Date published -2023-06-06

Last week, South African equity markets ended on a positive note, following strong global market performances. The resources sector was the strongest, but some specific stocks experienced sharp declines. Spar saw a significant drop of 27% due to lower expected earnings and increased operational expenses, mainly driven by the rising cost of diesel to mitigate power outages. Similar trends were observed in Pepkor and Tiger Brands, with higher revenue but lower earnings due to increased diesel costs. Nedbank provided a strong business update and announced the search for a successor to its retiring CEO. U.S. markets had a shortened trading week but were strong, driven by the resolution of the U.S. debt ceiling debate although the US jobs data gave the markets alot to digest in the latter part of the week. We unpack some of the detail in our full report.

Tesla was a standout performer along with most motor manufacturers, while chip manufacturers like AMD and Micron Technology faced losses related to a potential ban of the latter company by Chinese regulators. This week, the focus will likely be on macro developments, as there are no major earnings releases.

Domestically, South Africa hosted BRICS diplomats and ministers, highlighting the importance of coordination among the Global South. This will likely remain in focus as we approach the BRICS summit in August and introduces an element of geopolitical risk premia on local assets. Economic data in South Africa showed growth in private sector credit and an uptick in vehicle sales, but the manufacturing sector remained in contraction. Domestically, this week, attention will be on South Africa's Q1 GDP data along with a relatively quieter data release calendar globally. We include more detail in our full report.

This week, we were stopped out at a small loss from one of our positions in our weekly carousel of major markets. We continue to ride 3 open long positions with one being in a partial profit take stance. We also maintain 3 open short positions across an assortment of equity, FX and commodity markets.

With the close out of our stop loss position last week, we now hold four 'No Position' stances in our weekly carousel as we wait for triggers or better price action (1 bullish, 3 bearish).

Our  trade ideas this week include a speculative resource play in South Africa as the currency weakness assists strong underlying momentum. Globally we look at a tech hardware play which is breaking above its long term moving averages with a bullish confluence indicator. Our pair trade idea this week is an ‘in sector’ pair trade globally (financials) that allows a procyclical long with a defensive short while staying sector neutral at a headline level.

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