18 August 2020

South Africa Moves To Alert Level 2

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The past week has seen as many as 200,000 people flooding the streets of Minsk to protest police violence and a disputed election; Thai protesters demanding government reform and New Zealand delaying its general election amid a spike in coronavirus cases and a lockdown in Auckland.   Nancy Pelosi summoned lawmakers back early from their summer recess to vote on a bill to block operational changes at the postal agency, amid concerns that President Donald Trump is trying to sabotage mail services ahead of the election.  Lebanon launched an investigation into the Beirut blast.

South Africa

With effect 18 August 2020 South Africa moved to Level 2 with President Cyril Ramaphosa lifting some of the strictest, Covid-19 restrictions.  He has pledged to start working on ‘breathing life into our struggling economy’.


A second Covid-19 vaccine showing great promise is under trial in South Africa. Novavax says its vaccine could begin the final stage of testing by September. The Bill & Melinda Gates Foundation is giving about R250m to help support its roll out in SA.


Vinpro estimates that more than 80 wineries and 350 wine grape producers will go out of business over the next 18 months, with the possible loss of more than 21 000 jobs across the value chain.  This follows an initial nine-week ban on local sales, a five-week ban on exports, and a second domestic sales ban.


Tongaat Hulett says a turnaround strategy implemented last year has resulted in improved profitability. Its shares rose as much as 14% on Friday.  The group benefited from an improvement in all its sugar operations, a strong performance from starch and glucose and continued land sales. Improved cash flow and working capital management helped it pay down 60% of a loan in Zimbabwe. It also moved creditors from 30 to 60 days and signed transactions of more than R6 billion to meet debt reduction milestones.


The Covid-19 pandemic is wreaking havoc across the corporate world with the oil sector among the hardest hit. Petrochemicals giant Sasol just posted a staggering loss of R91.3-bn for the 12 months to the end of June compared with earnings of R6.1-bn the previous year.


After a strike at its gold mines last year precious metals producer, Sibanye-Stillwater,  will return to a substantial profit thanks to higher metals prices.  In a trading statement, the group said basic earnings for the six months to end-June were likely to be 3,780% higher at R9.39 billion - or 351c per share. Last year, it reported a first-half loss of R255 million (11c/share). Headline earnings per share for the period are expected to come in at 350c from last year’s 54c loss.


Woolworths warned of a steep decline in full-year headline earnings after it impaired the value of some of its store assets due to the impact of Covid-19. In a trading statement, the retail group said headline earnings per share (HEPS) for the 52 weeks to 28 June would be 60-70% below the 342.9c reported in the comparable 52-week period. Adjusted diluted HEPS would be down by 50% to 60%. Earnings had also been affected by the adoption of the IFRS 16 new accounting methodology, while it had decided not to recognise deferred tax assets arising from assessed losses due to the difficulty in reliably forecasting the timing of future taxable earnings. This would result in a higher effective tax rate, further impacting earnings and HEPS.


Statistics SA released the retail sales figures for Jun last week. Following year on year (Y/Y) declines of 49.9% in Apr and 11.9% in May, the Jun figure was still negative at -7.5%. The only component of retail sales to show positive growth in Jun was furniture & household, with a 13.4% bounce-back.


The JSE All Share index closed at 57,025 (-0.71%) yesterday.

Europe

Hopes that major economies could pursue additional stimulus measures to bolster a nascent recovery and signs of progress in developing a Covid-19 vaccine, boosted European equities last week.


The UK economy plunged 20.4% quarter on quarter (Q/Q) between Apr and Jun marking the worst collapse since records began in 1955 and the largest drop among any other major European economies. Consumer spending dropped by 23.1% Q/Q while business investment plunged 31.4% with government spending down 14%. Services, the largest part of the economy, fell 20% Q/Q and industrial production plunged 17%. UK Chancellor of the Exchequer Rishi Sunak says the Jun GDP print was encouraging with promising signs of a turnaround, but “recovery will not feel like a V-shape if you have lost your job.”


The monthly ZEW survey of economic sentiment leapt to 71.5 from 59.3 in July, signalling that investors’ outlook for the German economy has improved significantly. Although hopes of a quick recovery continued to grow, experts at the economic research institute noted that progress has been slow, with the indicator for the current economic situation in Germany falling to -81.3 from -80.9 in July.


The strong rally at the start of the week stalled on rising fears of a potential second wave of coronavirus infections in Europe, a risk that prompted the UK to impose more travel restrictions. In local currency terms, the pan-European STOXX Europe 600 Index ended the week 1.24% higher, Germany’s DAX Index rose 1.79%, France’s CAC-40 ticked up 1.50%, and Italy’s FTSE MIB gained 2.62%. The UK’s The FTSE 100 index advanced 0.6% to close at 6,127.44 yesterday.

Following another weekly gain, and almost five months after the bear-market low in March, the S&P 500 closed within striking distance of its record high, buoyed by fresh Chinese stimulus overnight.


Tesla Inc., Nvidia Corp as well as strong results from online retailer JD.com Inc. powered gains in tech shares contributed to the outperformance of The Nasdaq 100.


Big banks slid after Warren Buffett’s Berkshire Hathaway Inc. pared stakes in many of the industry’s top names. Boeing Co. weighed on the Dow Jones Industrial Average.


Paul Nolte, a portfolio manager at Kingsview Investment Management, wrote:  “The path of least resistance remains higher for stocks. The easy monetary policy, low interest rates and better economic data have been the fuel pushing stocks ever higher. Many of the historical supports, like earnings and strong balance sheets do not matter today. The speculative fervor has investors in its grip.”


According to the National Association of Home Builders/Wells Fargo Market Index, a gauge of builder sentiment jumped to 78, a six-point gain from July that pushed it to the highest since 1998.

United States

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According to a survey of economists polled by the Japan Center for Economic Research, Japan’s GDP growth is expected to contract more than 7% (26.6% annualised) in the three months ended 30 June versus the prior quarter. The coronavirus-induced economic contraction will be the steepest quarterly decline in four decades—more severe than the global financial crisis in the first quarter of 2009. Japan’s economy was already in recession following economic downturns in the previous two quarters.


Approximately 60% of Japan’s businesses have forecast lower revenues and net income for the fiscal year. According to research from The Nikkei, Japanese-listed companies expect their profits to decline by 36% in fiscal 2020 (ending 31 March 2021) from the year-earlier period. With approximately two-thirds of Japan’s companies reporting guidance, the companies that provided six-month and full-year guidance project a 24% fall-off in sales and a 54% decline in first-half profits. The projections for the second half of the year were more robust: These companies expect a 2% decline in sales coupled with an income gain of 19%, which implies the implementation of stringent cost-cutting initiatives.


Mainland Chinese stock markets ended the week broadly unchanged as investors stayed on the sidelines ahead of U.S.-China trade talks. 

In fixed income markets, the yield on China’s 10-year bond was broadly flat following mixed economic data, while the yuan ended mostly unchanged against the US dollar. According to the Asia Times Financial, China recently introduced several changes to improve its bond defaults mechanism. However, more work needs to be done before domestic credit markets are on par with global standards.

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Yesterday the Nikkei 225 index traded 0.2% lower at 23,043.90. The Hang Seng index traded 0.2% up at 25,400.62, while the Kospi index traded 0.1% down at 2,405.08.

Asia

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18 Augus 2020 (12:22 am)

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