Market watcher: David Shapiro -Sasfin

Reserve Bank governor downplays effects of lower oil price.

DAVID SHAPIRO: The all-share and the Top 40 are down 0.5% on the day. Losses in resources and industrials. Remember, banks and industrials have been hitting a series of record highs, so a bit of a breather, David?

DAVID SHAPIRO: Ja, markets are so volatile. It’s almost impossible to try and forecast where they are going to go on a day-to-day basis. It’s hit or miss.
   Today gold and platinum came down quite sharply. They’ve been leaders over the last few days and the reason they’ve come down has nothing to do with oil. It has to do with the United States and worries that interest rates will go higher, even though the Fed is denying this and trying to give comfort and say they will be patient on interest-rate rises. But analysts unpack their words and suggest that we are going to see rate rises earlier. If rates go up, it means the cost of holding gold and platinum is expensive, therefore you don’t want to hold it. So people sold gold and platinum today – gold and platinum shares came down. So that’s the kind of logic you have to go through on a day-to-day basis.
   What’s going to happen tomorrow no-one can foresee. The Greeks might give trouble and gold goes up.

SIKI MGABADELI: Yeah. And the Fed’s been kind of cagey because if they are quite steadfast about keeping interest rates low and watching the global situation, then people I think expect that they would say, right, we are going to push it out to 2016. But it looks like they still are holding on to their last statement. Until we see the Fed minutes of course we don’t know what…

DAVID SHAPIRO: I don’t think it’s going to come because of outside factors. First, the oil price is not going to push up inflation – I don’t think there is demand inflation. We haven’t seen it through wages and the international situation is not good. You’ll see it coming through in results. Siki, if you look at a lot of American results, the strong dollar is now starting to impact on corporate results like Procter & Gamble – why? – because they sell a lot of their goods outside and they have to translate their external earnings into dollars, and that brings profits down in dollars. They are not doing badly. It’s just in dollars. And I think that’s also coming through.
   We are also seeing a lot of companies, particularly the oil companies, showing much lower profits because it translates immediately. We don’t see the benefit that will come through from the lower oil price on consumption. That will take much longer to flow through.
   So it’s very volatile and this is why every day you don’t know where you are. It will smooth out eventually.

SIKI MGABADELI: From the Fed to our own MPC as expected – no change.

DAVID SHAPIRO: No. I listened to it and I don’t know Lesetja [Kganyago] that well. We know Gill [Marcus]. It’s only his second [rate announcement]. So I thought that he spoke very cautiously and he downplayed the effects that the lower oil price will have on the economy, saying this will be offset by worries about Eskom and also the external factors like a slowdown in the global economy. So he was very cautious. We mentioned that everybody was looking for a rate decrease, in fact a rate cut – and he even also dampened that by saying…

SIKI MGABADELI: He seems to think it’s only for the near term and that as soon as there’s a change in the oil price in the opposite direction that would possibly just change the inflation outlook as quickly.

DAVID SHAPIRO: But all of that had no effect on the market. The rand improved a little bit, but I think it was more from the euro picking up. It was also difficult to read because maybe the market was thinking about a rate cut, which means that you don’t want to send money in because rates are lower here, and therefore it had gone up to R11.60 – and when they heard there was no rate cut the rand strengthened. It’s very difficult to try and read what’s in investors’ minds.

SIKI MGABADELI: I wish they would write it down.

DAVID SHAPIRO: You know how many millions there are? We’d have to get a million tweets to interpret it.

SIKI MGABADELI: All right. let’s look at some corporate news. Production updates have been coming in. We saw the ones out from Anglo American and its subsidiaries yesterday. Lonmin out as well today and it looks like, David, the trend is we are going to cut back on capex and really because these commodity prices are just…

DAVID SHAPIRO: In fact, there were impairments yesterday in Anglo. I liked De Beers’ results – they were the best. But that’s the problem, and I think we discussed it the other night when Caterpillar’s results came out. Remember, we said that that’s one of the issues – they are cutting back on mining, they are cutting back on oil exploration. That’s going to filter through. Barlows came down as a result of that. Here’s evidence we are going to cut back. Yesterday Sasol. Admittedly that’s not in South Africa, but still it’s going to be a trend of slowing down and I think it’s going to affect the services companies related to mining, oil and that kind of infrastructural development.

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