The Week Ahead of 12 February 2019

  • Can Cyril Ramaphosa execute on his investor-friendly SONA?

    A guy looking into the distanceIn his State of the Union address to congress last week, US President Donald Trump referred to the US as having “far and away the hottest economy anywhere in the world”. Even allowing for Trump’s fondness for hyperbole, he is way off the mark; not only is the US economy not growing anywhere near as quickly as many far eastern countries like China and India but there are definite signs that it is slowing down. One of the most trusted indicators of a slowing economy is an inverted yield curve. In other words, the yield on short term US government bonds is now higher than that of long term-bonds. While it may be far too early to forecast a recession in the US, a notable cooling seems very likely.

    Having advanced strongly since late Dec 2018, the S&P 500 ended last week 0.6% lower at 2 707.9. From its low point on 24 Dec, the S&P 500 has advanced by 15.2% and is now only 7.6% below its all-time high of 2 930.75 recorded on Sep 20 2018.  

    Following the disastrous dam collapse at Vale’s Brucute iron ore mine in Brazil, the international iron ore price has surged to over $90/tonne, the highest level since 2014. Vale’s lost production purely in terms of the dam burst amounts to about 30 million tonnes but the damage has been compounded by the Brazilian regulator’s decision to revoke Vale’s licence to operate the Brucutu mine. It is estimated that this could result in a further loss of 40 million tonnes. This is obviously very good news for the iron ore industry, which had been languishing due to the cooling in the Chinese economy, as China is the world’s largest importer of iron ore. Kumba Iron Ore (KIO) has risen by 28% since Jan 21 on the news, though it is still 42% below its all-time high of 61158 on 3 Feb 2013.

    Multinational oil company Total announced a major oil and gas discovery in its Brulpadda field in the Outeniqua Basin off Mossel Bay last week. With an estimated 1 billion barrels of oil equivalent, government should seriously consider the possibility of immortalizing this find via the establishment of a sovereign wealth fund with the proceeds.

    At the State of the Nation Address (SONA) last week, President Cyril Ramaphosa outlined the ANC government’s plans to split Eskom into 3-generation, distribution and transmission. While widely welcomed by the private sector, it will be no easy matter convincing the trade union movement of the necessity to do this. The President also proclaimed 8 May as the date for the General Election. An unintended consequence of this is that from Mon 15 Apr to Fri 10 May, there will be four consecutive four-day weeks. This will be very disruptive for economic activity.

    The JSE All-Share Index (Alsi) fell by 1.3% last week to close at 53 244, continuing its dismal trend of going nowhere slowly. It is increasingly difficult to discern what the catalyst will be to turn the Alsi round and into a sustained upturn. Some of the mining stocks have exhibited reasonable trading updates in the past week or so but the consumer stocks remain the doldrums. Given its inordinately high weighting in the Alsi, the Naspers share price obviously has a very profound impact on the direction of the index. Traditionally, one would look to a weak ZAR as the catalyst to move the equity market higher but that seems increasingly unlikely at this juncture, as the US$ remains on the back foot.  


    JSE listed company results out this week;

    • 12 February 2019
      • Harmony Gold - Interim
    • 13 February 2019
      • DRD Gold - Final
    • 14 February 2019
      • City Lodge - Interim
    • 15 February 2019
      • Gold Fields - Final, Resilient - Interim


    Economic data releases this week;

    • 12 February 2019
      • SA Manufacturing Production Dec | Unemployment Q4
    • 13 February 2019
      • SA Retail Sales December
    • 14 February 2019
      • SA Mining Output December