

2_sept_26

US
Wednesday saw the Federal Reserve once again keep short term interest rates unchanged. The decision to keep rates on hold now leaves US policymakers with one more chance in December to change rates. Last year December, the forecast for 2016 was for four rate increases, this however was not the case as there has been zero increase all year. Currently even if the FED decide on an increase in December, this will be the shallowest rate-lifting cycle in modern times.

Unemployment claims were announced showing some positive signs with the actual reading coming in at 252K, less than both forecast and previous readings of 261k and 260k respectively.

Asia
The Bank of Japan made the decision to keep rates constant at -0.10% even through there were forecasts of a further drop to -0.20%. The problem they are facing is that long-term borrowing costs have been brought closer to the short-term costs, this is known as flattening of the yield curve, which many say has a negative impact on economic activity. What they are trying to achieve is a situation where 10-year bond yield are around zero while short term debt yields are negative, encouraging the public to spend money and stimulate the economy.

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 5 September 2016:

South Africa
South African equity markets had a volatile week with an initial sell off Wednesday and Thursday followed by a strong rebound on Friday. The Rand also stabilised around the R14.35/$ level after closing at R14.73/$ on Wednesday. However, the majority of the pullback can be credited to the softer Dollar.

Manufacturing data saw a sharp decline by 6.2 index points to 46.3% in August. A reading below 50 indicates a contraction in activity. On a more positive note overall PMI was stable, improving from 49.8 to 49.9 ending a 15 month decline.

Currently local markets, particularly the Rand, are being driven by political uncertainty. We have seen a number of recent moves such as the pulling of parastatals credit lines to the DA challenging the cabinet’s decisions again. While we do believe that the changes in the political sphere are positive for SA in the long run, as well as businesses also ‘standing up’, it has created uncertainty in the market place. SA is highly reliant on foreign inflows to balance our current and capital accounts and ultimately stabilise the Rand. We are thus highly caution over the immediate near term, particularly currency volatility, given these uncertainties.

1_september_05

Europe
European unemployment increased marginally to 10.1% while core inflation cooled modally from 0.9% to 0.8%. Overall CPI was flat at 0.2% with expectations of 0.3%.

UK services index jumped the most on record in August with data released on Monday morning indicating that the initial Brexit shock has started to dissipate. The index moved from a contraction level of 47.4 to expansion level of 52.9.

2_september_05

US
The main driver of markets towards the end of the week was the run up and release of Non-farm payrolls. The figure disappointed at 151k with expectations of 180k and a prior month of 275k. The news sent the dollar lower along with a flat unemployment rate at 4.9% after expectations of a marginal improvement to 4.8%. The participation rate was also flat at 62.8%.

US manufacturing has also been under pressure with Manufacturing PMI dipping into contraction territory at 49.4 after prior month of 52.6 and expectations of a reading of 52. ISM prices paid also edged lower at 53 in August from 55 in July.

3_september_05

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 29 August 2016:

South Africa
The rand saw huge amounts of pressure last week with the news surrounding the alleged corruption allegations on our Finance Minister, Pravin Gordhan. Tuesday saw the Hawks looking to criminally charge Mr. Gordhan for these so called allegations. As the week progressed Mr. Gordhan refused to appear before the Hawks on legal advice that he had done nothing wrong. The Rand was trading around the R13.58/$ level on Monday 22nd and weakened substantially with the breaking news. The Rand closed Friday at the R14.37/$ level giving up 5.82% in one week which it has worked hard to again this year.

1_august_29

Turning to Eskom, it appears they are now in the firing line as the coal contracts signed with Tegata are questionable. The coal being sold to Eskom from the Gupta owned Brakfontein coal mine is of a very poor quality and should not have been used. Scientists did research which confirmed the poor quality of the coal but somehow Eskom still managed to sign a 10 year contract with Tegeta (owned by the Guptas and President Zuma’s son Duduzane). As stated above, another example conforming fears of patronage.

CPI y/y figures were released for July indicating a drop from 6.3% to 6%, a higher reading is seen as more positive (bullish) for the Rand while a lower reading is seen as negative (bearish). PPI y/y on the other hand came in positively at 7.4% beating pervious readings of 6.80%.

2_august_29

Europe and UK
Flash Services and Manufacturing PMI are all reflecting readings in expansionary territory with the only exception being the French Flash manufacturing PMI which dropped to 48.5, missing expectations of 49.1.

German Ifo Business climate was also release. This is a leading indicator of economic health. Businesses can react quickly to market conditions and changes in their sentiment can be an early signal of future economic activity. The reading came in at 106.2, missing both forecasts of 108.5 and previous figures of 108.3.

United States
Friday saw the FED comments from Jackson Hole regarding their view on interest rates rising and the state of the US economy. With better growth, stability and jobs data coming out of the markets, it appears their case has strengthened for a rate hike to come this year, either in September or December. Chairwoman Janet Yellen stated, “In light of the continued solid performance of the labour market and our outlook for economic activity and inflation, I believe the case for an increase in the federal-funds rate has strengthened in recent months.” This hike should continue to boost the USD and may in turn result in some element of “Risk Off” recurring.

Core Durable goods orders m/m came in at 1.5% beating expectations of 0.4%. Prelim GDP q/q came in in line with expectations of 1.1% and unemployment claims came in stronger at 261K against forecasts of 265k.

(Source: Bloomberg, ForexFactory, Reuters, Fin24, BusinessDay, MarketWatch)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 22 August 2016:

South Africa
Slow movement out of South Africa was seen with the JSE All-Share remaining flat for the week. Retail Sales YoY for June were released at 1.7%, missing forecasts of 3.8% and saw a large drop from previous readings of 4.5%. The strong performance of the rand has seen to slow somewhat with it losing 0.23% against the dollar for the week.

1_august_22

United Kingdom
UK CPI y/y slightly beat expectations by 0.1% coming in at 0.6%. Retail sales m/m also showed positive signs with a reading of 1.4%, beating forecasts of 0.1%. Unemployment rate was kept constant at 4.9%. The FTSE 100 ended lower for the week at 6858.95 points, 0.83% lower.

2_august_22

United States
Slow performance was also seen from the US with only a few important data points being released. Core CPI m/m came in lower at 0.1% missing both previous numbers and expectations of 0.2%. The S&P 500 traded flat for the week with and the NASDAQ moving 0.15% higher.

3_august_22

(Source: Bloomberg, ForexFactory, Reuters, Fin24, BusinessDay)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 15 August 2016:

South Africa
South African equity markets continue to tread sideways but on the lower end of the range that we have seen since March. The diversified industrials, miners and many property stocks have been hard hit by the strengthening Rand that managed to close as low as R13.28/$ and is currently trading around R17.30/£ against the Pound, the worst performing currency this year.

Since the beginning of the year the Rand has appreciated against the Pound by almost 25% and the Dollar by almost 14%. Currency moves have been more important and in most cases greater then underlying asset returns. This year currency has been the dominate theme when analysing investment returns.

The strengthening of the Rand certainly will leave our Reserve bank with a little more room to breathe and with less imported inflationary pressure, although oil prices have picked up from $42/bbl towards the end of August to $47/bbl currently.

1_august_15

South Africa also regained its top spot as Africa’s biggest economy after Nigerian GDP and currency have fallen and remain under pressure. Business confidence was also marginally up in July to 96 from 95.1 in the prior month.

2_august_15

Europe
German exports beat expectations at 0.3% month on month in July after prior month’s figures of -1.8%. Germany also saw CPI come out as expected and in line with prior months at 0.4%, however the real story was its GDP figures which smashed expectations at 3.1% year on year vs prior figures and expectations of 1.5%.

European GDP maintained its prior quarter’s performance at 1.6% year on year.

UK production dipped more than expected but remained positive at 0.9% year on year down from 1.5% and expectations of 1.3%. Industrial production however came in in line with expectations at 1.6% up from 1.4%.

China
Chinese CPI came in in line with expectations at 1.8% in July, slightly down from prior month’s year on year figure of 1.9%.

3_august_15

United States
Friday saw retail sales take a massive dive with a reading of 0.0% month on month after June figures of 0.8% and expectations of 0.4%.

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 01 August 2016:

South Africa
The Rand ended the week strongly on the back of dollar weakness breaking the R14$ mark and trading as low as R13.87/$ today.

