|Research – 22 July 2019
Lester Davids, Unum Trading Desk
(Please click on the link to access charts)
|Global equities ended near the lows of the week on Friday as the market participants assessed the potential for an interest rate cut from US Federal Reserve. Initially, we saw Chairman Jerome Powell being vocal regarding the potential for a reduction rates while New York Fed President John Williams set off a debate on whether the FOMC should cut by 25 or 50 bps. This saw the market assign as much as a 50% chance of a 50bps cut. However toward the later part of the week Boston Fed President Eric Rosengren pushed back against the need for an easing of monetary policy. This saw the market lower it’s expectations of a rate cut as is reflected in the CME Fedwatch Tool as at 22.5% at the close of the Friday US trading session and unchanged in early Monday trading. In addition, US earnings season continues to unfold with with just over 15% of companies having reported thus far. Of these, 79% have reported better than expected profit, according to FactSet Data. It should be noted that coming into the Q2 earnings season, analysts expected earnings to decline by 3% so one could say that ‘the bars have been set low’. Some of notable earnings have included the US banking sector where solid earnings have been produced, despite interest rates tested multi-year lows. Other notable names included ‘old tech’ giant IBM which reported EPS of 3.17 vs expectations of 3.07 while Revenue came in at $19.2bn of which revenue for cloud and cognitive services rose 3.2% to $5.6bn. On the JSE, market updates from Anglo American Platinum, Liberty Holdings and Richemont saw these shares advance. Richemont in particular seeing strong growth in Mainland China, modest growth in the Americas while contracting Europe and Middle East and Africa.
According to tradingeconomics.com, this week sees the advance estimate of US Q2 GDP growth will be in the spotlight, alongside flash Markit PMIs, durable goods orders, and existing and new home sales; UK CBI factory orders and distributive trade surveys; and Eurozone, Japan and Australia flash PMIs. The ECB policy meeting is likely to signal monetary easing as soon as in September while Turkey’s central bank is seen cutting interest rates by 250bps. Investors will also react to the outcome of the Conservative leadership election.
Next week the US will be publishing the advance estimate of second-quarter GDP, with market forecasts suggesting economic growth was 1.8 percent, the weakest rate in two years. Other notable publications are flash Markit PMIs, durable goods orders, existing and new home sales, Chicago Fed National Activity Index, and wholesale inventories.
Earnings updates from Amazon, Facebook, Intel and Caterpillar will also be keenly watched.
Elsewhere in America, important releases include: Canada wholesale sales and budget balance; Brazil current account; and Mexico foreign trade, retail trade and economic activity.
In the UK, all eyes will be on the outcome of the Conservative leadership election on Tuesday, with Boris Johnson seen as the favorite to succeed Theresa May as the new British Prime Minister. On the economic data front, the CBI will publish its gauge for industrial orders, retail sales and business optimism while UK Finance will release mortgage approvals for June.
Elsewhere in Europe, the ECB will most likely leave interest rates unchanged on Thursday while investors turn their attention to Mario Draghi’s press conference for any sign that would suggest the central bank will take action as soon as in September. Key economic data include the Eurozone flash Markit PMIs and consumer confidence, alongside Germany business climate, Spain balance of trade and Q2 unemployment, and Italy consumer and manufacturing morale. The Central Bank of Turkey is expected to cut its benchmark interest rate by 250bps when it meets on Thursday, while central banks in Russia and Hungary are expected to leave their monetary policies unchanged.
In Japan, the Jibun Bank will be releasing its flash PMIs, providing an update on manufacturing and services activity during July. Other important data for Japan include: Tokyo inflation and leading economic index. In Australia, analysts are eyeing flash Commonwealth Bank PMIs for July. Other highlights for the Asia-Pacific region include: South Korea Q2 GDP growth and consumer confidence; China industrial profits; New Zealand, Thailand and Hong Kong trade balance figures; and Taiwan and Singapore unemployment rates.
This morning, Asian equities trade in negative territory as geopolitical tension rise (UK/Iran) which sees oil higher, the Dollar firmer. Tencent is lower by 0.39% while BHP (AUS) is higher by 0.56%.
|1||US Dollar / South African Rand: is developing a falling wedge pattern at swing support which signals the potential for a short term bullish reversal. The RSI is starting to turn up while a 5/1- EMA bullish cross is pending.
R2: 14.18 (200-day MA)
|2||JSE Top 40 (Monthly Chart): Using a higher time frame, the index continues to trade near the upper boundary of the range that has been in place since August 2017. While the daily chart may show some volatility, the monthly remains in bullish territory with the Relative Strength Index printing a bullish reading of 56 and the MACD in the positive/bull zone. Should the index close above 54200, the outlook remains bullish.
JSE Top 40 Daily Chart: The index continues to hold above the bull flag channel break up level but is has found intraday (Friday 19/07) resistance at the prior breakdown level of 52120. With Asian indices lower this morning, it is natural to expect a retreat on the local exchange unless USD strength gives us some ZAR weakness and in turn helps us hold these multi-day highs.
|JSE Top 40 Monthly Chart:
JSE Top 40 Daily:
|3||*NEW* Defensives vs Cyclicals (or Price Makers vs Price Takers): I’ve decided to take a look at the relative chart between two groups of sectors, more specifically, sectors where their products/goods are subject to one global price (e.g. gold, platinum, iron ore etc) versus sectors that have the ability to determine their own prices (the latter group is often also regulated).
