Trading update : 13 August

Fear that the ‘Great Unwind’ is just starting

It is impossible to know whether Monday’s wild market gyrations that wiped out $6.4 trillion marks the final bang of a global selloff that started to build last week or signal the beginning of a protracted slump, with Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore, commenting in a Bloomberg article that: “It’s the great unwind”. On Tuesday, some of the worst-hit markets rebounded.

US consumers reigning in travel spend

While travel has fared much better than most discretionary spending categories as consumers increasingly focus on experiences rather than physical goods, AirBnB (ABNB-NASQ) falling -14% suggests that US consumers are tapping the breaks when it comes to holiday spend, with the management team striking a cautious tone when it comes to the outlook.

UK balancing taxes and growth

UK Chancellor of the Exchequer Rachel Reeves declined to rule out increasing the capital gains tax after warning that the government will take difficult decisions to fill a £22 billion ($28 billion) budget hole. In an interview with Bloomberg Television, Reeves said the UK will strike the “right balance” on tax revenue and economic growth at the budget due Oct. 30, after speculation that she could target the capital gains levy. Reeves insisted that she wants to bring down Britain’s overall tax burden, which she warned “has got too high.” “I want to bring that tax burden down because I want to make Britain the best place to start and grow a business and I want working people to keep more of their own money in their pockets.” According to two respected research groups quoted in a Bloomberg report, there are also concerns that Reeves’s plans, which include cutting investment and ripping up the rules that constrain government spending, risk “creating a straitjacket that would limit the potential for long-term growth”.

US recession odds rise

JPMorgan Chase & Co. (JPM-NASQ) sees an even bigger recession risk on the horizon, increasing the chances that the US economy tips into a recession by the end of this year to 35%, up from 25% as of the start of last month. Earlier in the week, Goldman Sachs Group (GS-NASQ) economists increased the probability of a US recession in the next year to 25% from 10%. In response, Wall Street banks are calling for aggressive interest-rate cuts by the Federal Reserve.

Quilter Shares Rise on Increased Flows

Quilter (QLT-JSE) delivered 1H24 adjusted operating profit from continuing operations of £97m, which was 16.9% ahead of consensus, and was up 27.6% y-o-y. Although closing assets under management (AUM) of £113.8 billion was broadly in line with expectations, net flows of £1.5 billion was significantly ahead of expectations (£1.2 billion), with a very strong performance in 2Q24 (£0.8 billion, up on £0.7 billion in 1Q24). Comments by management around revenues and costs in 2H24 implies strong support to current consensus to operating profit of £176m in FY24, with some scope for upside should execution remain strong. The stock has had a strong run, however it should continue to be supported after the better than expected 1H result.

Implats expects R19.8 billion in impairments

Impala Platinum Holdings Ltd. (IMP-JSE) said its upcoming financial results will include impairments of R19.8 billion ($1.08 billion), mostly related to the firm’s Rustenburg operations. The decrease in earnings is primarily due to the impact of declining prices of PGMs — which are used to curb emissions in gasoline and diesel vehicles — on the company’s revenue.

BHP to sell Brazilian mining assets

BHP (BHG-JSE) is planning to sell Brazilian copper and gold assets it acquired with the takeover of Oz Minerals Ltd., according to a Bloomberg report quoting people familiar with the matter. BHP has no intention of getting rid of Samarco Mineracao SA, the iron-ore producer it jointly owns with Vale SA, the miner’s Brazil country manager told Bloomberg last year.

S&P warns no SA Growth without infrastructure fix

The inefficiency with logistics and electricity remain significant constraints on growth, according to S&P Global Ratings, which projects that South Africa’s economy will grow by 1.1% in 2024 and an average of 1.3% over 2025-2027, from 0.6% in 2023. On a per capita basis, real growth will be about zero this year. The rating company assesses the country’s foreign currency rating at “BB-/B” and local currency rating at “BB/B” with a stable outlook.

Sector focus: Steel

Steel demand is dipping mainly due to the prolonged malaise in China’s property market. Steel demand from construction is poised to shrink by 10% this year, according to Kallanish Steel Weekly. That would lower the sector’s share of total consumption to around a quarter — a very low proportion by the standards of the past two decades. The publication also reported that ArcelorMittal South Africa Limited (ACL-JSE) has lowered its forecast for global apparent steel consumption growth, excluding China, in 2024 to 2.5-3% on-year, from 3-4%.

Information correct at time of publishing. It is important to conduct thorough research and analysis using a combination of fundamental and technical analysis techniques to make informed trading decisions. Additionally, consider your risk tolerance, investment objectives, and time horizon when assessing company performance for trading.

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