1_august_01

Unfortunately this really is not a story about South African prospects as we have recently seen IMF growth concerns, inflation picking up to 6.3%, producer price inflation increasing to 6.8% from 6.5% in the month of June and almost 500 000 jobs being lost in the first half of this year. We are now waiting on data to see if we will enter into a recession (two consecutive negative quarters) and are not out of the rating downgrade saga just yet. ABSA have also put out data in the Barclays results showing impairments on home loans are up 77%.

Basically all data suggests a rocky road ahead and one really needs to caution any further Rand strength. Short term technical also are staring to indicate that we have/ are about to enter overbought levels.

2_august_01

United States
A slow week for the S&P 500 Index last week despite consumer confidence coming in at 97.3, beating forecasts of 95.6. Unemployment claims on the other hand missed forecasts of 261k and produced a figure of 266k. Core Durable goods orders, a leading indicator of production, also had disappointing data dropped from 0.3% to -0.5% m/m. Advance GDP q/q slowed to 1.2%, down from forecasts of 2.6%. The Fed met last week and after meetings concluded on Wednesday, a decision to keep rates constant was decided. Market participants were largely disappointed despite the fact that the Fed did acknowledge some improvement in the economy.

3_august_01

Europe
Positive data was released in Europe with the preliminary Flash GDP q/q coming in in line with forecasts of 0.3%. Spanish unemployment rate decreased from the previous reading of 21% to 20% and beat forecasts of 20.5%. Germany also had positive data with the prelim CPI m/m of 0.3% m/m beating estimates by 0.1%. German unemployment change also dropped by around 7 000. European markets have slowly ticket up with the DAX adding 1.87% last week and the CAC 40 1.34%, year to date however these two indices are still negative in the respective currency.

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 18 July 2016:

South Africa
South African equity markets had a positive past week but still trade sideways in their current trading band that we have seen for the past few months. The Rand has also consolidated around the R14.20/$ – R14.40/$ levels on the back of a more positive risk on EM flows. This can be clearly seen in the fact that the JSE has experienced 36 days of net buys by foreigners, the longest streak since 1999.

Retail sale also ticked up to 4.5% year on year in May from a revised up 1.6% (1.5% prior) in April.

1_july_18

United States
The US markets have clearly benefited from the flight of capital out of the UK and Europe with the S&P 500 now at all time high levels and almost 6% year to date. Similarly in the Dollar index which is trading back above 96 again having had that initial pop post Brexit.

2_july_18

Weekly initial jobless claims came in better than expected at 254k, same as previous week and lower than expectations of 265k. Retail sales also beat expectations of 0.6%. US CPI came in at 1% in June, same as the prior month but below expectation of 1.1%.

3_july_18

Europe
European headlines where rocked last week firstly by the devastating terrorist attacks in Nice, France, and then by the Turkish coup. Unlike the Turkish lira, however European markets where largely positive for the week.

Core CPI maintained 0.9% year on year while CPI still holds positive at 0.1%

Across the pond, the BoE kept rates on hold sending the pound higher as expectations had been for a possible cut.

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 11 July 2016:

South Africa
Markets are still largely being driven by Brexit unknowns although we are starting to see many market participants starting to re-join or looking for bargains.

The Rand strengthened dramatically last week and still trades around the R14.50/$ mark with the Top 40 still lagging, largely effected by a number of shares with UK exposure.

Business confidence in June ticked up, despite the Brexit fears with the index rising to 95.1 from 91.8 in May. This is in contrast to consumer confidence which has taken a dip of late.

1_july_11

United States
The US came out with some impressive data on Friday with June Non-Farm payrolls surprising with 287 000 jobs, expectations were only around the 175 000 mark. Despite this, the unemployment rate rose marginally to 4.9% from last month’s 4.7% due to the participation rate rising to 62.7% from 62.6%

Europe
European Service PMI ticked up moderately to 52.8 after expectations where flat and from the 52.4. Composite PMI also edged up to 53.1 up from expectations and prior month of 52.8

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 4 July 2016:

Brexit
With the unexpected ‘Leave’ vote winning on the 24th June, global markets reacted with immediate risk-off sentiment. Now that a few days have passed and market participants have had time to reassess what Brexit really means, most global markets have recovered substantially with the S&P 500, FTSE 100 and TOPIX all rebounding by 3.3%, 7.2%, and 4.3% respectively. The MSCI Europe also showed a strong bounce of 4.5%. Although markets have recovered, there are still sectors in the UK equity market which have been affected more than others. Below is a chart showing the source of revenue for some sectors and how they benefit from having revenue abroad.

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South Africa
It was a quiet week with the JSE All Share Index moving 1.31% higher for the week after the news of Brexit and market fears had relaxed. Producer Price index, which measures the average changes in price in primary markets of SA by producers of commodities, was released with a YoY reading of 6.5%, a slight drop from the previous 7%. The Rand strengthened against its major partners with it currently trading at R14.49/$, gaining 6.18% year to date.

Europe
With Brexit come and gone, the economy in Europe appears to be moving along steadily with German retail sales m/m increasing from -0.3% to 0.9%, beating estimates of 0.7%, unemployment change of -6K and CPI m/m coming in in line with expectations of 0.1%. Core CPI Flash estimate y/y for Europe came in at 0.9%, slightly beating the previous figure of 0.8%.

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US
Positive data was released last week by the US with the final GDP q/q coming in at 1.1%, beating both the forecasted and previous figure of 1% and 0.8% respectively. ISM Manufacturing PMI also came in positively at 53.2 beating forecasts of 51.3. Personal consumer spending m/m, measured by the change in the inflation-adjusted value of all expenditures, remained in line with expectations coming in at 0.4%, slightly down from previous figures of 1.1%.

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 27 June 2016:

Brexit
Perhaps the single biggest yet potentially largely irrelevant event that we have seen in a long time was the surprise Brexit vote last week. Why potentially irrelevant, well because we do not yet know what it actually means. There is no default set of rules and after the dust has settled and the new trade, immigration policies and other regulations are renegotiated it is quite possible that the UK and Eurozone will not be in a substantially different position. At the same time Europe could play hard ball with the UK and make life rather difficult and we can see further ripple effects with more countries or regions calling for a referendum.

UK and particularly London property could be hard hit. Financial services and banking will certainly see changes with the likely required capital investment as we potentially know have different regulators and rules. Will banks have to now invest additional infrastructure outside of the UK? Guernsey and Isle of Man regulation and changes for European funds?

In the meantime, while the market now has a known unknown the Pound has hit a 31 year low and market volatility has seen one in a lifetime moves with some data showing 10 sigma / standard deviation moves. We have already seen pro Brexit leaders back track already on migration rules and Scotland trying to fight to remain in. Uncertainty in the only certainty at this stage.

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South Africa
The South African markets haven not escaped the global turmoil with mixed results. The Rand weakened substantially on the news from around R14.30/$ to R15.20/$ but did improve against the Pound. Gold shares soared while general markets sold off.

CPI surprised on the downside with May printing 0.1% lower at 6.1% after consensus predicted an increase to 6.4%

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Europe
Besides the Brexit turmoil European PMI data was released last week. As always it is a tale of two stories with Germany printing 54.4 (F:52.1, P:52.1), Eurozone at 52.6 (F:51.4, P:51.5) and France at 47.9 (F:48.8, P: 48.4)

US
Some mixed data out of the US last week with Manufacturing PMI surprising on the upside 51.4 (F: 50.8, P: 50.7) while durable goods orders disappointed at -2.2% (F: -0.5%, P: 3.3%). Last week we also saw fed chair Janel Yellen testify and specifically focus on market volatility and the Brexit issues. Since Friday we have seen rate expectations for this year drop to zero.

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 20 June 2016:

South Africa
The South African Rand improved slightly last week despite our current account widening to 5% of GDP. The Rand has traded marginally down at R14.80/$. Equities had a mixed week and are trading marginally higher on Monday but remain in the sideways channel.

Europe
Brexit fears, as expected, was the main driver of markets last week and has seen some record volatility in the Sterling. Monday (yesterday) the 20th has seen some of the biggest rally’s in the Sterling history with the gain at the time of writing at the 3rd largest in history with all other top 10 gains during the flight to safety of 2008 and 2009. Market fears and safe haven demand grew to such a level that the German Bunds 10yr yield dropped into negative territory, the first time on record.

UK May CPI came in slightly weaker than expected at 0.3% matching previous levels but lower than the 0.4% expected. Retail sales came in above expectations at 0.9% m/m after forecasts of only 0.3%

European CPI came in line with expectations at -0.1%, same as previous.

