On Friday, the JSE closed at a six week high, driven by gains in large cap diversified miners, as well as Bidvest, Vodacom and PGM producer Implats. On a macro level, payrolls data out of the US reflected an economy that continues to produce jobs with a 128,000 gain versus consensus expectations of 89,000. This data comes two days after the Federal Reserve cut interest rates for the third time this year on fears that the economy may be slowing. Locally, the Rand closed above 15 to the US Dollar as investors awaited the outcome of the announcement by rating’s agency Moody’s which was due after 11pm on Friday evening. The announcement saw the agency maintain the country’s credit rating at Baa3 while downgrading the outlook from ‘Stable’ to ‘Negative’.
An extract from the statement reads as follows:
“Moody’s decision to change the outlook to negative from stable reflects the material risk that the government will not succeed in arresting the deterioration of its finances through a revival in economic growth and fiscal consolidation measures. The challenges the government faces are evident in the continued deterioration in South Africa’s trend in growth and public debt burden, despite ongoing policy responses.
While high unemployment, income inequality and the social and political challenges they imply for policymakers are long-standing features in South Africa, the obstacles that they pose to the government’s plans to raise potential growth and contain fiscal deficits are proving more severe than expected a year ago. Acute financial stress for state-owned enterprises (SOEs), in particular Eskom Holdings SOC Limited (Eskom, B2 negative), continues to require sizeable ongoing support from the government. The development of a credible fiscal strategy to contain the rise in debt, including in the 2020 budget process and statement, will be crucial to sustain the rating at its current level.
The Baa3 rating affirmation takes into account the country’s deep, stable financial sector and robust macroeconomic policy framework, set against ongoing challenges related to weak potential growth and strong fiscal pressures.”
Additional comments from the statement included:
“Socio-economic features in South Africa including structurally high unemployment and income and wealth inequality are longstanding and deeply-entrenched constraints on the country’s growth potential. Deep inequalities — South Africa’s income inequality is among the highest globally, as measured by the Gini index — and resistance to reforms from key stakeholders limit the government’s room to adopt and implement structural reforms.”
“In the last two years, it has become increasingly apparent that those constraints are challenging the government’s ability to implement reforms that would durably lift growth, to an even greater extent than previously expected. Moody’s has revised down its medium-term growth projections to 1-1.5%, barely in line with population growth, from earlier expectations of a gradual pick-up towards 2.5-3%.
Job creation remains a central problem, with unemployment at a multi-year high of 29% in the third quarter of 2019. Gross fixed capital formation has been contracting on a year-on-year basis since the second quarter of 2018, as private companies see limited prospects of an improvement in the business environment. Productivity, the level of output per worker, has remained stagnant, in contrast with the steady, even if sometimes limited, growth seen in other countries at similar income levels.”
European Stocks Up on Strong Data (Close of 01 Nov 2019): European stock markets closed in the green on Friday, boosted by better-than-expected US jobs report and stronger-than-expected Chinese manufacturing PMI. Job creation in the US increased by 128 thousand while markets were expecting a smaller 89 thousand gain and wages returned to growth while the Caixin China General manufacturing PMI came in at 51.7, the fastest expansion in near three years, and beating expectations of 51.0. The DAX 30 gained 94 points, or 0.7% to 12,961, the highest since June 15th 2018; the FTSE 100 added 54 points, or 0.8% to 7,302; the CAC 40 rose 32 points, or 0.6% to 5,762; the FTSE MIB rose 241 points, or 1.1% to 22,934, the highest since May 22nd 2018; and the IBEX 35 went up 71 points, or 0.8% to 9,328. TradingEconomics.com
US Stocks Rally on Upbeat Macro Data (Close of 01 Nov 2019): Wall Street closed deeply in the green on Friday with the S&P 500 and Nasdaq booking fresh highs, as October employment numbers topped expectations with 128 thousand jobs added in the month and 75 thousand gained in revisions. On the trade front, US-China news were offset by USMCA updates, as House Speaker Nancy Pelosi told Bloomberg that she sees a vote when ready and called it the “easiest trade deal.” Abroad, the Caixin China manufacturing PMI climbed to a 32-month high of 51.7 in October from 51.4 in September. Chinese ADRs rallied on Friday led by YY, Baidu, Bili, and Tencent. The Dow Jones added 301 points or 1.1%. The S&P 500 gained 29 points or 1.0%. The Nasdaq climbed 94 points or 1.1%.- TradingEconomics.com
Asia: This morning, Asian equities are in positive territory. The Nikkei is closed as Japan celebrates Culture Day. Tencent is higher by 1.18%. BHP is +2.07%.
On the ASX, movers include:
Indices | JSE Top 40, S&P500 Futures
JSE: The downward trend line going back to the 24 June peak has been tested and breached. The next potential short term resistance level is 50879, which is also the prior breakdown level seen on 17 September. On the downside, the 49699 level is now becoming a short term support zone.
S&P500 E-Mini Futures: The index has broken above the 3017/3020 level. It is possible that we see a re-test of the gradually downward trending overhead resistance level at around 3007. For bulls to remain positive, this level should turn to support and hold while bears would monitor for a false breakout. Daily RSI indicator remains within the bull zone with a 66 print.
FX | USD/ZAR, GBP/ZAR
USDZAR: In early Monday trade, the Rand trades at 14.83, having opened at 14.87. This gap has seen the price trade below the 50-day moving average but above an upward trending 200-day moving average. On the downside, support is 14.64 and 14.56 while resistance is 14.99.
This can be seen on the daily chart below:
A look at the monthly chart of USDZAR reflects a long term bull channel remaining in place, with the MACD technical indicator supporting the latest long term leg higher (triggered in June 2018).
GBPZAR: The weekly chart sees the pair looking to retest the breakout level. On the upside, R19.78 is a resistance level which if it is breached, opens up 20.45 to 20.60.
Sectors | JSE Major Sector Analysis Metrics, Moving Average Trend & Quick Take
(source: timbukone / TradingView.com Chart Data)
Sectors | United States Major Sector Metrics
(source: SPDR, TradingView.com Chart Data)
ARI | African Rainbow Minerals: Price has developed a head and shoulder technical formation where the most recent short term leg higher has seen the price being rejected at the neckline of the head and shoulder while also developing a bear flag formation. Conventionally, aggressive traders could look to short at current levels while a more conservative approach would be to wait for the bear flag to break lower as a trigger for further downside.
DSY | Discovery | The share has spent the last three weeks of October grappling with the 125/127 level. The downward trend line resistance level has held while the share has broken below the incline support going back to 20 August 2019. The daily chart’s Relative Strength Index has broken back into the bear zone, signaling a return to short term weakness.
OMU | Old Mutual | The price action for the share has reflected a push-back by the bears. On Friday we saw a bearish engulfing candle being formed with the price threatening to break below support going back to 23 September. A break below this level opens up 1828c to 1805c as targets.
CLS | Clicks | Following a sharp move higher on 07-October, buying pressure on the the share is starting to wane, with the sideways direction being in play since the last surge higher. On Thursday and Friday we saw the price break lower from a bear flag formation with the 250ooc level being an active selling zone. A loss of 243 opens up 23650c as a target zone.
CPI | Capitec Bank | Increased volatility at the prior breakdown level. Wider ranges for the daily candle, signals an increased battle between buyers and seller. RSI negative divergence – an early signal that the potential for a directional change has increased.
ASR | Assore | Despite recently trading in a range, the underlying indicators suggest that the share is attempting to reverse it’s downward trend:
- Bullish RSI divergence
- RSI having breached it’s bear trend.
This week important releases include the US ISM Non-Manufacturing PMI, trade deficit, Michigan’s consumer sentiment, and factory orders; UK Markit Services and Construction PMIs; Eurozone retail sales; Germany factory orders and trade balance; China foreign trade, consumer and producer prices; and Australia retail sales and trade balance. The BoE and RBA will decide on monetary policy, while the BoJ will publish meeting minutes.