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Not a nice day for resources

‘You have to look at the road and, if there is a pothole, stop’ – David Shapiro – Sasfin.

SIKI MGABADELI: Let’s look at the markets now. We had a relatively firm day most of the day. Then we ended pretty much flat. The all-share is at 48 273, down about 0.1%. The Top 40 index is up slightly on the day. The rand is at R15.85/dollar, R22.81/pound and R17.69/euro.

Right now we are busy watching testimony by Janet Yellen to Congress. I think she does this monetary outlook to Congress twice a year, if I’m not mistaken. So we are watching to see what happens because they held rates at their last meeting. The next meeting is in March and people are wondering if we are going to get any hints on what the Fed is going to be doing in March. But, as you heard in the news from Tumisang, she says that that rate path hinges on what happens with market turmoil. And Davis, all we’ve seen is market turmoil since the year started.

DAVID SHAPIRO: It’s been six weeks, non-stop, of market turmoil. Are you going to make it?

SIKI MGABADELI: I’m going to make it.

DAVID SHAPIRO: But I think what we see now – we’ve seen the rand improve. In fact it was under R15.80 at one stage, obviously reflecting what Janet Yellen is saying now and I think the market is saying that we are not going to have too many rate rises. There is too much weakness in China, commodity prices are falling and generally the outlook for the global economy is pretty weak. So that will dictate the path of interest-rate rises. In fact. She just missed the fact that they will actually cut rates.

SIKI MGABADELI: But she doesn’t see that happening any time soon at ll.

DAVID SHAPIRO: So the euro has got a bit stronger, we’ve got a bit stronger, slightly weaker. Commodity prices came off the boil. It’s very hard to try and match all this together, because what’s led us up recently has been gold and platinum. The future is now pointing down. Even though we haven’t seen a dramatic turnaround in those prices, we saw gold shares coming down quite sharply, platinum shares coming down quite sharply as well, just to give you an idea of the volatility. But sometimes it’s very difficult to pinpoint why the swings are so wide.

SIKI MGABADELI: But also, looking at that volatility, and the way that things are going, I think what she said is important about the fact that the Fed – and I think this applies to any central bank – you don’t just mechanically follow rules. So the things that we knew were hard and fast rules – if this goes up, that must go down – they are the new normal now and you need to react to situations as they happen.

DAVID SHAPIRO: I don’t think you can drive using your Garmin or GPS – in other words, you have to look at the road and, if there is a pothole, stop. It might tell you where the journey is going, but of course you have to be very careful along the way. I think that’s what she is saying.

Markets love to try and forecast what she is saying and interpret what she is saying, and she’s basically saying “I’m not saying anything”. And Stanley Fischer said that the other evening as well – it has to be data-dependent on how they move it.

But Siki, it has been overall very, very difficult time for markets.

SIKI MGABADELI: And I suppose that’s the message for investors.

DAVID SHAPIRO: And because of the uncertainty and difficulties most people are holding back, just taking a breather. I’m not sure where they are going. They are going into safe havens like treasury bonds, so US treasury bonds there. I’m not sure – there was a big auction today or there is a big auction happening now in their ten-year bonds, but the last reading was 1.76%, which is the lowest in quite a long time. So people are happy to stay, just put their money in at 1.76, not knowing what lies ahead.

SIKI MGABADELI: It is insignificant with where money was flowing today. We are going to see the banks were pretty much up, except for FirstRand. Standard Bank was up almost 2%, Barclays Africa up over 3%.

DAVID SHAPIRO: We saw banks back in demand. Banks have been under a bit of pressure recently because of perceived problems with European banks, concerns about liquidity issues there, also concerns in American banks about perhaps exposure to the energy sector.

No one can pinpoint it. There are spooks all around there, and we don’t know what’s troubling the investors when it comes to banks because CEOs don’t give the impression that things are bad. And also a lot of the stress tests that have been undertaken by various central banks have never pointed to any major weaknesses. But banks there have been under pressure. So we saw a little bit of a recovery there today in Europe, and they created a bit of support for our banks as well.

Naspers came back, Famous Brands came back, so we saw a few gains our market. But generally resources are under quite a bit of pressure after really leading this market, or stabilising this market, over the last couple of weeks.

SIKI MGABADELI: Why is Sappi down? [Overtalking]…Up 51% in the first quarter. They seem to have turned the tide.

DAVID SHAPIRO: If you look through those results – and there is a lot of detail there – everything points to improving conditions. The only warning they gave you was that textile prices were coming down because of supply out of China and also because of the lower Chinese currency, which made it cheaper. But demand was offsetting that. This is their big growth area, cellulose. So I’m not sure. I think this is a share that’s up 30% over the last year. It hasn’t done anything during the first six weeks of this year. But a surprise – I thought it was a fairly good result. They did say they’ll start paying dividends once they run down their debt, which they are doing quite nicely. So I’m surprised.

SIKI MGABADELI: Glencore is another one. Yesterday down more than 6%, today down another 5%.

DAVID SHAPIRO: Well, Anglos, Billiton, Glencore, all of them were down. Sasol was down. Right across the board I think shares were down. Kumba found a bit of support but Assore was also down about 10%. Not a nice day for resources.



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