The Week Ahead of 15 January 2019

  • Can the S&P 500’s winning streak continue?

    The global economy continues to weaken, with the US also now showing signs of slowing growth. There is a growing perception that the US Fed may only raise rate twice this year and even that view is highly data-dependent. In other words, if the US economy starts slowing materially, then there is a possibility that the Fed may not even raise rates at all this year. This is a far cry from even as recently as Oct 2018, when Fed governor Powell was confidently predicting at least four more rate hikes in the current tightening cycle.

    The US government partial shutdown is now the longest on record and there are few if any signs of its imminent end.

    The S&P 500 has risen 10.4% since its recent low on 24 Dec 2018. Opinions vary widely as to how long and how far this recovery can last but, as stated in last week’s column, the fundamental background remains relatively negative, with only the prospect of a lull in interest rate hikes coupled with share buybacks keeping the market buoyant.  

    Embattled UK Prime Minister Theresa May puts her European Union (EU) Withdrawal Bill to the House of Commons on Tue 15 Jan, with conventional wisdom suggesting that when it comes to vote on the bill, she will lose heavily. Time is fast running out for any further negotiation between May and the EU before Mar 29, the date on which the UK is meant to leave the EU. May’s options also become very limited, should her bill be defeated. Theoretically, it may be possibly to extend Article 50 of the Treaty of Lisbon, which would allow the UK more time to negotiate a new withdrawal deal. But if that doesn’t happen, the prospect of the UK “crashing out” of the EU without any deal at all with its European partners becomes a very real possibility. Such a scenario would have serious ramifications for the UK economy and the pound sterling would undoubtedly weaken if that occurred.

    On Thu 17 Jan, the SARB’s MPC unveils its repo rate decision. Expect rates to remain where they are, helped by a relatively stable ZAR, a declining oil price and a more dovish view on international interest rates. 

    The JSE All Share Index (Alsi), like the S&P 500, has bounced back since late last year, but it is still 13% below its all-time high of 61685 achieved on 25 Jan 2018. Technical purists would argue that not only does the Alsi require to keep on rising sustainably from current levels to get out of correction territory but that it also needs to set a new record high before we can say with confidence that the correction phase is over.

    The clothing retailers begin presenting their trading updates next week and these will incorporate the all-important Christmas trading season. By all accounts, the Black Friday period was very poor and it will be instructive to see just how poor it was for the various retailers. StatsSA releases its Nov retail sales figures on 16 Jan but it should be pointed out that these are now relatively meaningless to the point of being misleading when it comes to attempting to correlate them with JSE-listed retailer performance.

    JSE listed company results out this week;

    • 15 January 2019
      • Resilient - Interim
      • Truworths Trading Update
    • 16 January 2019
      • TFG Dec Trading Update
    • 17 January 2019
      • Mister Price Q3 Trading Update
      • Woolies H1 Trading Update
    • 25 January 2019
      • AdaptIT - Interim
    • 31 January 2019
      • ArcelorMittal - Final


    Economic data releases this week;

    • 15 January 2019
      • SA Mining Output November, UK Parliament vote on EU Withdrawal
    • 16 January 2019
      • SA Retail Sales November
    • 17 January 2019
      • SARB/MPC Repo Rate Decision. Expect No Change