Weekly Market Update | 01 July 2024
Fabio Brogneri CFP?
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???? Local Market Indicators & News Highlights
?? Good News About South Africa’s New Cabinet
South Africa’s President Cyril Ramaphosa and DA leader John Steenhuisen are nearing an agreement on forming a new cabinet, which will include six DA ministerial positions: Home Affairs, Basic Education, Public Works, Communications, Forestry, Fisheries, and Agriculture. This development has boosted market confidence, with the rand rallying 1.6%.
Economist Dawie Roodt predicts significant improvements in the JSE and capital markets, anticipating a 20% to 30% rise in the stock exchange and a stronger rand, potentially reaching R17.50 to R17.00 against the US dollar. Investors are optimistic that the new government will drive essential economic reforms, address the energy crisis, fix Transnet, and tackle high levels of crime and corruption. The announcement of the new cabinet is expected soon, further bolstering economic prospects.?
Officials from the ANC and DA indicated the announcement could come on Wednesday or Thursday, with Thursday now seeming more likely.
?? Fuel Price Drop in July Brings Welcome Relief
Good news for South African drivers: petrol prices are set to drop by R1 per litre, and diesel by 30 cents per litre in July, according to the Automobile Association (AA). This marks the first back-to-back fuel price drop this year, aligning prices with those last seen in December 2023. The new prices will kick in at midnight on July 3.
The AA points out that the decrease is primarily due to international product prices rather than the rand-dollar exchange rate, which has had a minimal impact despite the rand's recent strength. This fuel price relief is expected to positively influence inflation, which remained at 5.2% in May, keeping consumer costs stable and within the South African Reserve Bank's target range of 3% to 6%.
?? Absa Shares Drop Over 9% After Weak Trading Update
Absa Group's shares fell over 9.5% to R153.78 after issuing a trading update for the first half of 2024, predicting low single-digit revenue growth and a potential mid- to high single-digit drop in headline earnings. The bank cited a challenging operating environment, with economic activity remaining weak in South Africa and consumers under pressure from higher interest rates. Credit impairments, which rose 13% to R15.5 billion last year, are expected to remain a significant issue. Despite these challenges, Absa anticipates a flat interim dividend and a stable credit loss ratio for 2024. The bank will release its interim results on August 19.
??? Brait Narrows Losses with Recapitalization Boost
Brait, the JSE-listed investment holding group, reported a reduced loss of R171 million for the year ending 31 March 2024, down from R928 million in FY2023. This improvement follows a R1.5 billion recapitalization aimed at reducing debt and providing working capital. Headline loss per share dropped to 13 cents from 70 cents last year. Net asset value per share fell 8% to R6.52. Virgin Active, which accounts for 67% of Brait's assets, showed strong performance, contributing to the positive outlook.
?? Global Market Indicators & News Highlights
???? United States: Market Moves and Economic Data
Market Dynamics: U.S. stock indexes saw mixed results, with small-cap and technology stocks leading. The market activity was influenced by adjustments due to the rebalancing of Russell indexes.
Banking Sector Performance: U.S. banks reacted positively to news of potentially lighter capital requirements and successful stress test results, boosting the KBW Bank Index.
Economic Indicators: Core PCE inflation slowed, bolstering hopes for a Fed rate cut in September. Meanwhile, Treasury yields steepened, reflecting varied expectations for short and long-term U.S. interest rates.
????Europe: Political Uncertainty and Economic Indicators
Market Sentiment: European stock markets were mixed, with overall declines in the STOXX Europe 600 Index due to political uncertainties in France and upcoming elections affecting investor confidence.
Bond Market Reaction: Government bond yields in the Eurozone rose, influenced by ECB officials' cautious stance on interest rate cuts and upcoming inflation data.
Economic Data: Inflation rates in France and Spain slowed, while Germany faced rising unemployment and weakening business confidence, indicating economic challenges.
????United Kingdom: Political Developments and Market Response
Government Bond Yields: UK bond yields increased ahead of the elections, with revisions to GDP figures also playing a role.
Economic Updates: Inflation dropped to the Bank of England’s target, sparking discussions about potential rate cuts. However, high services inflation persists.
Market Movements: The FTSE indices generally declined, reflecting concerns over the political landscape and economic data.
???? Japan: Market Performance and Monetary Policy
Stock Market Gains: Japanese stock markets were up, supported by the depreciation of the yen which benefits exporters.
Monetary Policy Outlook: Anticipation of monetary policy tightening by the Bank of Japan affected the bond market, with yields on 10-year government bonds rising.
Economic Updates: Inflation indicators suggested an uptick, likely influencing future monetary policy decisions.
???? China: Economic Slowdown and Market Trends
Market Performance: Chinese stock markets experienced slight declines, with ongoing concerns about economic slowdowns dampening investor sentiment.
Industrial and Economic Data: Reports showed a modest increase in industrial profits, though the overall economic momentum appeared sluggish.
Foreign Investment: There was notable foreign selling in Chinese stocks, contributing to market declines during the week.