1_june_20

US
US retail sales topped expectations at 0.5% m/m after 0.4% forecasts. PPI also beat expectations at 0.4% after forecasts of 0.3% and prior levels of 0.2%. CPI however disappointed at 0.2% down from 0.4% and forecasts of 0.3% all month on month. US year on year CPI has dipped slightly to 1% from 1.1%, ex energy and food has increased 0.1% to 2.2%

2_june_20

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 13 June 2016:

South Africa
South African GDP turned negative in the first quarter this year with year on year growth sitting at -0.2% and a quarter on quarter reading of -1.2%.   Business confidence dropped further to 79.3 in May from 82.5 in April. Manufacturing bucked the trend rising slightly by 2.9% year on year.

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Finch also maintained both our credit rating and stable outlook for now. Despite this announcement, the Rand has weekend slightly against the Dollar and is now trading around R15.20/$ while the Top40 has given back some of its gains and is trading back under 47 000, at approximately 1.8% year to date.

Europe
Brexit fears have been the dominate headline of late with the Pound now trading at two month lows and all-time highs in terms of volatility. UK manufacturing and industrial production both beat expectations at 0.8% and 1.6% for the month of April respectively. Both were expected to contract slightly. UK consumer price expectations also eked up to 2% from 1.8%.

European GDP surprised on the upside with 1.7% year on year growth in the first quarter beating expectations and the prior quarter at 1.5%

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Commodities
Oil prices appear to have stabilise now with both WTI and Brent trading around $48-49bbl. Gold has had another strong week and is now trading back up at $1286 a fine oz.

3_june_13

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 06 June 2016:

South Africa
Most of the week the market sat on edge before Fridays S&P rate announcement. It was no surprise when S&P maintained our rating and negative outlook. The Rand pulled back strongly on this news (3%) as now two out of three rating agencies have confirmed our rating. In order for us to fall out of investment grade indices we would require, amongst other criteria, a mark down by two out of the three main agencies. The Rand this morning continues to maintain Fridays levels, trading below R15.08/$ currently however the currency is likely to remain volatile.

1_june_6

Equities also had a good week in that they managed to hold onto the gains experienced towards the latter part of May, despite a bit of profit taking mid-week as technical indicators suggested the markets had run a bit too hard over the prior 6 to 7 trading days.

Vehicle sales helped maintain our trade surplus in April while Manufacturing remains under pressure slowing in May with PMI printing at 51.9 (54.9) but importantly in expansion territory above the 50 mark.

2_june_6

Europe
Brexit fears have now rocked back with the latest polls on Monday surprising everyone with 43% remain, 48% leave. The change in sentiment has been fairly rapid and the UK’s exchange rate has been hard hit. The Pound is now trading at lows seen around 13th of May at $1.43/GBP but still higher than some of the lows seen earlier this year that where around $1.40/GBP.

European CPI improved marginally and in line with expectations at -0,1% (-0.2%) year on year. European unemployment remains flat at 10.2% with the underlying picture remaining a tail of two stories. While Germany ticked lower at 6.1% down from 6.2%, Italy increased from 11,5% to 11,7% and this is between two of the main nations. The divergence in peripheral countries is far greater.

Eurozone May Composite PMI rose slightly to 53.1 (52.9)

United States
The US saw quite a bit of data released, first on Wednesday we saw personal consumption expenditure up to 0.3% (0.1%), personal spending for April up to 1% (0.1%) and personal income flat at 0.4%, all on a month on month basis. ISM prices paid came in at 63.5 (59) and ISM manufacturing PMI 51.3 (50.8) were also up for the month of May, both positive for inflation.

Friday however saw non-farm payrolls vastly disappoint with only 38 000 jobs being created after expectations of 164 000 and a prior reading of 123 000. The unemployment rate dropped further however to 4,7% from 5% on the back of a lower participation rate down 0,2% to 62,6%.

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 23 May 2016:

South Africa
The South African Rand weakened a little further last week after hawkish comments from Fed minutes. Stocks continue to remain directionless maintaining their sideways channel.

Inflation figures drop slightly to 6,2% in April after 6,3% in March despite the food price inflation experiencing an 11,3% year on year gain. Retail sales grew at 2,8% year on year in March, down from 4% in February.

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Post the inflation figures our MPC kept rates on hold but warned against further hike later this year. Our low growth rate was clearly a factor in their decision as they try and balance inflation without choking our struggling economy. The Banks GDP outlook was further revised down.

2_may_23

While our outlook remains muted, Nigeria shrank in the first quarter of this year by -0,4% after expectation of 1,8% growth. Given the oil price many now expect the economy to head into a full blown crisis.

US
Last week saw the release of FOMC minutes spooking markets with increase possibility of a June rate hike. Commodities prices, particularly gold and oil, subsequently dropped, along with emerging market currencies with the dollar strengthening. This saw global equities sell off and the S&P return to basically 0% year to date.

US CPI increased from 0,9% to 1,1% in April, in line with expectations.

3_may_23

Europe

UK saw inflation figures surprise on the downside with CPI printing at 0,3% down from 0,5%. With retail sales also dropping to 1,3% year on year , down from 1,6%.

European CPI maintained at -0,2% year on year with core CPI at 0,7% down from 0,8%.

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 16 May 2016:

South Africa
The South African Rand weakened further last week and into Monday giving up all of its gains for the year. The Rand is now currently trading in the high R15’s/$ with the dollar index largely flat week on week. Thus unlike the past few weeks this isn’t just simply a dollar story moving the Rand. On the back of this, the Top40 has been lifted primarily by Rand hedge and commodity stocks but still trades around 0% for the year to date (ex div).

Mining output dropped 18% year on year in March. While mining isn’t as big a contributor to GDP as it once was, it is one of our main exports which has significant influence on our currency and balance of payment accounts.

South Africa’s wheat also dropped by the same amount, 18%, or 1.44million tonnes due to the drought. Eskom has also been shouting about turn arounds and no need for further blackouts but should one look at the actual numbers they’ll notice demand has fallen by 9% which has alleviated the excess demand.

All in all, economic growth and key employment industries do not look healthy.

1_may_19

Europe
The BoE announced rates last week with an, as expected, 9 to 0 vote no change while also maintaining their asset purchase facility at 37bn GBP. Brexit fears remain a risk factor to both the BoE and the market with the Yes vote clawing some points back in the poles however for now it still looks like the UK will stay in the EU.

European GDP missed expectations with a year on year reading of 1,5% down from previous 1,6% which was expected to hold.

US
Retail sales in the US beat expectations with a Month on Month increase of 0,8%. Expectations where only 0,5% and a prior figure of 0,2%.

Commodities
Oil continues to be on a steady course now trading at 6 month highs with Brent now at almost $50bbl with WTI just under $48bbl.

While oil prices are certainly on the up the threat of alternatives are now here. On Sunday Germany managed to supply the entire country on clean energy with power prices turning negative for 15min.

2_may_19

Gold has been largely flat of late still trading just under $1300oz.

3_may_19

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 9 May 2016:

South Africa
South Africa last week got a welcome surprise from Moody’s rating agency when it didn’t downgrade our sovereign debt rating to one notch above junk. This would have put Moody’s in line with the two major peers (Standard & Poor’s and Fitch). They did however assign a negative outlook to the rating, sighting structural and fiscal reforms remain a factor. Moody’s also sees a modest recovery in the economic growth going forward.

Unfortunately, the South African unemployment rate ticked up even higher with 355 000 jobs being lost and unemployment now at 26.7%, the highest level since 2008.

1_may_9
Finance minister Gordhan has once again been in the news, first for reassuring stakeholders that he is confident that the budget fiscal targets will be met and then for criticising ‘arrogate and belligerence’ state owned company boards, particularly fingering out Denel.

The Rand has weekend slightly and now trades in the high R14’s against the dollar, despite the Moody’s news. This is primarily being driven by a slightly stronger Dollar after weak employment data last week.

US
Last week saw negative employee data out of the US first with ADP payrolls rising at the lowest level in three years adding 156 000. Economists had forecasted an increase of 195 000. March data was also revised down by 6 000 to 194 000. On Friday US non-farm payroll figures hugely disappoint with 160 000 in April with unemployment steady at 5%. Expectations were around 200 000 for job growth and a fall in unemployment to 4,9%.

Job gains in March were revised down as well from 215 000 to 208 000. The participation rate fell to 62,8% from 63%. The only real positive news was that hourly earnings rose 2,5% year on year which was more than expected.

