The Week Ahead of 8 January 2019


The Week Ahead of 8 January 2019

Published Date: 2019-01-08 | Source: INCE|Community | Author: Chris Gilmour

The Week Ahead of 8 January 2019

The year of living dangerously?

The start to 2018 was highlighted by the expression "synchronized global growth". As the year progressed, however, and it became clear that the US and China were indeed facing off against each other in a trade war, that term rapidly became not only redundant but laughable. Only the US managed to keep alive hopes of decent economic growth as 2018 neared its end and now even that mighty powerhouse is starting to wobble. Now, it looks as if the world is experiencing "synchronized global contraction" in growth. If the UK crashes out of the European Union (EU) without a deal on Mar 29, that event will, in all likelihood, lead to a further contraction in growth.

The US government shutdown enters its third week with no sign that either President Donald Trump or the Democrats (who now control the US House of Representatives) are willing to compromise. Trump is playing a dangerous game of chicken, demanding that the Democrats vote for the construction of his wall on the Mexican border in exchange for getting bipartisan agreement on a funding solution for the government. Nancy Pelosi, the new Democratic Speaker of the House, is adamant that such a deal will not occur.

Apple came out with a very poor trading update last week that suggested demand for its products in China was not growing nearly as fast as had been predicted. The share price dropped by as much as 10% on the update, This is the first time that Apple has revised its guidance downwards in more than 15 years and the market was seriously rattled by the announcement. Not only did it confirm that Chinese economic growth is likely to be slowing but from Apple's perspective, that the demand for its seriously expensive iPhones is faltering. The latest iPhones have a price tag well in excess of $1 000 and there is only a limited number of consumers who can afford that type of price. Additionally, relative newcomers such as Huawei are now producing smartphones at least as good as Apple's iPhones but at half the price. Apple's strategy will no longer just be predicated on smartphone manufacture and peripherals but on services such as Apple Pay.

Early last week, currency markets experienced a so-called "flash crash", with emerging market currencies collectively, including the ZAR, taking a big hit. Currency speculators have taken refuge in the Japanese yen, which is something that hasn't happened on this scale since the emerging markets crisis of 2008. Little wonder that risk managers worldwide are concerned about what could happen on currency markets as the year progresses.

The S&P 500 closed at 2 508 on 31 Dec 2018. On Fri 4 Jan, it closed at 2 532, a rise of just under 1% for the year to date. Opinions remain extremely divided on the likely direction of the S&P 500 in 2019 but, as we said in last week's report, the underlying economic fundamentals do not give rise to optimism.

The JSE All Share Index (Alsi) closed on 31 Dec 2018 at 52 737 and finished last week at 52 223, a fall of just under1% year to date.

JSE listed company results out this week;MMP

  • 15 January 2019
    • Resilient - Interim
  • 25 January 2019
    • AdaptIT - Interim
  • 31 January 2019
    • ArcelorMittal - Final

Economic data releases this week;

  • 07 January 2019
    • NAAMSA New Vehicle Sales December, Absa PMI December
  • 10 January 2019
    • SA Manufacturing Production November

An image of Chris Gilmour

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