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Banking counters bore the brunt of weakness last week

A downgrade in SA’s sovereign rating appears highly likely. A look at last week’s market movements.

Here’s a look at what moved the local and global markets last week.

International data

Global markets were under pressure for the most part last week, after communication from the head of the International Monetary Fund (IMF), Christine Lagarde, unsettled investor sentiment.

The IMF highlighted its growing concerns around the state of global growth, suggesting that structural reforms are needed to accompany quantitative programmes. It also highlighted the possibility of the UK leaving the European Union as an uncertainty, which was likely to be a net negative that the IMF is investigating further.

In the US, minutes from the Federal Open Market Committee (FOMC) meeting three weeks ago suggested that the Federal Reserve is unlikely to raise lending rates at April’s meeting, as the state of the global economy remains a concern.

Crude oil inventories data saw a surprise fall in the number of barrels of oil held by commercial firms, providing a short-term boost to the commodity’s pricing.

Local data

The Standard & Poors rating agency revised its outlook for economic growth in 2016 for South Africa from 1.6% to 0.8%.

Manufacturing production increased by 1.9% in February 2016 compared with February 2015. This increase was mainly due to higher production in the following:

net gold and forex reserves increased to $41.18 billion in March 2016, from $40.96 billion in the month preceding.

Commodities

Commodity prices were mixed over the week, with crude pricing the notable outperformer. Oil prices reacted positively to the surprise drop in US inventory levels reported on Wednesday.

Optimism has also increased in anticipation of OPEC leader, Saudi Arabia, being set to meet with major producers on April 17, where discussions are expected to result in the freezing of production to the same levels realised in January this year. 

The rand

The rand gave back a portion of the preceding week’s gains against major currencies after the downward revision on the country’s growth outlook by the S&P ratings agency. Although not entirely unexpected (as it follows on from downward revisions from the South African Reserve Bank, the World Bank and the IMF this year), it does highlight the growing likelihood of a credit ratings downgrade to come later on this year.

Companies

Banking counters bore the brunt of weakness over the last week following the aforementioned revision on the country’s economic growth outlook. A downgrade in South Africa’s sovereign rating appears highly likely at present, and should it occur, the ratings on local banks would be adjusted accordingly too.

It can be argued that the market is currently discounting this scenario, as banks underperformed in what was a generally weak market last week.

In company news:

Mondi announced the launch of a €500 million Eurobond, proceeds of which will be used for general corporate purposes and is due to close on April 14 2016.

The Competition Tribunal accepted an agreement by JSE-listed private hospital group Life Healthcare and Joint Medical Holdings (JMH) to pay a record R10 million fine for failing to notify of the merger.

Adcock Ingram guided that Samara Capital Partners Fund II will dispose of its 100% shareholding in Adcock Healthcare, subject to fulfilment of conditions precedent for a total enterprise value of about R336 million to be settled in cash.

Steinhoff has submitted an undisclosed offer to buy a significant part of the bedding business of France’s Cauval.

Anglo American announced that it has entered into a sale and purchase agreement under which the company will sell its 70% stake in the Foxleigh metallurgical coal mine in Queensland, Australia.

Tsogo Sun announced that its subsidiary, Tsogo Sun Gaming Proprietary Limited, has entered into an agreement to acquire a 20% stake in each of SunWest International Proprietary Limited and Worcester Casino Proprietary Limited, for an aggregate consideration of about R1.35 billion.

Sibanye Gold has entered into discussions with the Association of Mineworkers and Construction Union (Amcu), in which Amcu has agreed to suspend any industrial action at the company’s operations.

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