Post this, the Dollar actually finished the week up (ZAR weekend), recovering some of its prior losses with the Dollar index now trading just over 94, despite everyone pushing out rate expectations. Part of the reason for this is the simple fact that while US data momentum may have waned, the economy is still expanding, inflation is ticking up and there central bank has at least started normalisation.

Commodities
On the back of a change in the US interest rate outlook, gold has sold off marginally towards the end of last week and Monday, however it is still up just over 20% year to date in USD.

WTI crude has stabilised around $45bbl, while Brent has come down to similar levels. Both appear to be moving marginally higher as the supply side continues to rebalance.

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 3 May 2016:

South Africa
Both local equity and currency markets continue on their sideways movement, although the Rand did break a little lower on dollar weakness and the court ruling against President Jacob Zuma. Stocks fell slightly last week in line with global sentiment. None of these moves however are significant.

1_may_3
1 yr. dollar index, the resents weakness has been a significant benefactor for the Rand

PMI looks to have eased on the back of a stronger Rand with April PMI printing at 54,9 after 50.5 in March. The IMF has also come out with the lowest sub-Sahara growth rate since 1999, estimating a rate of 3% this year. South African growth is expected to be significantly lower than the region.

Europe
European PMI slowed slightly to 53, lower than March and expectation of 53.2. While a reading above 50 indicated expansion, the Eurozone desperately requires higher input growth rates / costs to combat the anaemic growth and deflationary pressure. GDP growth for the area is just 0,3% while inflation forecasts have been cut to 0.2% for 2016.

UK manufacturing unexpectedly shrinks in April with a factory index of 49.9, the first contraction in 3yrs and factory purchasing managers index of 49.2. Expectations were for an expansion at 51.2.

Despite this the Pound has pulled back all its losses for the year primarily on decreased Brexit fears. The currency was down as much as 6.1% in February this year, the lowest level since 2009 against the Greenback

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Year to Date Sterling vs Greenback

US
The US economy was weaker than expected in the first quarter with an advanced estimate of 0,5% quarter on quarter after last year’s 4th quarter of 1,4%. However personal consumption (two-thirds of the output), was stronger than expected. Personal consumption rose 1,9% despite personal saving increasing 0.2% to 5,2% for the first quarter.

Initial jobless claims rose less than expected last week at 256 000, the lowest level for this average since December 8, 1973. The four week moving average which smooths volatility was down 4 750 to 256 000. Jobless claims have been below 300 000 for 60 straight weeks now, the longest streak since 1973

Oil
Oil has climbed not so slowly during the month of April from $38bbl to upwards of $48bbl for ice Brent crude. However this is the front end of the futures curve. When one looks further out at longer dated oil contracts the market, like other commodities is still pricing lower for longer.

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 18 April 2016:

South Africa
While the local equity market had a positive last week, it still remains lacklustre and range bound with no real sense of direction or urgency. The Rand however continues to push lower, all be it marginally with it now trading around R14.60/$. A Top40 graph in dollars this year actually looks like a much better story with just under 2% performance plus the 5.5% Rand appreciation giving you roughly 7.5% in USD.

South African consumers continue to be hard hit after the recent fuel price increase with the drought now feeding onto meat prices as animal feed becomes scares. Consumer confidence in South Africa remains low amidst ‘stagflation’ with a reading of -9 after last year 4th quarters reading of -14.

1_april_18
South African Consumer price index

Our treasury under new but old finance minister Gordhan continues to fight back on the political tight rope and have now announced that the state-owned arms manufactures, Denel, would faces possible financial misconduct charges if the board formed a new JV (Joint Venture) without their permission. The JV would be with a company with ties to the Gupta’s.

Europe
After mounting fears of bad debts and non-performing loans in Italian banks, Italy has scurried to elevate fear with a EUR 5Bn fund to prop up any ailing institutions and ring fence pools of debt. Italy’s banks have been some of the worst performers in the last 6 months in Europe with some share prices half of what they were 6-12 months ago.

UK inflation hit a 15 month high with a reading of 0.5% in March up from 0.3% in February. Core inflation also rose to 1.5%, its highest level since October 2014. Brexit fears remain, however the odds are now as low as 22%. While polls and statistics are never accurate the general trend has been more “to stay” than “to go” with an unbundling having dramatic effects on growth and trade.

Corporate debt and commodities
Last week saw Peabody energy, the largest privately owned coal producer and the second largest on earth, file for US bankruptcy protection amid falling coal prices. This at the same time the US energy information agency released new data showing that for the first time coal will not be dominating US power production this year with natural gas taking over the top spot.

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Annual share of US total electricity generation

Corporate defaults are also on the rise and many expect Peabody only to be the tip of the iceberg with highly geared US shale and many other commodity produces looking to follow suit.

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 4 April 2016:

South Africa
South African markets were rocked last week by a landmark case from the ConCourt handing down its ruling on Nkandla both for the presidency and the National Assembly. In its simplest form, no matter who you are or what title you hold, you are not above the constitution either collectively or as an individual.

Political backlash has been as expected with opposition parties, some of the international community as well as individuals within the ruling party calling for Zuma to step down. Firms such as KPMG, Sasfin and Absa are also all believed to have cut ties with Zuma allies and the Gupta’s, this past week.

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One Month Dollar Rand, now trading between 14:70-80

While the local equity markets had a mildly negative week, the big winner was the Rand, breaking through the R14.70/$ level or roughly 4,5% positive for the year. This has a number of knock on effects at a critical time. Imported maize and oil prices should ease or hopefully deflate some of the food prices being seen. This will in turn feed into inflation and inflation expectations, which are uncomfortably high at the moment. The recent movements in the Rand will likely be a key talking point at the Monetary Policy Forum at the Reserve Bank this Monday evening. All of this including the ConCourt ruling will be positive to rating agencies that are keeping a careful eye on South Africa.

Europe
German March CPI surprised on the upside with a reading of 0,3% ahead of forecasts of 0,2%. While the unemployment rate remained at 6.2%. Overall European CPI printed, as expected, at -0.1% up from -0.2% while core CPI (exc food and energy) increased to 1% from 0.8% in March

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Stoxx 600, Range bound in March.

European stocks seem to be in wait and see mode after plunging 17% at the beginning of the year only to recover 14% over the five weeks up to the middle of March. Many participants are sceptical of the latest round of ECB’s stimulus.

United States
US March Non-Farm payroll figures printed higher than expected, at 215 000 new jobs being added, with average hourly earnings edging up slightly to 2,3% from 2,2% and the participation rate increasing also by 0,1% to 63%. Because of the increase in participation rate the unemployment rate increased marginally to 5%.

US ISM manufacturing as well as Prices paid both surprised on the upside which is seen as be both positive for the USD and inflation expectations.

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

 

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 29 March 2016:

South Africa
Local markets are largely flat after two short weeks of trading. The Top40 index initially broke above 47 000 again, closing in on 48 000 but has since given back most of the gains to around 46 000. The Rand recovered back to previous trading range (+- R15.20/$) after the short spike into the lower R16/$ levels around the 15th of March. Trading liquidity has been slightly lower given the past weeks holidays with less market participants in the office and this has seen the Rand edge up ever so slightly too just over R15.40/$.

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One yr. top40 index

Part of the reconsolidation of the Rand was due to the 25bps rate increase in our repo rate. Inflation remains elevated with the Bank expecting an average of 6,6% this year on the back of higher food prices and uptick in crude. February’s inflation number printed at a massive 7% year on year with sharp increases in food prices being seen as a direct result of the drought currently being experienced over South Africa. This has led some economist’s to predict inflation north of 8% potentially towards the end of the year and to only re-enter the bank towards the end of next year, these expectations are significantly higher than the current Reserve Banks predictions.

The Reserve Banks leading indicators showed more bad news, confirming economist expectations that the economic growth prospects remained dim. The index slipped further to 92.2 points in January. Going forward the Reserve Bank will have a hard time juggling inflation and growth within its mandate with rating agencies keeping a careful eye.

Crude and the Dollar
Crude prices rose to 3 month highs recently along with relatively sharp selloffs in the US Dollar. Both however have given back some of the gains (losses). Brent holds steady around $40/bbl while the dollar spot index has edged up to a reading of almost 96, down from low 98 levels earlier in March and intraday reading as high as 100 in late Feb

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One month Brent Crude CO1:com futures. Holding around $40bbl

Europe
UK inflation came in in line with concessions and its previous reading at 0,3% year on year in February still well below the 2% target. Core inflation which excludes volatile food and energy prices was maintained at 1,2%. European markets where unfortunately rocked last week by the terror attack in Brussels.

