Wednesday, 30 March 2011 - 20:00
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Inflation continues to head higher around the world
Current and impending inflation levels are getting to the stage where major central banks need to start hiking their ultra-low interest rates. The general outlook is that the European Central Bank will hike its interest rates next week by 0,25% after the ECB President made a surprise announcement earlier in the month.
The ECB base interest rate is currently at 1%.
At this stage the US is likely to remain cautious on hiking interest rates, given the low core inflation rate that it tracks. CPI is at 2,1% and core (see definition below) at 1,1%
The UK has inflation running at 4,4% and this is putting pressure on the Bank of England to raised rates from their ultra-low 0,5%
Add to this the inflation problem in China. Food inflation has been culprit, although prices of some of the main components like corn and rice are down about 10% from their highs. However it’s not only food prices that have been the issue. Excluding food, inflation rose 2,6% in January, which is the fastest in 10 years.
Overall inflation has risen from 1,5% at the beginning of 2010 to the current 5%.
Chinese inflation starts to become a global issue given that China is a large exporter of finished goods. Over the last two decades wage price hikes have not really taken hold, countered to a large degree by productivity gains. However this is not necessarily going to be the case in future.
A recent report from Standard Chartered Bank of its clients in China said that they expect wages to increase between 9% and 15% this year. The report also indicated that 45% of firms are finding it harder to recruit workers despite generally paying more than the minimum wages.
Source: Wells Fargo
Inflation in the US
Monetary authorities in the US target core CPI. This is inflation excluding food and energy costs. In the US food is a relatively small component of the inflation basket – just 15%. Housing is the biggest component at 42% and this weak market post the financial crisis is helping inflation at the lower levels.
While headline inflation is currently running ahead of core, over time the spikes in headline have not passed through to core inflation.
However there are definite components of inflation that hurt. The chart below reflects the massive hike in energy and education costs in the US over the last 10 years. While these 2 items are not direct components, they are included into 2 of the components.
Source : Dshort
With massive doses of global money creation, higher inflation into the future is almost certainty. The world has experienced the positive influence of deflation from China over the past 2 decades, but even if this persists, it is unlikely to be at the same level over the next 2 decades.
When it comes to identifying investment risk, one of the bigger risks is that inflation will persist at higher rates into the future . Accordingly investment portfolios and asset allocation must take this possibility into account.
Ian de Lange
021 9144 966
Wed, 30 Mar 2011
World Markets (Spot Prices)
|JSE Top 40||17:00||29137.51||527.33||1.84%|
|JSE Indust 25||17:00||27003.10||535.07||2.02%|
|Rand / Dollar||19:58||6.8165||-0.0377||-0.55%|
|Rand / Pound||19:55||10.9184||-0.0213||-0.19%|
|Rand / Euro||19:55||9.6293||-0.0409||-0.42%|
|Rand / NZD||19:57||5.1990||0.0115||0.22%|
|Rand / AUD||19:55||7.0432||-0.0113||-0.16%|
|Yen / Dollar||19:58||82.8300||0.3600||0.44%|
|Euro / Dollar||19:55||0.7078||-0.0007||-0.10%|
|Dollar / Euro||19:58||1.4124||0.0016||0.11%|
|Pound / Dollar||19:55||0.6223||-0.0022||-0.35%|
Click here for the Sharenet Spot Price page
The JSE Today
|Index Name||RP||Move||% Move|
|Financial & Ind. 30||30,416.87||609.00||2.04%|
|Oil & Gas ||29,351.10||613.36||2.13%|
|Oil & Gas Producers ||15,781.54||329.79||2.13%|
|Basic Materials ||31,542.28||507.69||1.64%|
|Forestry & Paper ||14,411.86||330.05||2.34%|
|Industrial Metals ||30,275.24||961.42||3.28%|
|General Industrials ||76,786.45||1466.53||1.95%|
|Consumer Goods ||26,249.00||410.39||1.59%|
|Automobiles & Parts ||3,147.60||-22.64||-0.71%|
|Health Care ||31,230.01||137.05||0.44%|
|Food Producers ||46,338.91||404.89||0.88%|
|Index Name||RP||Move||% Move|
|Personal Goods ||393.01||4.99||1.29%|
|Consumer Services ||53,036.67||827.68||1.59%|
|General Retailers ||40,210.02||822.59||2.09%|
|Travel & Leisure ||3,666.63||75.40||2.10%|
|Support Services ||2,446.05||56.82||2.38%|
|Non-life Insurance ||31,033.99||358.89||1.17%|
|Life Insurance ||16,027.92||135.51||0.85%|
|General Financial ||2,255.87||34.63||1.56%|
|SHARIAH TOP40 ||3,294.62||61||1.87%|
|FTSE/JSE SHARIAH ALL||3,341.76||59||1.81%|
|FTSE JSE Fledgling ||4,475.20||25||0.57%|
|FTSE/JSE Alt X ||1,021.89||-1||-0.06%|
|SA LISTED PROPERTY ||367.32||1.11%|
|CAPPED PROPERTY ||305.61||0.98%|
|FTSE/JSE RAFI 40||6,771.34||118||1.78%|
|Capped Top 40||15,169.55||275||1.84%|
|Capped All Share||16,236.72||278||1.74%|
Click here for the Sharenet Index Summary page
Latest Consensus Changes**
|NED||NEDBANK GROUP LTD||HOLD||28 Mar|
|PAP||PANGBOURNE PROPERTIES LIM...||HOLD||28 Mar|
|SBK||STANDARD BANK GROUP LIMIT...||SELL||28 Mar|
|AIP||ADCOCK INGRAM HLGS LD||HOLD||28 Mar|
|LHC||LIFE HEALTHCARE GRP HLDG ...||BUY||28 Mar||
|Expected||Company Name||Fin. Date|
|31 Mar 2011||ALERT||December 2010 (Interim)|
|31 Mar 2011||ANOORAQ||December 2010 (Final)|
|31 Mar 2011||AWETHU||December 2010 (Interim)|
|31 Mar 2011||DIALOGUE||December 2010 (Final)|
|31 Mar 2011||DON||December 2010 (Interim)|
|TLM||TeleMasters Holdings Ltd||01/04/2011||Unconfirmed||
Stock Exchange News Service
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