Date published -2023-06-27
Last week, both global and domestic markets reversed the winning streaks they have been on to end the week sharply negative. The JSE posted losses across all sectors with the resources sector particularly hard hit. Even among the winning top 10 stocks, 2 were net losers showing how broad based the losses were. Overall, the strategy of selective derisking we identified in our report to subscribers last week proved timely.
A rare winner and top performer for the week was Afrimat (+9.6%) which rose sharply over the week after announcing a deal to acquire cement giant Lafarge from Holcim. Mr Price (-4.6%) released its year end results which showed a decline in same store sales of 3.4%. Even when taking into account the company’s acquisitions over the last year the results were still poor. A decent set of results were not enough to save chemicals company, Omnia (-8.84%) from a weak performance last week. The gold and platinum sector built on the previous week's losses. Spot platinum prices were down sharply last week leading to solid double-digit losses across some key names in the section with a wider resources selloff also underway.
The Dow Jones, S&P 500, and NASDAQ were all down around 2% for the week. This snapped a multiweek winning streak for the US indices. The key catalyst to the move was driven by macroeconomic events, specifically commentary from the US fed chair Jerome Powell (for more see Economic section). Among the bigger names reporting earnings this week we have Nike, General Mills, and pharmacy retail giant, Walgreens Boots Alliance.
The US dollar ended the week marginally stronger, weighing on commodity prices and emerging market currencies. Oil prices ended the week off its lows although the market will be watching developments in Russia over the weekend closely.
This week's feature chart includes an educational slide on how to use Relative Rotation Graphs (RRG) to analyse and trade specific stocks. Our domestic trade idea is the product of this.
In comments prepared for his semi-annual monetary policy report to US Congress, Chairman Powell indicated that almost all FOMC participants expect that interest rates will be raised further before the end of the year. This spooked the market with recession fears reemerging after a relatively benign market following the Feds decision to keep rates on hold at its last meeting. Markets were also given a hawkish surprise (tighter monetary policy than expected) by the Bank of England last week. The BOE increased its policy rate by 50 basis points to 5%, surprising the market which had expected a smaller hike of 25 basis points.
Last week the key macroeconomic focus in South Africa was on May’s inflation data. South African CPI rose by 6.3% year on year, lower than the 6.8% in April and marginally below consensus estimates. Food inflation slowed to 11.8% from 13.9%. Lower oil prices filtered through to a slowing in transport inflation from 7.6% to 7%. We provide a more detailed Economic analysis of key drivers in our full report for subscribers.
For the week ahead the domestic macroeconomic data focus will include consumer confidence, money supply and credit, and SA trade balance for May. Globally, a key focus will be on the US bank stress tests. This is of particular relevance given the recent failures among several regional banks in the US. In the latter part of the week, we have US GDP, personal income and the Fed's preferred measure of inflation, personal consumption expenditure price index for May. Furthermore, we have several global central bank heads attending the ECB forum in Portugal.
Our market carousel this week is largely a product of changes identified in last week's report. In aggregate, we now have 3 open long positions with two being in a partial profit take stance. Of these, the price action on one long (speculative) has weakened but we remain above our stop loss level. We maintain 4 open short positions across an assortment of equity, FX and commodity markets. We still hold three 'No Position' stances in our weekly carousel as we maintain a derisked stance and wait for better entries.
Our trade ideas this week include two global stock ideas as well as a domestic stock which we identified using our Relative Rotation Graph.
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