Diversified Miners/General Resources (J210)
Monthly Chart Analysis: At current levels, the price trades just above the support level last seen during January 2013 and continues to trade in an oversold/weak zone as per the Relative Strength Index however with downside momentum starting to slow down. Typically, from a technical standpoint, we would measure the price relative to it’s 50-month moving average and from the observation we note that the price trades around 35% below this moving average. https://www.tradingview.com/x/glVU6MiG/
Weekly Chart Analysis: A view of the weekly chart gives us a closer view of the recent price action where we are starting to see a higher low starting to develop. Whilst below the trend line, this is an encouraging start on a medium term outlook. https://www.tradingview.com/x/2C2ZoSNb/
*NEW* Top 8 Heavyweight vs All Share Index:
|4.1||Anheuser-Busch Inbev vs All Share Index (J203): WEEKLY CHART: ANH has been a strong performer year-to-date, an idea initially flagged on 06 February at a price of R1063. At the last price of R1296, this represents a 21.9% return (37.5% annualized). Relative to the All Share Index, the weekly chart is making a strong attempt to breach the 33-month downward trend line going back to the peak of October 2016. It should also be noted that the Relative Strength Index is trading in a bullish zone (currently at 55). On a relative basis, the share price of ANH remains strong versus the overall market.||https://www.tradingview.com/x/cRnuTuuG/|
|4.2||Naspers vs All Share Index (J203): WEEKLY CHART: Despite holding above holding above it’s 40-week and 200-week moving averages, Naspers continues to trade in a sideways range relative to the overall market. This has been the case for the last 26 months. While the RSI is currently above the 50 level (in the bull zone).||https://www.tradingview.com/x/8JJH4g3F/|
|4.3||British American Tobacco vs All Share Index (J203): WEEKLY CHART: Following the strong (Feb 2019) rebound off the 2011 relative support zone, the price has started to make a higher low while the RSI is moving up from long term oversold territory (turning up) and attempting to make a break above the downward trend line resistance. On a relative basis, the price has, over the last 24 months, traded below the 40-week MA however traders should monitor for a break above this level the first signal of a shift back to medium term strength.||https://www.tradingview.com/x/o1pq3j53/|
|4.4||BHP Billiton vs All Share Index (J203): The relative monthly chart provides us with big-picture perspective. At current levels we see the price testing the downward trend line resistance going back to the 2007 peak. The recent medium term appreciation of the share versus the All Share Index has seen the price out-perform the overall market for 3 1/2 years and with the technical resistance we may see a temporary pause in price appreciation of BHP versus the broader market.||https://www.tradingview.com/x/sdas8fam/|
|4.5||Glencore vs All Share Index (J203): WEEKLY CHART: Relative to teh All Share Index, Glencore continued to trend lower from it’s lower highs, by breaking below support and trading below a downward trending 40-week moving average. While the RSI is oversold (weekly chart reading of 26), the trend (on a relative basis remains down). https://www.tradingview.com/x/CbRAdsuk/
On a standalone and in the short term, GLN does display a willingness to make a recovery, which could be on the back of the recent highs in Copper. On Friday we saw a bullish engulfing candle being printed, with the downward trend line being tested (possible break up) while the 50-day moving average is starting to lose it’s downside momentum. https://www.tradingview.com/x/FoeMVO60/
In the short term, we could see a rebound, which would be a retest of the bigger picture breakdown level.
|4.6||Richemont vs All Share Index (J203): Daily Chart: In the short term, the shares continues to outperform the All Share Index with the price on Friday making a 9-month relative high. The RSI continues to trade within a bullish zone, while the price remains above the 200-day MA and rising 20 and 50-day simple moving averages.||https://www.tradingview.com/x/4JnFh9eJ/|
|4.7||Anglo American plc vs All Share Index (J203): Daily Chart: The relative chart continues to trade in a year-long upward channel, with the price above a rising 50-day and 200-day MA but just below the 20-day moving average. Until the price channel has been breached, I see the share continuing to outperform the All Share Index (J203) on a relative basis.||https://www.tradingview.com/x/xHwQDGjU/|
|4.8||Firstrand vs All Share Index (J203): On a relative basis. FSR has started to trade below a downward trending 20-day, 50-day and 200-day moving average with the price making lower highs and threatening to break below the rising trend line support going back to June 2018.||https://www.tradingview.com/x/3xysQBzj/|
Copper (Monthly): It is anticipated that a shortage of the commodity may see higher price levels. The long term technical setup supports this view as we see the price starting to appreciate close to the lower boundary of an upward channel that has been in place for 31 years with support being found at the 50-month moving average. The current setup is quite similar to that of the period Q4 2002 to Q3 2003.
|6||*NEW* Dividends Focus
Equally-Weighted Top 5 Negative Dividend Growth shares have lagged the market but have the potential to make a recovery. This is seen on the daily chart where the price is testing the downward trend line while the RSI has already broken above resistance. These share are:
Old Mutual (-10.9%)
*Annual Dividend Growth/(Decline) In Brackets
Equally-Weighted Top 5 Positive Dividend Growth shares have been trading in a sideways range for the past 4 months. The group is holding above a rising 200-day moving average as well as above the upward trending 20 and 50-day moving averages. These share are:
African Rainbow Minerals (+41.9%)
Fortress B (+36.4%)
*Annual Dividend Growth/(Decline) In Brackets
EW Negative Dividend Growth
EW Positive Dividend Growth
In no particular order, below are some additional charts and data that have caught my attention over the past weekend.
Global Bonds at 120 Year Lows: