The Week Ahead with Chris Gilmour 10 February 2020

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The Week Ahead with Chris Gilmour 10 February 2020

Published Date: 2020-02-10 | Source: INCE|Community | Author: Chris Gilmour

The Week Ahead with Chris Gilmour 10 February 2020

President Donald Trump's trial in the US Senate relating to his impeachment finally concluded with the president being acquitted. This came as no surprise to markets, which had discounted such a result long ago. US nonfarm payrolls greatly exceeded consensus, coming in at 225 000, well ahead of the expected 158 000. Much of this was due to unseasonably warm weather in the US. On a narrowly defined basis, US unemployment now stands at 3.5%, the lowest in 50 years. On a broader measure that includes disillusioned and discouraged workers, the figure rose slightly to 6.9%. But even on this measure, US unemployment is at historically low levels. The S&P 500 closed at a record high of 3346 last Thu 6 Feb. For the week as a whole, the index closed on Fri 7 Feb 3.2% higher at 3328.

The Tesla share price went parabolic on Mon and Tue last week, then plummeted and lost around 17% in one day on Wed. The craziness of the rise in the share price has not been fully explained by anyone, other than it's regarded as a market favourite, due to it being a stock of the future. Market watchers also suggest that Fear of Missing Out (FOMO) by not having Tesla in their portfolios goes a long way to explaining the mania attached to this stock. The current slight weakness in the Tesla share price can partly be ascribed to the coronavirus, where analysts expect to see a dropoff in demand in China as consumer sentiment worsens. More direct consequences of the corona virus outbreak can be seen in the consumer discretionary sector in China. Adidas is closing "a considerable number" of stores in China as a direct result of the coronavirus. Puma's Chinese factories are not reopening until next week and Boss and Nike are also taking strain. At the time of writing, the number of fatalities associated with the coronavirus has now exceeded those due to SARS seventeen years ago. The big difference of course is that the SARS epidemic took seven months before it peaked, while this current corona virus has recorded the same number of fatalities in a few weeks. The number of cases is now approaching 40 000.

Hotel group City Lodge issued a very depressing trading update last week, warning of a large drop in earnings per share, due mainly to the weak ambient economy but also because of the application of accounting standard IFRS 16, which deals with treatment of leases. Including both factors, earnings are likely to halve-excluding the impact of IFRS 16, the fall is likely to be closer to 30% The bulk of City Lodge's business in SA comes from corporate travellers, so it's perhaps no surprise that with so many corporates cutting back on expenses wherever possible, travel is a prime target for earnings decline. This is a great pity, as City Lodge is an exceptionally well-managed company The SACCI Business Confidence Indicator for January fell by 0.9 index points to 92.2, ending a five-month improvement in the index. Most observers were expecting a further improvement. Business confidence is struggling to gain traction amid lower export volumes, great uncertainty on both the global and local economic fronts and the debilitating effects of rolling blackouts. The JSE Alsi closed 2.1% higher at 57 276 on Fri 6 Feb. The State of the Nation Address (SONA) will take place at 19:00 on Thu 13 Feb in Cape Town. President Cyril Ramaphosa has his work cut out attempting to please a wide diversity of constituencies in his SONA speech. The ratings agencies will be listening intently for any indication of growth-friendly policies, while the unions will be seeking assurance on job preservation at State-Owned Enterprises.

The Fragile Five + Russia
Country Inflation (%) GDP Growth (%) Unemployment (%) Interest Rates (%)
South Africa 0.4 4.0 29.1 8.8
Brazil 1.2 4.3 11.0 4.3
India 4.9 7.4 7.2 6.5
Indonesia 5.1 2.7 5.3 6.6
Turkey 0.1 12.2 13.4 10.1
Russia 1.2 3.0 4.5 6.3
Source: The Economist Feb 7 2020

Economic data releases this week;

  • 1 February 2020
    • SA Unemployment Q4, Manufacturing Production December
  • 12 February 2020
    • SA Retail Sales December
  • 13 February 2020
    • State of the Nation Address (19:00). SA Mining Production December

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