US
Core personal consumption spending maintain prior readings with a growth of 1,7%. This is seen as a leading indicator for US inflation and key for understanding future rate hikes this coming year.

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

 

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 14 March 2016:

South Africa
Local markets consolidated last week with the Top 40 floating around the 46 000 mark and the USDZAR still between R15.20/$ and R15.40/$. This has been while Moody’s has been visiting South Africa prior to the largely expected downgrade of South Africa to one notch above junk, in line with the other major rating agencies.

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Top40 one month index

Last week also saw Old Mutual announce a major restructure that would see it unbundle into 4 separate entities over time as well as sell down its Nedbank stake (54%) to a non-controlling strategic minority stake (estimated 26%). MTN was also in the news with its $1,5bn settlement offer for the Nigerian fine.

Europe
European problems continue, despite last week’s announcement of further negative rates to -0,4% and expanded QE from the ECB. Bond purchases have also increased by 20bn to 80bn Euro’s per month with corporate bonds now eligible for purchase as well. There is also the potential for subsidies to lenders that have to hold capital that is eroded by negative rates as well as ensure that net interest margins stay intact without increasing the rates that banks lend thus nullifying the ECB’s rate decision.

This has all been in an effort to spur growth and inflation and revive the staling area. Inflation forecasts from the ECB have been slashed from 1% to 0,1% for 2016 while growth has been revised down to 1.4% from 1.7% in 2016.

Non-performing loans in Italy have become a major concern with estimates ranging from 17-21% of total lending or 12% of Italian GDP. Some estimates even indicate that there are individual institutions that could have bad debt up to 30% of there balance sheet. Italy, unlike Greece, makes up a major part of the union and poses significant risk to stability.

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Italian non-performing loans- IMF

On a more positive note, German industrial production jumped to the highest levels in January over six years, climbing 3,3% month on month beating expectations of only 0,5%.

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 29 February 2016:

South Africa
South Africa faced probably the single most important short to medium term event last week with the budget speech after Nenegate. Pravin Gordhan had a good but clearly not great budget speech. While all the right noises where made including cutting / capping government car amounts, centralised tender procurement and lower event / conference spending, it failed to clearly spell these matters out. We will not be buying a new presidential jet would have sent a far stronger message then cap’s on car spend. The potential merger between SAA and SA express with a potential equity partner was welcome as was the co-investment on certain projects with union money and potential outside 3rd parties however, it was very clear that privatisation would not happen.

The Rand weakened significantly from the announcement and onto the weekend touching upwards of R16.30/$. It has however pulled back on Monday afternoon to just below R15.90/$. Our equity markets continue to remain volatile and mixed with the Top40 just below 44 000 points.

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One month $/R significant weakness post budget speech

Late last week and over the weekend the gloves came off between Pravin Gordhan and the Head of SARS, letters from the Hawks and a “group of people trying to destabilise South Africa”. While the Barclays looks to

confirm the exit of its South Africa and African interest largely speculated on the massive loss they have incurred on the investment due to the currency devaluation, potential junk status and the punitive capital charges as they do not own 100% of Barclays Africa. Regardless, both events are rather negative to foreign investor outlook.

United States
US Q4 GDP was revised upwards to 1% from the initial estimates of 0,7%. Consumer confidence however has slipped in February with a reading of 92.2 down from 97.8 and expectations of 97. Durable goods orders surprised on the upside with a January figure of 4,9% after expectations of 2,5%, as did core personal consumption spending with a reading of 1,7% in January after prior months of 1,5% and expectations of 1,2%.

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US GDP

Europe
UK consumer confidence has also taken a knock on the back of Brexit fears. Many expect the Brexit fear to be a little overdone and the Pound to regain some of the loses it recently experienced. Core European CPI also printed in line with expectations at 1%

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update Budget Speech 2016:

Budget Speech 2016: Turbulent Times

South African Finance Minister Pravin Gordhan started on a strong note stating, “We are strong enough, resilient enough and creative enough to manage and overcome our economic challenges”. Weaker business confidence coincides with severe drought, bring with it rising prices and threats to water supply in many areas.

The effects on our economy due to global demand declining are widespread. Lower export earning, revenue, job losses and declining investment are just to name a few.

He pledged to narrow the fiscal deficit to 2.4% of GDP in three years time from the current 3.9% and to stabilise debt as percentage of GDP around 45% of GDP. This was not enough to appease investors seeking more determined measures to boost revenue, including tax increases and sales of state-owned companies. Personal income tax rates were not changed as was expected and the VAT rates was also kept unchanged. Other key points were that Capital Gains Tax will increase significantly with almost 20% to a maximum of 16.4% for individual (up from 13.7%) and 22.4% for companies (up from 18.6%). Fuel levy will increase 30 cents per litre, property transfer tax and sin taxes are all seen to be increasing and a new tyre levy and tax on sugar intake will also be introduced.

1_feb_BUDGET

Gordhan stress that the budget is “focused on fiscal consolidation,” He also stated “We cannot spend money we do not have. We cannot borrow beyond our ability to repay. Until we can ignite growth and generate more revenue, we have to be tough on ourselves.”

Debt has almost doubled since President Jacob Zuma came into power in 2009, when the economy was facing recession and market turmoil linked to the global financial crisis.

2_feb_BUDGET

The rand plunged against major currencies sliding 3.13% (R15.71/$) against the dollar and 2.43% (R21.87/£) against the pound.

3_feb_BUDGET
(USDZAR: 1 Day Chart)

Other highlights were that they have agreed to “explore the possible merger of SAA and SA Express, under a strengthened board, with a view to engaging with a potential minority equity partner, and to create a bigger and more operationally efficient airline.” He did stress that this would be not be privatisation.

Confidence and shared understanding have been reinforced. These engagements are clearly critical to boosting our economy. Proposals for joint action have been established which include a collaborative initiative to combat corruption and abuse of tender procedures.

(Source: Bloomberg, Fin24)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 22 February 2016:

South Africa
All eyes will be on Finance minister Pravin Gordon’s budget speech later this week as international and local investor’s lose faith as SA faces a tipping point. Capital outflows have risen drastically towards the end of last year with foreign investors selling net assets worth of R43bn in the final five months of 2016 and locally sent R24.2bn in the 3rd quarter alone. So far both government and Minister Gordon have sent positive signals, however a solid and plausible budget will be key. Any disappointment from the market could see the Rand tumble giving up the small gains it has eked out this month. Step changes such as the semi privatisation of parastatals would see the Rand strengthen further and show the international community that SA is serious in changing foot to tackle the anaemic growth currently being had. A new amnesty is also expected to try and attract hidden offshore funds and provide additional revenue to the budget, narrowing the fiscal gap.

2_feb_22
Dollar Rand one month

Last week saw inflation printing significantly higher at 6,2% on the back of sky rocking food prices and the base effect of oil working its way out. Retail sales also surprised on the upside with Decembers seeing a 4,1% year on year increase, up from Novembers 3,8%.

The Rand continues to edge a little lower trading around R15.30/$ while the Top 40 had an up and down week with a fairly strong sell off on Friday (-2.22%).

UK
Similarly to SA, UK inflation ticked up sharply to 0,3% on the back of fuel and food costs. Still well below the 2% mandate, this is the highest inflation figure in a year. UK retail sales in January also surged 5.2%, almost three times higher than expected.

China
Chinese inflation also edged higher at 1.8%, the highest level since August 2015 and a welcome relief to disinflation fears. PPI still remains in negative territory however, all be it at a slightly lower rate of -5.3%.

1_feb_22
China CPI (grey) and PPI (Blue)

Oil
Saudi Arabia, Russia, Qatar and Venezuela have all agreed to freeze production levels for the time being. The market had priced in a cut with the oil price actually losing ground on the announcement. Brent has ticked up slightly to $34bbl but is still trading between the $30-35bbl band.

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
    Caleo Capital investment committee

Market Update 15 February 2016:

South Africa
South African equity markets experienced another volatile week while the Rand edging lower against the Green back, breaking through R15.80/$ intra-day and trading below that level for most of the day Monday.

1_feb_15
Dollar Rand one month

 The State of the Nation address did little to ease investors and rating agents concerns last week, so all eyes will now fall onto the budget speech with wide spread changes required to boost confidence in South Africa and keep rating agencies at bay.

United States
Fed chair Janet Yellen made further comments last week raising concerns of tightening domestic financial conditions and global economic turmoil on the United States.

