The Trump-Kim summit did not live up to expectation with both parties signing an agreement to do ’something’, but there were no substantial results on the day. US inflation became the major driver as the figure saw its biggest advance since 2012 and markets are flirting with the idea of four rate hikes again. Today’s Fed rate decision is likely to see a rate hike, but since this is already priced in, markets will be keen to hear what the Fed’s forecast for future rate changes are. US markets closed mostly higher with the NASDAQ Composite closing at a record high. In the UK, Prime Minister May managed to quell disputes from pro-EU rebels in her party with a promise of compromise. It is unlikely that the UK can formulate agreements with the EU before the Brexit deadline early next year and an extension of the deadline will likely be required.
South African News
SA markets edged higher towards the latter stages of the trading session yesterday. Resources declined, but financials and industrials ensured a positive close. The rand continued its decline amid a sell-off in emerging market currencies. The rand has depreciated by 15.8% since February and has given back most of the post-Ramaphosa gains. Local factors relating to weak growth fundamentals are certainly adding fuel to the fire. One of these is SOEs including Eskom, which is deadlocked in wage negotiations and unable to provide pay increases.
British American Tobacco [BTI] in its interim trading statement, stated that performance is in line with expectations. The company has noted the negative impact of currency movements that may wipe off 6% from earnings per share.
Credit: Graph Provided by Sharenet Advanced Online Charts
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The Day Ahead
The focus is on the Fed’s press conference rather than the rate decision itself, which has a hike priced in that will probably materialise. The market wants to hear what the Fed expects for the remainder of the year. Basically, can we expect three rate hikes or four? The Fed has already increased rates once this year with the next move expected today. After that a September rate hike is also priced in, but there is a question mark on a December move.
Key Results Out Today
SA Retail sales
EU Industrial production
US Fed rate decision
Quote of the day
"The United States must choose. It’s up to you whether the nation called the United States exists on the planet or not." - Kim Jong Un, September 2017 before opening up to diplomacy
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