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JSE down as Fed minutes shake the market

Blue Label bounces back on interims; Massmart benefits from cost control – David Shapiro on Thursday’s market moves.

NASTASSIA ARENDSE:  Good evening and welcome to the SAfm Market Update with Moneyweb with me, Nastassia Arendse.

David Shapiro is joining us on the line to talk about the day’s market performance. David, thanks so much for your time. How did the markets do?

DAVID SHAPIRO:  Not that great – in fact that off our worst levels. Tash, last night we had the Fed minutes, which kind of shook the market – not because of bad news, but because of very good news that the US economy was perhaps stronger than people were expecting. That led to the belief that rates are going to accelerate in the United States.

Once rates go up of course you see the opposite happening. Equity markets become scared because of the effect that higher rates will have on earnings, and of course maybe on spending and inflation. But that seems to have calmed down now. We are seeing US markets picking up again, and I think this is the kind of trend we are going to have to work through for the rest of the year; as data comes out people are going to react like this. So we did pick off the bottom.

But I think what dominated the market today was a huge number of results and some very big company results. I think that really influenced how we traded.

We always look for Anglo American numbers. Those used to dominate the entire scene here; they were such a powerful company. But I think what came across now is the huge amount of cash that they generated. They reduced their debt dramatically and also produced some very good earnings. But the whole resource market is under pressure – and why it’s under pressure is that higher interest rates are going impact commodity prices. They affect that side of the market as well. So when we saw high interest rates in the US – or the view that rates were going to go up – commodity prices softened or people turned fairly negative against miners. And Anglo could barely manage a gain, even on those very good numbers. So a bit of a disappointment there.

Then Sibanye. To be honest, Tash, I couldn’t go through those results. They are far, far too complicated to read, particularly in that they incorporated palladium producers. Stillwater for the first time – that’s the US palladium producer – what shocked me is that the shares were down 16%. So obviously those who understood the results could go through them and could interpret them and naturally didn’t like what they saw, maybe because of the impact of the high debt.

And then there is another result that was also a bit difficult to comprehend and understand. That was British American Tobacco. Going through their numbers as well, management seemed impressed by what they produced – double-digit growth there. But the shares were down almost over 4%, and it’s hard to find the reason. Going through analysts’ reports, what apparently happened is that they missed their organic growth sales [forecast]. Obviously the miss was big enough for the market to have knocked the shares, even though the underlying results and the bottom-end results were pretty good.

But then there was Woolies and Afrox and Richemont coming out with an announcement – and Massmart. More troubles at Fortress and Resilient, Blue Label’s results and so on, Spur another set of results. And Mustek as well. So very difficult to get through everything.

The good side of it was Blue Label. They bounced back 15% on their half-year numbers which brought in Cell C for the first time. And then Massmart – Massmart’s numbers coming from cost control. Whether they can keep repeating it we’ll have to check. But I think they are really showing a reduction in cost and increasing margins, which the market liked and pushed those shares up almost 8 or 9%.

So those are kind of the highlights. But all over the place, if you were trying to make sense out of what we saw.

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