2_feb_15
Five year Dollar index

The strengthening dollar has been a thorn in the feds side with some believing that it has had the same effect on the U.S. as a 2% rate hike. The Dollar for now has weakened slightly but still remains range bound between 94 and 100 on the Dollar index. Retail sales in January beat expectations with a month on month figure of 0.2%, higher than the 0.1% expectation.

Europe
European markets remain under pressure, particularly banks, as many are still struggling to raise capital required under Basel III given the weak economic conditions that have hurt profits. While the broader indices have fallen around 30%, the Stoxx 600 Banks index has fallen over 42% since mid-2015 and is roughly back at the same level as Draghi’s “whatever it takes speech” in the banking crisis of 2012… except we not in a banking crisis

3_feb_15
Europe isn’t the only stock market that has seen massive drops, Shanghai Composite is over 40%

Swedish central bank cut rates even further below zero to -0,5% from 0,35% surprising the market somewhat with the magnitude although analysts were divided on a change in rates as well. The central bank will continue with its bond purchase programme as well as reinvest upcoming coupons. The Krona slipped immediately against the Euro with a move of roughly 1% at the announcement.

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

 

~ Lloyd Priestman Market Analyst
~ Warren Davison Jnr Market Analyst
   Caleo Capital investment committee

Market Update 8 February 2016:

South Africa
South African equity markets edged up higher last week with the Top40 finishing at 44 453 but has given back some of the gains this Monday. The Rand continues to trade between R/$15.80-16.20. A break below R/$15.80 could see the Rand retrace toward R/$15.30, the next major support level.

1_feb_8
Dollar Rand one month graph

South African PMI rose slightly in December to 49.6 from 49.1 however a reading below 50 indicates a declining business activity.

Europe
UK services unexpectedly expanded in January sending the pound to a 3 week high against the Dollar. British PMI also rose more than expected with a reading of 55.6, up from 55.5 in December and ahead of expectations of 55.4

2_feb_8
One Year euro stoxx 50 index

European equity markets had another tough week with both the CAC and the DAX down. The CAC is now trading roughly 13% down year to date, the DAX is down a little of 16% and the Euro Stoxx 50 index is down over 14%.

Commodities
With the commodity rout continuing, major produces have put out some horrifying numbers. ArcelorMittal chalked up a $7.9bn loss last year with debt being reduced by $1.1bn from prior years to $15.7bn, the lowest level since Mittal Steel and Arcelor merged in 2006. Despite this they will be issuing $3bn worth of new shares to pay debt down further.

BG Group, a FTSE 100 oil giant that is about to be absorbed into Shell, posted losses of $1.17bn in 2015 after the prior year $8.3bn loss.

The oil price debate continues to vex market participants with some seeing a potential recovery, to some degree, in the short term as high cost suppliers, debt ridden, will have to fold reducing some of the supply. However structurally the long term doesn’t seem to have any significant factor leading to higher prices. The CEO of the world’s largest energy trader, Vitor Group BV, has even been quoted as saying there is a possibility that we will never see $100bbl again.

Structurally the oil market has supply side issues such produces Iran coming back online and the United States lifting their oil 40 year export. Alternative fuel sources particularly solar have become even more affordable and in some cases are the cheapest form of new build energy. On the demand side global growth has been mute, while China, which has been a major driver of oil demand over the last decade plus is slowing.

The market sell off over prior weeks has been blamed on the sell offs in the oil price and while traditionally this has applied due to ‘slowing global growth fears’ (which is also a real fear right now but independent to oil), oil is falling because of supply and not lack of demand. Effectively the crash in oil markets is a windfall to consumers that can either save or deleverage further or hopefully spend and spark demand for goods and services.

3_feb_8
Oil prices going back to pre-1990

(Source: Bloomberg, Business Insider, Reuters, Fin24, BusinessDay)

 

~ Lloyd Priestman Market Analyst
~ Warren Davidson Jnr Market Analyst
Caleo Capital investment committee

Market Update 1 February 2016:

South Africa
South African equity markets recovered last week in line with global markets after the numerous monetary policy announcements. The Rand strengthened somewhat after the largely expected 50bps hike from the MPC last week. The Rand broke R16/$ trading as low as R15,89/$ in overnight trade conditions, however has subsequently given back the gains trading at just over R16/$ on Monday.

1_feb_1
One month top40

December trade surplus beat expectations coming in at R8,22bn rather than R1,8bn. This will further add support to the currency going further.

Asia
The BoJ surprised markets last week announcing that they will lower interest rates to -0,1%. The currency jumped 3% while 10yr JGB yield dropped one point to 0,12%, the lowest level on record.

Chinese data has been weak of late. Manufacturing data has slumped to a 3 year low, while industrial profits fell 4,7% month on month in December. Consumer sentiment however rose unexpectedly in January by 1% to 114.9. Chinese money market rates also fell to the lowest level in a week this morning as authorities step up monetary supply to spur growth.

Europe
Factory growth across the Eurozone has slowed with Manufacturing PMI dropping slightly to 52.3 from 53.4 in December. This is still however in expansion territory with a reading above 50. Euro – Area consumer confidence also fell in January with a reading of 105 down from a revised 106.7 in December This is the lowest level since August last year.

2_feb_1
Consumer confidence (blue) vs GDP (white)

Despite the slowdown in the second half of the year, UK new home builds had their best year since the financial crisis, as demand for housing has outstripped supply for some time now.

US
Personal income rose in December 0,3%, while spending was flat and savings increased to 5,5% from 5,3%. Core PCE (inflation) was flat month on month but rose 1,4% year on year, still well below the Fed’s 2% target.

The FOMC changed the outlook slightly last week back pedalling from global growth risk being “balanced” in December to “assessing their implications for the labour market and inflation” rates were left unchanged as expected while expectations of further rate hikes have dropped substantially. March for example has dropped from almost 55% chance in late December to now just above a 20% chance being factored in in the futures markets.

3_feb_1
March Fed rate hike probability

 

~ Lloyd Priestman Market Analyst
Caleo Capital investment committee

Market Update 25 January 2016:

South Africa
South African markets, like US and other EM markets finished the week off strong with the biggest 2 day rally being seen in the EM and European markets since 2011. Despite this the Top40 and major indices such as the S&P500 and the European Stoxx 50 are still at levels last seen at the bottom of the August 2015 sell off.

1_jan_25
Top40 one year, currently sitting around August low levels

The Rand has also consolidated around R16.50/$ despite inflation raising in December to 5.2%. This has caused most economist (together with the exchange rate and food prices) to expect a 50bps increase later this week when our MPC meet. Other monetary policy meetings this week include the Fed and the BoJ.

2_jan_25
African currency depreciation since the start of 2015

 White maize prices have reached a new record high breaking R5 000 per metric ton last week. This is double the price traded in August / September futures market last year.

BHP Billiton has announced wide scale production cuts across all its mining operations except iron ore leading to an estimated $300-$450m expected hit to profits for the coming year. While Amplats, the world’s largest platinum producer has just announced guidance on a larger than expected looks for 2015, now expected at R12.1-12.2bn with write off amounting to R14bn.

3_jan_25
White Maize prices in ZAR

Asia
Chinese Q4 GDP was released last week with an annualised reading of 6,8% for the quarter and a full year growth rate of 6,9%, just below the 7% target. The PBOC also injected the largest amount of cash in over three years in open market operations to help stem the volatility being seen in their markets.

At the same time Japanese markets entered a bear market last week and most Asian markets experienced volatile and negative trading until Thursday.

Europe
Both the BoE and the ECB kept rates on hold, both sighting disinflationary pressure given the oil price. Uk inflation for the month of December has risen slightly from 0.1% to 0.2%, while retail sales dropped -1% month on month. The FTSE also entered a bear market. While UK unemployment hit a decade low at a reading of 5,1%, however recent pay figures still suggest that there is enough slack in the labour market

Flash PMI of the two major Eurozone countries came out at 52.1 (Germany) and 50.0 (France). A reading above 50 indicates expansion.

4_jan_25
UK wage vs productivity growth

 

~ Lloyd Priestman Market Analyst
Caleo Capital investment committee

Market Update 18 January 2016:

Overview
After finishing the year on a rather sour note, the global markets sell-off has continued into the New Year. The Top40 is already down 8% year to date while the Rand has lost a further 9% after a flash crash low in overnight low volume trading of R17.91 against the dollar, earlier in January.

Global and local growth concerns have heightened with many expecting SA to enter a recession. While the drought, the worst since records started in 1904, has seen local food prices, particularly maize, sky rocket.

