The Traders' Update, 6-7 June 2024
Realeboha Molaba
Actuarial Junior Consultant; Actuarial Science Honours Graduate from the University of Cape Town; Actuarial Science and Mathematical Statistics Graduate from the University of the Witwatersrand
Segment 1: Overseas Markets
European Markets
Equity markets closed higher as investors digested the latest rate decision from the European Central Bank (ECB), i.e.:
The pan-European Stoxx 600 closed 0.66% higher with tech stocks closing 1.17% higher to lead the gains. Utilities stocks bucked the trend to close 0.9% lower.
On the individual shares front, Danish pharmaceutical company Novo Nordisk shares hit an all-time high after demand continued to rise for its Wegory weight loss drugs.
Another Danish pharmaceutical company Zealand Pharma shares rose on news that the company is also developing a weight loss drug. Thus Zealand Pharma shares led the gains in the Stoxx 600.
On the data front, the European Central Bank cut its benchmark lending rate by 25bps to 3.75% for the first time since 2019, despite inflationary pressures remaining higher than expected in the 20-nation trading bloc. Markets had expected the 25bps rate cut.
Asia-Pacific Markets
Hong Kong
The Hang Seng closed 0.28% higher at 18,476.80.
China
Mainland markets closed lower, i.e.:
Japan
Investment firm SoftBank Group Corp. shares surged after American activist investor, Elliot Management, increased its stake in the company to more than US$2 billion (JP￥311.28 billion).
A policymaker from the Bank of Japan stated that the Bank may not meet its inflation target of 2% in the next year.
Broader markets closed higher, i.e.:
South Korea
Markets were closed for a holiday.
Singapore
The Straits Times Index closed 0.02% higher at 3,330.81.
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Australia
The Australian Bureau of Statistics reported that exports fell by 2.5% year-on-year in April and thus fell to its lowest level since 2021. Goods exports amounted to AS$43.32 billion (US$28.91 billion). Thus, the decline was due to a fall in metal ores and minerals output. Imports also fell by 7.2% year-on-year and thus the country's trade surplus surged to AS$6.55 billion. Higher than the AS$5.4 billion surplus economists had predicted.
The S&P/ASX 200 closed 0.68% higher at 7,821.80.
U.S. Markets
Equity markets closed mixed as investors wait for the highly anticipated Friday jobs report, i.e.:
Electric utility company Vistra shares tumbled to the bottom of the S&P 500 even though the stock experienced strong gains on optimism for the company's opportunity to supply power for artificial intelligence (AI) processes. The company's recent announcement to add dispatchable capacity raised concerns about a potential oversupply of power.
Power generator NRG Energy shares also fell amid concerns surrounding the electricity market.
Provider of electrical products Hubbell shares fell after analysts forecasted a slowdown in the company's earnings growth in the coming quarters due to intense competition the company faces in many of its product categories.
Genetic analysis firm Illumina shares rose to the top of the S&P 500 after the company reported that its board approved the spinoff of its blood testing company, Grail. This comes after a long battle with European regulators that required Illumina to divest from the company on the back of concerns that the move could restrict competition in blood-based cancer detection. Stephens & Co. analysts have upgraded the stock to "overweight" following the spinoff reports.
Payment processing firm PayPal Holdings shares advanced following positive comments from its CEO at the company's investor conference. Furthermore, analysts at Mizuho upgraded their price target on the stock citing potential gains from the company's new Fastlane system (which aims to increase the rate of checkout processes for online transactions).
Fixed-income electronic trading platform Marketaxess shares rose after the company reported an increase in its market share and trading volumes for the month of May. A major proportion of the growth occurred in the portfolio and through dealer-to-dealer trading volumes.
Activewear retailer Lululemon Athletica shares rose after the company released better-than-expected quarterly sales and profit results, with significant sales recorded in China. Thus, the company boosted its full-year earnings guidance on expectations that its inventory would improve in the second half of 2024. Furthermore, the company authorised an additional US$1 billion share buyback programme.
The Bureau of Labor Statistics's latest jobs report for May is expected to show that 190,000 jobs were added, however, the unemployment rate is expected to stay the same at 3.9% (which mirrors a 50-year low).
Segment 2: African Markets
Kenya
The government plans to use a part of the budget support loan provided by the World Bank to make a payment of around US$500 million on a Eurobond maturing in June.
The Central Bank of Kenya maintained its stance that it expects the domestic economy to expand by 5.7% this year, despite the country being ravaged by floods. Its resilient services and agricultural sectors are expected to drive the robust economic performance.
Botswana
The government plans to increase its stake in diamond miner De Beers from 15% and the company accounts for 70% of the company's annual rough diamond supply.
Segment 3: South African Markets
Government data showed that the current account deficit narrowed by more than expected in the first quarter of 2024 as exports increased marginally and imports fell because of lower demand due to elections uncertainty and a contraction in the wider economy. The deficit fell to an annualised 1.2% of gross domestic product (GDP) or R84.6 billion (US$4.47 billion). It was last recorded at a revised 2.3% of GDP. Polled economists had expected the shortfall to be recorded at 1.6% of GDP.
The country's sugar industry is facing serious challenges with companies Tongaat Hulett and Gledhow Mills feeling the most pinch. The company's representatives highlighted their concerns at their annual meeting about the government's plan to hike the sugar tax. Thus, they reiterated that the tax is threatening the industry's sustainability as around 16,000 jobs have already been lost as an result.
Lender Absa is expected to collaborate with the International Finance Corporation to provide rebates on loans for purchases of eco-friendly homes. The deal is valued at R4.5 billion (US$240 million) and the project is aimed at promoting green construction and facilitating the purchase of green-certified homes in an attempt in reducing emissions and thus conserving resources.
Segment 4: JSE Market Morning?Update