Easing monetary policy same way off for Australian
Bloomberg quoted Reserve Bank of Australia (RBA) Governor Michele Bullock as saying that inflation is proving persistent and will only return back to the target range late next year. “The board remains vigilant to upside risks to inflation,” Bullock said in her opening statement to a parliamentary panel in Canberra. “It is premature to be thinking about rate cuts.” Bullock’s comments come a week after the Reserve Bank left the key rate at a 12-year high of 4.35% and maintained its hawkish rhetoric. Money markets and economists reckon the RBA’s next move will be a cut, though they’re split on the timing. Traders are betting the easing cycle will start in December while the consensus of economists is it will only start in 2025.
Quant funds ready to unleash capital flows
The largest unwind in US equities since the Covid-19 pandemic is over, and now trend-following quant funds are ready to return to the stock market. Over the past month, so-called systematic funds, which buy stocks based on market signals and volatility moves rather than company fundamentals, have sold the largest dollar-volume of equities in four years, according to a Bloomberg report quoting Scott Rubner, global markets division managing director and tactical specialist at Goldman Sachs (GS-NASQ). Now that markets have calmed down, with the Federal Reserve likely close to sticking a soft landing, systematic funds are expected to buy stocks again.
Stock buyback orders set record
Corporate America emerged as one of the big dip-buyers last week as US stocks fell into their worst correction since October. As the S&P 500 (VOO-NASQ) headed for its fourth straight weekly decline, including a 3% drop on Monday, Bloomberg reports that the Goldman Sachs (GS-NASQ) unit that executes share buybacks for clients saw record orders, with volume spiking to 2.1 times last year’s daily average. With Q2 reporting season drawing to a close, firms are emerging from a blackout period for buybacks. Judging by announced plans, their demand is set to remain buoyant, which is good news to investors big and small who took advantage of the pullback to also snap up stocks.
Tencent looking cheap on P/E
Tencent earnings meaningfully beat expectations on the back of continued growth in gross profit margins and income from associates growing well ahead of expectations. Interestingly, cash from investing activities had its first net inflow on record, which speaks to management’s commitment to no longer allocating additional funds to associates and any future investments will come from harvesting the existing investment base. Excluding associates, Investec expects Tencent to deliver a ROE of 154% in FY24. According to Investec estimates, Tencent is currently trading at a forward P/E ratio of 12.9x, which is too cheap for a company of this quality, even when factoring in macro and regulatory risks. These figure support buy signals for Prosus (PRX-JSE) and Naspers (NPN-JSE).
GNU-ed strength of SA rand
EM investors continue to cheer the steady start from South Africa’s new coalition government, with investors expressing positivity about the GNU, finding the speedy and apparently smooth way a partnership between the ANC and DA was formed reassuring. The South African rand strengthened to below the R18/$ mark, offering a good opportunity to stock up on US dollars via the Clarity, by Investec platform.
Trading update : 20 August 2024
US recession fears remain mixed
Global markets rebounded after recession fears spooked investors earlier in August. Further inflation progress in US producer prices offered additional legs to the risk rally, but sentiment remains mixed regarding the outlook for the world’s biggest economy. According to a Bloomberg report, US recession odds continue to rise, with Goldman Sachs (GS-NASQ) now assigning a 41% probability up from 29% in April. A similar model by JPMorgan (JPM-NASQ) calculates the odds at 31% due to the sharp repricing in Treasuries.
US consumer confidence rising
Despite the mixed forecasts, US consumer activity keeps showing signs of a recovery. In one indicator, Bloomberg reported that the port of Los Angeles processed more container units last month than any other July on record, driven by retailers eager to get their holiday goods early. Consumer sentiment in the US is turning after producer prices rose by less than forecast in July, reflecting the first decline in services costs this year amid an ongoing moderation in inflationary pressures. The producer price index for final demand increased 0.1% from a month earlier, according to the latest Bureau of Labor Statistics report. The median forecast in a Bloomberg survey of economists called for a 0.2% gain. Compared with a year ago, the PPI rose 2.2%.
UK inflation hots up
The inflation picture is different in the UK, where it accelerated to 2.3% in July from 2% in May and June as a favourable tailwind from energy bills fades from the figures. UK grocery inflation rose for the first time since March 2023, according to data released days after the Bank of England (BoE) cut interest rates from a 16-year high. Supermarket prices rose 1.8% in the four weeks to August 4 from a year earlier, according to research company Kantar, accelerating from the 1.6% year-on-year increase the month before. Some positive news emerged, with Reuters reporting that UK pay growth dropped to its lowest in nearly two years in Q2, likely reassuring the BoE that inflation pressures are easing. In addition, UK unemployment unexpectedly fell after companies stepped up hiring, which is a sign of underlying strength in the UK economy. The jobless rate fell 0.2% to 4.2% in the three months to June according to numbers released yesterday.
