The Week Ahead of 2 December with Chris Gilmour


The Week Ahead of 2 December with Chris Gilmour

Published Date: 2019-12-02 | Source: INCE|Community | Author: Chris Gilmour

The Week Ahead of 2 December with Chris Gilmour

As has been a familiar feature in recent weeks and months, global data is suggesting a stabilisation of global activity, though the data is far too varied and mixed to suggest anything approaching a synchronised rebound in growth. As far as the big picture politics is concerned, a US/China trade deal of some description remains a possibility, though it is moving at a glacial pace. On the negative side, there are still substantial underlying fragilities in Germany, even though it just managed to avoid a recession last quarter.

Germany's success on the world stage since the end of the second world war has always been predicated on its manufacturing capability. Now, for arguably the first time in decades, that capability is looking stretched and could become even more vulnerable if the US turns up the heat as far as new trade tariffs are concerned. Central banks around the world have only limited scope for further monetary stimulation and thus the outlook for global growth improvement remains tepid at best.

But of course, the US continues to buck the global trend, albeit in a more muted form in recent months. And this is reflected in the very positive US economic metrics. The S&P 500 is at or near an all-time high, as are the Dow Jones Industrial Average and the Nasdaq. US house prices are at all-time highs and the economic expansion that began in March 2009 is the longest in history at 125 months. Weighed against that, however, is the recent revelation that, with almost all S&P companies now having reported for Q3 2019, aggregate earnings are 6% down over the past year, the largest decline since Q4 2015. The S&P 500 closed 1% up at 3140.98 on Friday 29 November 2019. The S&P 500 has been good for investors in recent years. The return over 5 years has been 50.5%, 3 years 43% and 2 years 18%.

One-year percentage change is just under 14%, so there is definitely a declining growth trend in place, which would be expected given the decline in US corporate earnings growth. However, a yearly comparison will get a big boost later in the month when the base of December 24, 2018, is used. That date marked a huge selloff in the S&P 500, closing at 2 351.1. Even if the S&P stays where it is all month and finishes there on December 24, the year on year percentage change will still be a remarkable 34%. Little wonder that so many South African investors have been investing offshore and specifically in the US, in preference to the local equity market, which has been moribund for many years.

With just under two weeks until Britain's general election on December 12, the governing Conservative Party's lead in the opinion polls still looks profound. Most polls point to a comfortable working majority for the Conservative in the UK parliament, though the most recent poll, published on Saturday 30 November, shows an unexpectedly large narrowing in the lead over Labour.

South African third-quarter GDP growth figures will be released on December 3. There is more than even a chance of a negative figure emanating from Statistics SA, which would be extremely depressing. Both manufacturing production and retail spending figures have disappointed to the downside in recent months, giving rise to the speculation of a Q3 contraction. If the economy did indeed contract in Q3, the ratings agencies would view this in a very serious light, as one of the primary areas of concern is the lack of any discernible growth in the SA economy. One of the most notable features on the JSE last week was the release of the key finding of PwC's forensic investigation into Tongaat Hulett. The investigation uncovered serious accounting irregularities and corporate governance failures. The board intends pursuing civil claims against certain former executives of the company who appear to have been responsible for or party to the irregularities highlighted in the PwC investigation.

Economic data releases this week;

  • 2 December 2019
    • NAAMSA New Vehicle Sales Nov, Absa Manufacturing PMI Nov
    • 3 December 2019
      • SA GDP Q3
      • 4 December 2019 2019

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