1_jan_18
Five year Dollar Rand

Emerging market stocks are at their lowest level since 2009 while the Rand is the weakest performing EM currency out of the 16 majors that Bloomberg track.

Emerging markets are not alone, the S&P has also lost 8% year to date (although the dollar is fairly strong with the dollar index measuring just over 99) while the Stoxx 600 European index has entered a bear market (drop greater than 20%).

2_jan_18
One year dollar index

Oil continues to slide now at levels last seen in 2003, as Iran sanctions have been lifted over the weekend, driving Brent crude prices below $28bbl

So is it all doom and gloom?
From a structural point of view there is little to get overly excited about domestically. Credibility has hit hard given the political instability and the Nene fiasco. Rating agents are likely to put further negative outlooks / downgrades. The drought has caused a major food security risk and will result in significant inflationary pressure, particularly to the poor. Electricity supply is likely to be a major concern for another 12-18 months at a minimum. The exchange rate is putting significant pressure on importers and the already struggling retail sector. Political infighting has also risen drastically with some now suggesting that Zuma might be out before the next national ANC meeting.

3_jan_18
One year Stoxx 600 index

However from a global macro and investment point of view there are a few core issues to note:

America hasn’t changed, the economy is still grinding higher. Yes there may be issues, such as employment being down but wages aren’t growing and the type of employment growth seen in waiters and barmen rather than manufacturing but the economy is still moving forward. The Fed also does not have to raise interest rates further. It really is likely that it will be a “one and done’ rate hike.

Europe is continuing on the QE path and given the oil deflationary pressure, QE is likely to continue for some time.

Energy prices keep falling which is good for the consumer spending (but bad for inflation). This is not only the case for oil, solar had another record year in terms of investment and price reduction.

Chinese growth concerns are not a new issue. Yes the opaque information continues to drive volatility. Unless there is a massive collapse that they cannot fix (they have ample reserves and fiscal room) it’s a little bit like the Fed rate hike, the slowest train wreck in history. We know they slowing down, we know they changing.

4_jan_18
Global risk appetite – at panic levels

Markets have already sold off. Most markets have once again reach a correction or bear market territory and on most technical indicators are oversold. Basically the market has changed but the economies haven’t to this extent.

 

Lloyd Priestman Market Analyst
Caleo Capital investment committee

Market Update 24 November 2015:

South Africa
Despite inflation printing lower than expected at 4,7% marginally up from 4.6% in September, the Reserve bank hiked rates last week by 25bps. Expectations were divided on the decision however given their mandate and the current exchange rate, inflation expectations continue to tick upwards. The Rand pulled back somewhat to just below R14/$ but has drifted slightly higher during the course of the Monday.

1_nov_24
One month Top40 index

Local equity markets drifted marginally higher last week with the Top40 just under 47 000 points. International investors have now started pricing South African credit risk in line with Russia… Junk. Regardless of rating agencies, CDS spreads between Russia and South Africa have narrowed with international investors sighting fiscal concerns over and above commodity prices, electricity and water supply (drought) issues.

2_nov_24
South Africa (red) CDS’s vs Russian (blue)

UK
UK consumer prices edged lower at -0,1% as expected. Inflation expectations have now begun to tick up as we reach the one year anniversary (sell of finished early January this year) of the oil price crash. Core inflation (ex energy, food, alcohol and tobacco) rose to 1,1% p.a.   UK retail sales slumped in October falling 0,6% month on month. Sales rose year on year by a mere 3,8%.

Oil
Oil prices continue to drift lower with bearish short positions increasing despite WTI trading around $40 a barrel. Oil inventories around the globe continue to tick up putting renewed pressure on prices as the over supply glut continues. OPEC, at is upcoming meeting, is still likely to hold firm on supply output as it fights to hold market share.

3_nov_24
One Year, Brent generic first future

US
The US dollar continues to strengthen with it once again breaching the 100 index level as inflation expectations and rate hike expectations continue to draw nearer.

 

Lloyd Priestman Market Analyst
Caleo Capital investment committee

Market Update 2 November 2015:

South Africa
The South African Rand was largely flat last week trading around R13.70-80/$ after weakening slightly post the Fed’s October rates decision. A similar pattern was seen in our equity markets which finished up on Friday after dipping mid-week on what looks largely to be profit taking and MTN.

1_nov_2
One month Top40 index

Last week we also saw a flow of negative data out, unemployment rising to 25.5%, SA slipping in the World Bank’s 2016 Doing Business Report to 73rd out of 189, down 4 places. Mauritius, Rwanda and Botswana are now the top 3 in terms of ease of doing business in Sub-Sahara. President Jacob Zuma even commented in a Bloomberg interview that South Africa faces “serious struggles” to meet growth and employment targets.

2_nov_2
Five year, MTN share price

MTN has been suspended from trade on the JSE mid-day Monday after falling up to 8% this morning alone. This follows the Nigerian authorities $5.2bn US dollar fine for not disconnecting customers unregistered sim cards. MTN is down 34,62% from a year earlier and peaked at R260 on the 5th of May 2014. The stock was suspended at R149.48.

Europe
Last week saw ECB presidents signal a very dovish tone with regards to a bigger, broader future QE programme given the blocks lagging inflation and weak growth. While the block is out of a recession, employment in many areas, particularly youth, remain highly elevated while inflation and demand remain low.

Traders are now betting that the ECB will lower the deposit rate even further to -0.3% as bond yields have drifted lower (below the current -0.2%). This will be in order for the ECB to continue to buy bonds that currently they cannot, given their QE mandate that prohibits bond purchases below the deposit rate. Currently there is $345bn worth of debt below the deposit rate.

3_nov_2
German 2 year yield vs ECB deposit rate – the market clearly expects further cuts in rates

The UK economy slowed more than expected growing only 0,5% in the third quarter or 2,3% year on year, the lowest level in the past two years.

US
The Fed caused some riffles in global markets with the words “at our next meeting”. The market had taken it as a foregone conclusion that there not be a December rate hike. However post the minutes had to readjust their expectations given that the low liquidity period the world enters from mid-December and the weak global growth back drop, it is incredibly unlikely that we see a FED rate hike. Global demand and inflationary pressure would have to significantly surprise on the upside from current levels. For now expectations remain end of Q1 next year

4_nov_2
Intraday when the FED minutes where released

The US economy slowed slightly in the 3rd quarter at 1.5% or 3.9% annualised. However the slowdown was largely due to lower inventories. Stripping out inventories the economy grew 3%

5_nov_2
US GDP (pink) vs US GDP minus inventory adjustments

 

Lloyd Priestman Market Analyst
Caleo Capital investment committee

Market Update 26 October 2015:

South Africa
The South African Rand has continued to drift higher after closing at R13.04/$ on the 15th of this month. The Rand is now trading intraday between R13.70-13.60. The Top 40 has continued its strong performance opening positive this morning after a strong close on Friday and just a few points off its all-time high. The Top 40 has however closed in the red but is still over 10% year to date.

1_oct_26
One Year top40 index

South Africa’s inflation figures beat expectation at 4,6%, alleviating interest rate hike fears on the backdrop of weak global inflation and pushed out Fed rate hike expectations.

However the negative economic trend continues with BankservAfrica Economic Transaction Index continues to indicate a negative outlook. South Africa is also now likely to face the very real possibility of both Finch and Moody’s cutting our credit rating in line with S&P to the lowest investment grade level. GDP forecasts by a number of institutions (treasury, IMF, Reserve bank) has also been revised downwards in both the short and medium term with SA only expected to grow 1,5% this year.

UK
UK inflation remains stubbornly low, dropping back down to -0,1% while core consumer price inflation held

at 1% (excluding energy, food, alcohol and tobacco). At the same time UK’s jobless rate has fallen to the lowest level in over seven years with unemployment at 5,4% year on year. Wage growth has remained weak, contributing to the weak inflation figures. For now the BoE is likely to keep rates on hold for some time. Current forecast seem to indicate middle of next year.

US
US jobless claims have fallen even further, with the monthly average now at the lowest level since December 1973 with 255 000 claims filed in the week ending 10 October.

2_oct_26
One Year S&P 500, now back into positive territory year to date… just

China
Chinese inflation printed weaker than expected with CPI rising only 1,6% year on year in September, down from 2% in August. Producer prices slide further for the 43rd month further fuelling global deflationary fears with PPI falling 5.9% year on year.

