There was a sharp sell-off in global equity markets yesterday on talks that the US and North Korea are heading into a conflict. The VIX jumped yesterday, a sign that fear in the market is rising. Economic data out yesterday only added fuel to fire as US producer prices declined and exports in the UK fell, adding to losses in both markets. Inflation in the US has continued to lag economic growth, mostly due to tough competition and price wars within the country, but with sluggish inflation the Fed is less likely to hike interest rates and this has sent the dollar to its lowest level in nearly a year. The miss in exports in the UK is sure to be a drag on the economy and there was hope that a weaker Pound would boost trade and offset some of the Brexit weakness.
South African News
SA markets fell yesterday, however resources gained to help cap losses. It was particularly the gold sector, which benefitted from a weaker dollar and rising global fear. The ZAR was stronger in trade yesterday in part thanks to a weaker Dollar, but the fact that President Zuma survived on Tuesday seemed to have no extended market reaction. Mining and manufacturing production numbers published yesterday showed a decline in June, but both sectors will contribute positively to second quarter GDP and hopefully help the country climb out of a recession.
Glencore released first half results yesterday, which is in line with company guidance and expectations. The dividend may disappoint some given the number of disposals and free cash flow available, but were no surprises to what management indicated previously. The company has been conservative on capital expenditure, but has a strong balance sheet and can take on opportunities, which according to the decision makers are certainly there. One of the things that the company is banking on is a large-scale roll-out of electrical vehicles and energy storage systems, which should boost demand for copper, cobalt, zinc and nickel.
credit: Graph Provided by Sharenet Advanced Online Charts
Trade GLN From 0.3%
The Day Ahead
Markets will eye the release of US inflation data today and should the figure print below estimates, we could see further Dollar weakness and support for Emerging Markets. After markets close tonight we also await a credit rating update from Moody’s. Expectations is for the rating agency to take no action and make comments again on structural issues impending GDP growth and independence from the SARB’s mandate.
Key Results Out Today
SA Moody’s rating update
Quote of the day
"To display courage without wisdom is like firing a rifle blindfolded."
- Wil Williams
Quantitative Investment Analyst
Ian Stiglingh is a full time quantitative analyst, responsible for research of equities across all industries. Ian completed his degree in Mathematical Science in 2013 and his Honours degree in Financial Risk Management in 2014, both at the University of Stellenbosch. During his studies, Ian worked as an intern at Old Mutual Actuaries & Consultants as well as J.P. Morgan in Johannesburg, and is currently a CFA candidate