German economy flounders
Europe’s biggest economy is also sending mixed messages to global markets. Germany faces the prospect of hardly any growth this year in the wake of the economy’s surprise Q2 contraction, according to economists. This performance sent investor confidence in Germany’s economy plummeting to its lowest level since January. Gross domestic product (GDP) will rise 0.1% in 2024, down from a predicted 0.2%, the median forecast in a monthly Bloomberg survey shows. Analysts also trimmed their outlook for 2025 by the same amount, to 1.1%. “The economic outlook for Germany is breaking down,” ZEW Institute President Achim Wambach said in a statement. “It is likely that economic expectations are still affected by high uncertainty, which is driven by ambiguous monetary policy, disappointing business data from the US economy and growing concerns over an escalation of the conflict in the Middle East.” Economists forecast that wage growth in Germany will settle at 5.6% in 2024, which is well above the ECB’s 2% inflation target.
Easing monetary policy same way off for Australian
Bloomberg quoted Reserve Bank of Australia (RBA) Governor Michele Bullock as saying that inflation is proving persistent and will only return back to the target range late next year. “The board remains vigilant to upside risks to inflation,” Bullock said in her opening statement to a parliamentary panel in Canberra. “It is premature to be thinking about rate cuts.” Bullock’s comments come a week after the Reserve Bank left the key rate at a 12-year high of 4.35% and maintained its hawkish rhetoric. Money markets and economists reckon the RBA’s next move will be a cut, though they’re split on the timing. Traders are betting the easing cycle will start in December while the consensus of economists is it will only start in 2025.
Quant funds ready to unleash capital flows
The largest unwind in US equities since the Covid-19 pandemic is over, and now trend-following quant funds are ready to return to the stock market. Over the past month, so-called systematic funds, which buy stocks based on market signals and volatility moves rather than company fundamentals, have sold the largest dollar-volume of equities in four years, according to a Bloomberg report quoting Scott Rubner, global markets division managing director and tactical specialist at Goldman Sachs (GS-NASQ). Now that markets have calmed down, with the Federal Reserve likely close to sticking a soft landing, systematic funds are expected to buy stocks again.
Stock buyback orders set record
Corporate America emerged as one of the big dip-buyers last week as US stocks fell into their worst correction since October. As the S&P 500 (VOO-NASQ) headed for its fourth straight weekly decline, including a 3% drop on Monday, Bloomberg reports that the Goldman Sachs (GS-NASQ) unit that executes share buybacks for clients saw record orders, with volume spiking to 2.1 times last year’s daily average. With Q2 reporting season drawing to a close, firms are emerging from a blackout period for buybacks. Judging by announced plans, their demand is set to remain buoyant, which is good news to investors big and small who took advantage of the pullback to also snap up stocks.
Tencent looking cheap on P/E
Tencent earnings meaningfully beat expectations on the back of continued growth in gross profit margins and income from associates growing well ahead of expectations. Interestingly, cash from investing activities had its first net inflow on record, which speaks to management’s commitment to no longer allocating additional funds to associates and any future investments will come from harvesting the existing investment base. Excluding associates, Investec expects Tencent to deliver a ROE of 154% in FY24. According to Investec estimates, Tencent is currently trading at a forward P/E ratio of 12.9x, which is too cheap for a company of this quality, even when factoring in macro and regulatory risks. These figure support buy signals for Prosus (PRX-JSE) and Naspers (NPN-JSE).
GNU-ed strength of SA rand
EM investors continue to cheer the steady start from South Africa’s new coalition government, with investors expressing positivity about the GNU, finding the speedy and apparently smooth way a partnership between the ANC and DA was formed reassuring. The South African rand strengthened to below the R18/$ mark, offering a good opportunity to stock up on US dollars via the Clarity, by Investec platform.
SA coal exports line refurb needs 5 years, $669m
South Africa’s state-owned rail company Transnet needs $669 million and five years to upgrade equipment to revive performance of its main export coal line, according to an internal report. Coal shipments plunged to a more than three-decade low of 48 million tons last year because of inefficiencies at Transnet, affecting coal miners like Exxaro (EXX-JSE), Glencore (GLN-JSE), and Anglo American (AGL-JSE), among others.
Sector focus: Mining
Mining production fell -3.5% year-on-year in a weak global environment, contracting -0.9% in Q2.24, and by -3.5% year-on-year (y/y) in June, which was substantially weaker than the Bloomberg consensus of -0.1% y/y. Global metal prices fell by -2.1% month-on-month in June, with the GEP Global Supply Chain Volatility report noting “excess capacity across global supply chains … weak global demand conditions and continued destocking of warehouses”. Iron ore also remains under pressure on concerns over an expanding global glut, with low-grade spot material hitting the lowest level since 2022. Bloomberg reports that banks are forecasting that benchmark prices could sink into the $80s-a-ton range. The outlook for the PGM sector looked a little better, as global sales of fully electric and plug-in hybrid vehicles rose by a yearly 21% in July, thanks to China’s strongest growth this year, despite dropping demand in Europe, shared Reuters.
Stock focus: Starbucks
Starbucks (SBUX-NASQ) rose +25% after the company headhunted Chipotle CEO Brian Niccol to run the business. Starbucks is also sporting some new active value investors on the board, which are due to shake things up.
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.