Chinese imports also fell 17.7% in September, while exports fell 1.1%

The IMF looks set to include the Renminbi in the basket of special drawing rights (SDR) currencies, with the official decision being made in November.

 

Lloyd Priestman Market Analyst
Caleo Capital investment committee

Market Update 5 October 2015:

South Africa
South African equity market finished the week strong with the Top40 now after Mondays open back above 46 000 points and just over 5% year to date. The Rand has also strengthened, now looking to break R13,50/$ intraday. PMI fell further into contraction territory with a reading of 47.9, a 14 month low.

1_oct_5
One Year USD ZAR with RSI on lower graph

While the pull back in the ZAR is welcome and current technical’s such as the daily RSI are neutral with a reading of around 50, the tone towards emerging markets remains negative given the weak Chinese growth and uncertainty around the FED rate decision.

US
The US added 142 000 jobs in September, missing the lower estimates, causing expectation of a December rate hike to drop to 32% while a January rate hike currently is just under 50% in the FRA market. The unemployment rate remains at 5,1%. Wage growth was unchanged while the participation rate is now at the lowest levels since October 1977 at 62.4%. US manufacturing looks to be in a recession. Consumer spending however remains robust with it being the driving factor behind the economy US economy. Both Consumption and manufacturing are being driven by the strong US dollar with exports falling and consumers receiving additional purchasing power.

2_oct_5
US real personal consumption expenditure (purple) vs US exports – year on year change

Japan
Japanese data missed expectations fuelling additional monetary policy stimulus expectations. Industrial production fell 0,5% in August with expectations of 1% growth. Retail sales grew 0.8%, missing expectations of 1.1%

Glencore
Glencore shares continue on their volatile ride with Hong Kong listed shares jumping as much as 70% on takeover hopes. Since then shares have retreated with the London shares opening as much as 20% higher. Last week some analyst commented that a debt default of Glencore poses the greatest risk to financial markets.

3_oct_5
Glencore intraday – Honk Kong exchange

 

Lloyd Priestman Market Analyst
Caleo Capital investment committee

Market Update 16 November 2015:

South Africa
The Rand continued to weaken last week, touching a new all-time high against the dollar at R14.43/$. Currently the Rand is trading just below that level. Local equity markets were also hard hit with the Top40 now trading below 46 000 level. Year to date the index is only up just over 5%.

one-month-top40index
One month top40 index

Manufacturing increased in September by 0.9% year on year after last month’s contraction of 0,3% (revised).  Later this week we will have sales and inflation figures out as well as MPC announcement.  Economist are divided on whether the MPC will raise rates but those that do expect a rate hike are looking for 25bps.  Rising inflation given the weak Rand and drought leading to higher food prices means that it is only a matter of time before the next rate hike, despite the weak economic growth.

Asia
Japan has now entered a recession with the second successive quarterly decline.  The economy contracted 0,2%, slightly bigger than the expected contraction of 0.1% for the quarter. Government still remains upbeat with regards to the economic outlook as structural reforms continue to take place. The BoJ meets later this week and is expected to keep the current monetary policy unchanged.

japanese-gdp
Japanese GDP

Europe
European equity markets have opened the week in the red after Friday night’s terror attached in Paris but have started to recover mid-morning.  Most indices sold off towards the end of last week in line with most global markets.

Gold has rebounded form five year lows on the back of these attacks, now trading at just over $1090 per fine ounce.

UK house prices slipped in November, declining 1,3% however this is likely to be short lived as sellers trim price ahead of the holiday season.  London house prices decreased 1.6% however they are still up over 8% over the past year.  UK inflation will be released later this week and is likely to show prices falling for the second month however BoE officials expect inflation to pick up quickly as the base effects of oil finally start to work their way out.

Lloyd Priestman Market Analyst

Market Update 9 November 2015:

South Africa
The Rand weakened significantly last week after Fridays non-farm US payroll figures and has spiked up to R14,25/$ this morning. This is certainly a case of dollar strength rather than localised Rand weakness as the Dollar index hovers just below 100

one-month-dollar-rand
One month Dollar Rand

Local equity markets initially started the week in the green but sold off heavily Thursday and Friday.  The Top 40 has opened this week up 50bps at the moment with the index just under 9% YTD ex div.  Last week also saw embattled miner, Lonmin, issuing a statement that shareholders need to approve the $400m rights issue or face closure.  The PMI is now at a 15 month low at 47.5, which is firmly in contracting territory.

US
Nonfarm payroll figures came out with a massive 271 000 jobs in October, beating market expectations by 100 000 jobs.  Unemployment is now down to 5% with the participation rate also unchanged at 62.4%.

Rate expectations have now skyrocketed with the market expectations now factoring in a 70% change of a rate hike in December.  Wage growth has also ticked up to 2,5% year on year, a six year high but still at modest levels historically.  The Euro Dollar fell sharply on the announcement with the Euro now trading below $1.08. This should give the ECB some breathing room with the weaker currency effectively another round of monetary policy easing.

US employment
US employment

While many expect December to be a foregone conclusion, unless there is some distavorous data out before the Fed meeting, there are still a number of issues to caution the December meeting.

  • We are moving into a low liquidity environment at the time of the meeting
  • Non-manufacturing (services) sector is steadily increasing while manufacturing is lagging. This has led to bullish growth forecast with muted wage and inflation expectation for next year.
  • Inflation is still well within the target and inflationary pressure is still relatively benign.

us non-farm payroll monthly figures
US non-farm payroll monthly figures

The S&P, like other world markets finished the week strong but is still negative year to date at -2.14%. It is however above the psychological 2000 level. The dollar remains strong and continues to consolidate around the 95 index level

UK
UK data remains mixed, services PMI picked up to 54.9 while business confidence slipped to a 2 ½ year low.  The BoE’s dovish tone last week, particularly around inflation expectations caused the Sterling to drop and further pushed out rate expectations.  This has increased the divergence between UK and US interest rate expectation with traders now factoring in a rate hike towards the end of 2016 early 2017.

Earlier this year (around Q1) expectations where within a couple of months of each other with some even expecting a BoE hike before the Fed.

Lloyd Priestman Market Analyst
Caleo Capital investment committee

Market Update 12 October 2015:

South Africa
South African equity market and the Rand had a phenomenal week with the Top40 now back at levels last seen in May and the Rand back around $13.30. “Risk on” / delayed FED rate expectations seem to be re-floating global markets and risk appetite. This has led to the Top 40 to be just under 9%, ex div, year to date. One would have thought to see some profit taking this morning after last week’s run, however the index remains in the green for now, all be it just.

1yeartop40
1 year Top40 index

The stronger Rand will also be a relieve for imported inflation such as fuel, food and machinery. Given the Fed expectations being pushed out to next year we are unlikely to see our SARB raise rates this year provided the inflation expectations (Rand, oil, food prices, global shock thus run on EM currencies) remain anchored. Currently the Rand has formed a double top formation around hte $14 level but is also (if it bounces at these levels) a double bottom and potential short term trading range from $13,25.to $14.00

1yeardoubletop
1 year USDZAR, double Top around $14,00

Locally we also saw the SAB board and now the fourth biggest shareholder the PIC, decline the AB InBev’s offer as to low. Troubled miner Glencore also close additional mines in SA, as well as Chile and Australia.

US
After weaker than expected non-farm payrolls, US equity markets rallied with FED rate expectations being pushed out yet again. US jobless claims did however fall to the lowest levels since mid July with only 263 000 claims being filed to the week ending 3 October.

1yearSP500
1 year S&P 500

The S&P, like other world markets finished the week strong but is still negative year to date at -2.14%. It is however above the psychological 2000 level. The dollar remains strong and continues to consolidate around the 95 index level

Europe
The BoE kept rates on hold as expected last week given the weak inflation outlook with the bank expecting inflation to remain below 1% until spring (Q2) 2016.

While mainland Europe also saw equity markets rally last week they remain significantly depressed from current year highs with the Euro Stoxx 50 and the German DAX just over 3% year to date and the CAC 40 just under 10%. The Xetre DAX has however been hard hit with the current VW scandal.

Wind power has is official the cheapest power in Germany and the UK, even without government subsidies

Oil
OPEC appear ready to ‘talk’ as the first signs of reduced oil production have been seen in prior months. This could entail higher prices / a floor in current prices. Brent has more recently moved from $48 to 53bbl, just above the spike in prices seen at the end of August.

1brentoil
Brent Oil Generic 1st ‘CO’ future

Lloyd Priestman Market Analyst
Caleo Capital investment committee