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Markets this week: Commodity price woes continue

Looking back: Strong US jobs numbers compounded strength in the greenback.

It would appear a slow reversion back to trends of the past has started to occur as the decliners list last week found itself dominated by resource counters once again. Renewed US dollar strength has seen commodity prices under pressure and in turn local producers bearing the brunt of the market weakness. Strong US jobs numbers at the tail end of the week only compounded strength in the greenback which saw the likes of gold and platinum close at the lows of last week. 

Market participants will now be wondering if a generally upbeat start to the New Year (for diversified resource counters in particular) will fade out into March as it has done in the last two years.

Top Movers

Top gainers

The MTN Group reported revenue to have increased 6.4% and headline earnings per share (HEPS) by 8.9% over the company’s last financial year. Strong growth (33.2%) was once again achieved in data revenue (as is the industry trend) and now accounts for around 18% of the group’s total revenue. The company has reduced capex spend by 16.3% while increasing the cash inflow generated by operations 8.2%. Another healthy final dividend of 800c per share has been declared.

Following the release of its interim results, Aspen has moved closer to all-time high territory once again. Gross revenue increased 47% and (including acquisitions concluded in the prior year) while normalised HEPS grew by 22% over the period. The strong earnings growth was achieved despite an unfavourable strengthening of the dollar against the group’s major trading currencies.

International

The European Central bank (ECB) kept benchmark lending rates unchanged last Thursday, followed by a rather upbeat press conference and address by European Central Bank President Mario Draghi. In the address, the outlook for growth was revised higher to 1.5% in FY2015 (from 1%) and 1.9% in FY2016. The inflation expectation for the year has however been revised lower to 0% from 0.7%. The previously announced asset purchasing program is set to commence on March 9, 2015.

In the US, non-farm employment data showed 295 000 jobs to have been added to the payroll in February, while the unemployment rate was realised at 5.5%. Both data prints came in ahead of consensus estimates and the US dollar strengthened significantly as a result, in lieu of a possible nearing of interest rates being tightened in the world’s largest economy. 

The new week

A weekend release of Chinese trade balance data revealed a record surplus of $60.6 billion. While exports were up 48.3% on stronger US demand, imports were around 20% lower as the value of base metals and oil fell over the period. This has furthered the woes in commodity prices which start the new week on the back foot once again.

The remainder of the week looks relatively subdued in terms of the upcoming economic calendar.  The market will look for further clues towards the extent of a slowdown in the Chinese economy with Industrial production figures scheduled for release on Wednesday, while the local figure for manufacturing production is expected on Thursday. In the US we await Retail sales data on Thursday and consumer sentiment figures on Friday.

Graph sourced from IG Insight

Shaun Murison is a market analyst at IG. Follow him on Twitter: @ShaunMurison_IG

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